The Supply Chain Information Technology blog

The recent big news in supply chain information technology is the return of Walmart to industry leadership in retail RFID deployment. An article in the Wall Street Journal reports that Walmart is deploying RFID tags for individual clothing items at its US stores. Read the full story here.

To my knowledge, this is the first use of RFID technology for tagging individual pieces of mass market budget clothing. 

The RFID tags will be included on removable attachments (such as price or size tags) that the consumer can discard once the garment is purchased. This is in contrast to the practices of some high-end clothing retailers who sew RFID tags into the clothing as a means of protecting against counterfeit couture.

Walmart’s goal for this technology deployment is to increase sales by reducing out-of-stock conditions on the retail floor. That is, sales associates can use portable RFID readers to quickly scan an area to identify missing sizes or styles of clothing, and the missing SKUs can then be moved from backroom stock or ordered for replenishment from the warehouse. 

A secondary goal is to prevent “shrinkage” from the backroom stock; employees are less likely to steal from inventory if they know the items can be automatically tracked out the door. 

These goals are nothing new, of course. They have been part of the technology goals for RFID for years. 

Until Walmart’s announcement, the impediment to item-level RFID tagging has been the cost of the RFID tag. This has limited the use of RFID tags to case or pallet quantities – or to high-dollar-value individual items such as designer clothes and shoes. Therefore, from a technology and ROI perspective, the fact that Walmart is deploying item-level RFID tagging to low-cost clothing is big news. 

Speaking of ROI, I think the Wall Street Journal buried the lead in their article. They waited until the end of the article to note that Walmart is subsidizing the cost of the tagging program for their manufacturers, which means that we’ll have to wait for more data to decide if item-level tagging is economically justified when the full cost of each RFID tag is factored into the value proposition.

To give you an idea of the ROI that these types of projects could see, I would like to share with you some facts from a couple of articles that I have written over the past few years. In 2006, for example, the Mitsukoshi department store in Japan published the results of item-level tagging of high-end women’s shoes. The RFID tags allowed associates to accurately and quickly find the customer’s size (previously a problem in the stockroom), which resulted in a 10% increase in sales due to more accurate inventory data. (Read more in this IndustryWeek RFID Strategy Newsletter article.)

Likewise, the Walmart RFID pilot in 2007 reported a 13% reduction in out-of-stock conditions for the SKUs tracked. (Read more here.) So it is likely that the current RFID effort at Walmart will see improvements in the range of 10-15% prior to accounting for the cost of the tags.

Walmart has been a prominent pioneer in RFID technology. The company began to elicit interest in RFID several years ago by kicking off their retail pilot project, and this new development of item-tagging clothing is sure to lead to more interesting times in supply chain RFID.

-- Paul

 

 

Photo Credit: Myuibe  

Recently, I found myself looking over market research in an effort to assess the impact of the global financial crisis and subsequent business downturn on Supply Chain Management (SCM) Applications. 

For the purpose of this blog, I’m talking about the 10 software application groups that you typically find within SCM which include – Inventory Optimization, Performance Management, RFID, Sales & Operations Planning, Network Design, Global Trade Compliance, Supply Chain Planning, Sourcing, Transportation Management Systems (TMS) and Warehouse Management Systems (WMS).

As expected, many of the current realities of the overall business climate are reflected in the actions of supply chain managers. Specifically the top priorities today and in the near term highlight a tactical focus on: 

This ongoing, narrow focus on tactical execution is one of the reasons that the SCM application market – despite the economic uncertainties – is still projecting more than 10% annual growth through 2012. 

The High: Based on the overall outlook from my research I thought, “Wow, this is really great news for TMS providers and for customers who are either in need of a TMS upgrade or building a TMS business case.” If you can find a way to secure the capital and IT support, there doesn’t appear to be a better time than now – especially when you consider the looming transportation-related cost increases associated with carrier capacity and steadily increasing transportation demands placed upon downsized carrier networks.

The Low: However when I looked deeper in the details, specifically the most recent SCM application market penetration survey by Gartner (Q4-2009), I could not believe my eyes. In fact, I actually had to pull out a ruler and make sure my eyes were lining up the numbers properly. 

According the survey respondents – a group that comprised of supply chain practitioners responsible for the planning and management of SCM applications –TMS applications have had the third lowest deployment ranking of the 10 SCM application categories over the last 10 years. 

The only SCM applications with fewer deployments than TMS are RFID and GTM. TMS applications actually ‘tie’ with network optimization applications as the third smallest of the 10 SCM applications studied in the market penetration survey. However, the market penetration view represents deployments performed to date. So you have to ask, “What about the forward view – surely there has to be a larger proportion considering TMS in future plans?”

Again, the survey responses seem inconsistent with the current business and economic realities. Looking forward, respondents ranked RFID, GTM and TMS most frequently as the applications that they have no current plans to deploy. It becomes even more curious when you consider that both RFID and GTM span a much smaller supply chain footprint than TMS. But how can this be? 

Transportation spend is a key source of supply chain cost, yet the majority of practitioners surveyed either don’t use TMS or have current plans to even consider deployment. I suspect that as the recession recovery drags along, we’re going to see a continued focus on productivity-efficiency improvements as well as cost containment initiatives. Hopefully, in addition to that, TMS applications will become a much more relevant topic for consideration in supply chain improvement initiatives.

Do you have any thoughts on this disconnect – why TMS has achieved so little overall market penetration over the last 10 years?

Next time around, we’ll take a look at the other side of the market penetration survey. Until then, do you have any projections on where and why the most substantial market share exists and where the greatest interest lies for future SCM deployments? 

