In my role as distribution director, Europe, for McCormick I have, over the past 18 months, been following with interest the development of Radio Frequency Identification (RFID) with three specific things on my mind.
The first is how to build a compelling business case for its adoption that I can confidently take to our European board. The second is about knowledge-building in terms of how it works, and the third is linked to EU Directive 178/2002 and whether I can use RFID as an enabler to meet the food traceability guidelines that will come into force next January. I guess, too, a fourth factor polarises these issues - our customers, who are at various stages of testing, evaluation and adoption.
I can almost hear you say: “Oh, no. Not another positive spin story about RFID.” My intention is to portray how it feels looking out from a medium-sized organisation rather than a major manufacturer like Unilever Bestfoods or P& G.
Founded in 1889 and headquartered in Baltimore, McCormick is the global leader in the manufacture, marketing and distribution of spices, seasonings and flavours to the entire food industry. Customers range from leading retailers and foodservice providers to food processing businesses and we have a network of factories and warehouses. So we face a major challenge in trying to embrace RFID technology.
The product supply channel in the UK is quite unusual in that we directly employ about 320 merchandisers who supply some 6,000 stores with the full range of Schwartz products, picked and delivered from stocks held in their own domestic garages that are replenished from a central warehouse on a weekly basis.
Volumes shipped through this channel exceeded 18.5 million cases during 2003.
In store, the merchandisers are responsible for both fixture management and placing individual store orders that bypass the traditional EPoS-driven replenishment processes.
The introduction of RFID in this environment is not straightforward and is compounded by the fact the order-to-cash cycle is supported by multiple systems - we effectively operate 320 mini-warehouses around the UK and our products are relatively low value. Consequently, any increase in distribution costs really hurts.
Our rough estimates suggest the following
about these costs: tags (assuming an aspirational 10 cents a tag) at $1.8m per annum; tag readers (at 320 warehouses plus NDC) $1m; while the cost of links to legacy systems, information management and project/change management are unknown. This picture is further impaired when one considers the extended time horizons in respect of payback.
In terms of generating a business case, this estimate is clearly less than attractive. What’s more, when one takes a list of supply chain improvement goals and looks at RFID as the key enabler, then neither is this overly convincing for McCormick. For example, our products are not prone to shrinkage while our unusual merchandising strategy means availability is already high.
So perhaps it is not surprising that I still need some convincing that my organisation is going to reap tangible benefit over a sensible timescale. Indeed, it sometimes feels as though I am caught between two camps - one a group of passionate believers and the other a band of outright sceptics. But perhaps I am happy to be an agnostic because it gives me a sense of freedom to look at this challenge without prejudice.
The most important issue going forward will be to determine the critical factors for successful adoption. For me there is really only one sensible approach to take and it involves closer supply chain collaboration and customer intimacy.
At least by taking this kind of journey there is the distinct possibility that all parties concerned can benefit from the rewards of shared enlightenment.