-- Kevin

 

 

 

 

Photo Credit: rutlo

Recently I was reading an article in CIO Magazine that quoted various CIOs on the key steps for selecting a new ERP system. One CIO made a very astute observation on the need to select a vendor that you can partner with closely to ensure delivery as promised. While I couldn’t agree more with the statement, it raises the question about the meaning of “partnership” when it comes to selecting and implementing enterprise and supply chain information technology systems. 

It is easy to focus on the remark “ensure delivery as promised” when attempting to define a relationship with a prospective vendor. And many organizations approach this objective by adding service level agreements (SLA) and performance stipulations into vendor contracts. (If you have the leverage, this is certainly a prudent approach.)

These SLAs are similar to prenuptial agreements. And while prenups may not be very romantic, they’re certainly practical – a binding contract for both parties. 

By holding a vendor accountable, contractual remedies can help ensure successful implementations and ongoing support. But they are only part of the equation in the pursuit of a successful delivery: The ability to work closely together is another key component. I think it is more important than putting stipulations into SLAs.

Whether we’re talking marriage or selecting a software vendor, partnership implies a two-way relationship based on compatibility. 

In his Are all Cats Really Gray in the Dark? blog, Kevin Hume talked about the importance of doing a cultural comparison with the software provider during a software selection. He cited mismatches in capabilities, approach and culture between customer and software provider as typically resulting in poor implementation performance, unfulfilled expectations, and higher than expected costs. So, as those online dating service commercials suggest, a compatibility comparison may not be such a bad idea.

“Partnership” is a term frequently tossed about when people attempt to define vendor-customer relations. But when you are looking to select a new software vendor, what objectives do you have in mind? How do you determine compatibility? 

While willingness to agree to robust SLAs is a good indicator of your prospective partner’s faith in the proposed relationship, it is not a real measure of compatibility anymore than willingness to sign a prenuptial agreement.

Assessing compatibility requires getting down to the details to answer some key questions. Functional fit and capabilities are certainly important, but the success of your implementation also depends on vendor services and personnel. 

• How well do the strengths and weaknesses of your internal resources match up to the vendor’s capabilities?
• Do you really understand the vendor’s delivery approach and support services? 
• Have you clearly defined what is expected from the vendor? 
• Do you clearly understand what the vendor expects from you?

Unfortunately, you can’t rely on the vendor’s sales team to be the ultimate source of these answers. They have a vested interest in making the sale. You have to make the final call on compatibility and what supply chain partnership means to your organization. This requires that you do your due diligence before you say “I do.”

-- Tom

 

Photo credit: apdk

It is a sad fact of life that systems tend to degrade over time. Performance and reliability are inversely related to age. I only have to ponder my physical condition to appreciate this observation. 

This principle also applies to commercially available business systems. It is one reason why companies subscribe to software maintenance agreements. As long as you pay your annual fee, you are eligible to receive and install new releases as well as utilize help desk services.

Many operations running top-tier warehouse management systems and other supply chain execution products grapple with a software maintenance conundrum. They typically pay an annual maintenance fee ranging between 18-22% of original license fees. This gives them access to vendor support services. Also, it generally gives them the right to install new version releases for the covered product. 

However, installing these upgrades can be an expensive proposition, especially if your solution has been highly customized. 

For some folks the cost of an upgrade may represent a substantial portion of their original investment. So an upgrade can be an extremely tough proposition to sell to top management, especially if your system is running just fine as is. 

Even if you properly accounted for it in your original total cost of ownership (TCO) calculations, when it comes time to commit the investment for an upgrade, you inevitably face the question, why fix it if it isn’t broke? 

Unfortunately software vendors can force your hand by imposing an end-of-life deadline on support contracts for a particular version. Cross that deadline and these services are available only on a time and materials basis.

Depending on the package and situation, this prospect may be acceptable to some organizations. They can continue to get reliable support from the vendor, third parties, or internal resources well beyond the date that the vendor ceases offering support under an annual contract for the particular version. 

But many others can’t risk this approach. Their complex solutions run under complex technology stacks with databases, operating systems, application servers, integration middleware, and other third-party software that all must be periodically upgraded to remain on support. They know that the quality of support will only continue to decrease once this deadline is crossed.  

As a software package continues to evolve in functionality and technical architecture, it gets harder to find support resources that can effectively deal with issues for outdated versions. Things can change that much. 

Also, the likelihood of failure can also increase with older releases, especially when the application sits upon a complex stack of hardware and other software that you may not be able to update due to compatibility issues. This can put the business at risk, as it may take an unacceptable amount of time to get a mission critical application up and running again.

Staying within supportable life span isn’t the only reason why distribution operations choose to install an upgrade. New functionality, as well as technology platform and facility changes can factor into the decision making process. 

But many operations wrestle with the decision primarily from a supportability perspective. In this situation, making the decision to pull the trigger on a costly upgrade can produce major organization angst. You can only know for sure that you waited too long when your application goes into cardiac arrest.

 

These observations aren’t news to most supply chain operations that face this upgrade paradox. They know that sooner or later they must bite the bullet and upgrade or replace key applications. 

Given the general state of the economy over the past couple of years, it has been exceptionally tough to launch any upgrade project that involves a major expenditure. But the longer you wait, the more it can cost. And for some folks the cost of upgrading can easily approach the replacement price.

No wonder SaaS solutions can be so intriguing. Let someone else worry about keeping the application and its technology stack up to date. 

Unfortunately, SaaS solutions probably aren’t viable solutions for many top-tier applications where customization is still the norm. After all, customization is a key reason why upgrades can be such a headache. User extensibility and rule-based engines all offer the promise of zero modifications. But this promise is still in the future for many operations and applications. In the meantime, many operations must still grapple with the upgrade conundrum.

--Tom