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Rfid Implementation Issues at Metro

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    Question 1 – Examine the process flow in Metro’s grocery supply and identify how these processes would improve with the implementation of RFID at the pallet level and at the case level. Major process improvements for pallet-level implementations are derived from basic RFID functionality. The major functional difference between barcodes and RFID tags is that RFID tags do not require a direct line of sight for scanning and processing. This translates to major process automation where ever the process requires scanning: “scan barcode on pallet”, “scan storage barcode to verify location”, “forklift driver scans barcode on pallet”, etc.

    Whenever a pallet comes within read range of an RFID reader, the scanning automatically takes places, so an employee doesn’t have to physically locate and scan the tag (See Exhibit 3). Also, since RFID tags are able to store information about the object it is affixed to (location, case counts, etc. ), the picking and truck loading processes will see major improvements. Whenever the pallet is created, the number of cases and pallet location can be stored in the tag and placed on the pallet. Pallet movement can then be detected by readers placed within the warehouse for improved warehouse visibility.

    This allows for employees to locate pallets quicker and reduce time required to move pallets to outgoing docks for shipment. Also, inbound and outbound pallet inspection during the truck loading process will be faster, more accurate, and require fewer resources. RFID readers at the loading docks will be able to automatically check the identity of a pallet when it is moved onto or off the truck, eliminating the need for manual scanning. Therefore, less supervision would be required throughout the loading process (See Exhibit 3). Implementation of RFID tags at the case levelreduces the need for forklift readers to count cases on the pallet during receiving at both the Metro DC as well as the Extra Store, as the case tags provide immediate signal notification of case count. As pallets are stored in the Metro DC for potential case mixing, current process flow is facilitated by improved efficiency of mixed-pallet picking. Utilized in conjunction with warehouse storage models, RFID tags could identify optimal picking paths for the employees or the best route to take through the warehouse when picking for a mixed pallet.

    Eliminated during shrink-wrapping is the need to label the mixed pallets as case tags will verify and notify trucks headed from Metro DC to Metro stores of pallet content. Case level RFID tags also eliminate the 1% mixed pallet case recounting process currently utilized, a result of too many or too few cases being picked for mixed pallets or wrong cases altogether being picked. The tags on the cases will notify employees of improper inclusion or exclusion without the need for manual recounts (See Exhibit 4). Process improvementis facilitated through product availability at the store level.

    For the first time, employees will have improved visibility of what is in the backroom, instead of relying upon memory of backroom items. Not only will this help limit stock outs but will also improve inventory-ordering accuracy. Storage mapping utilized in conjunction with case level RFID tags can limit employee time searching for replenishment cases. When the point-of-sale data indicates that a shelf is empty, employees will be notified that replenishment is required, will have clear visibility of numbers of that particular item available in the backroom, as well as exact backroom item location.

    Question 2 – Is RFID a good investment for Metro? In your analysis, use the benefits listed in Exhibit 8 of the case and any other benefits mentioned in the case. Quantify the total savings that Metro would realize from full-scale implementation of RFID (for both pallet-0 When the benefits listed in Exhibit 8 are quantified and other unquantifiable benefits are weighted against the cost of implementing RFID. RFID proves to be a significant opportunity to improve its operations, reduce inventory, save labor and cost in its distribution centers and retail stores, thereby improving its sales and adding value to its capital expenditure.

    By mid-2005, Metro was already working with 33 suppliers, 13 stores and 9 DC’s on utilizing pallet-level RFID in its supply chain. Even though Metro had not reached its goal of RFID implementation in 250 retail stores, it had already realized several key benefits such as: Trucks arriving at the DC’s and stores completed their shipping operations in 15-20 minutes lesser than before. Incomplete shipments were verified immediately, improving inventory data accuracy at the DCs ad at the stores.

    Also KSA’s study at the Extra Future store, suggest that there were three primary sources of benefits of implementing case level-RFID for improving processes and product flows: 17% Labor reduction 11-18% Theft reduction 9-14% reduction in stock-out due to products being in the backrooms but not on the selling floor. We have factored the above along with quantifying the financial benefits that METRO will realize if it considered full-scale implementation of RFID at the pallet-level and case-level at each of its DC and at all of its 250 Extra stores, annually.

    The precise calculations are performed in Exhibit 2, but the key figures and summary are noted as follows: Quantified benefits for pallet-level RFID tags were: Metro DC: € 51,057 /year /DC * 10 DC’s = Total savings of € 510,570 /year Due to increase in Labor productivity (Exhibit 2) Metro Retail Stores: € 0 Quantified benefits of case-level tagging implementation are: Metro DC: €612,790 Due to increase in labor productivity & reduced labor operations Metro Stores: €1,985,000 Due to better shipment accuracy_ & better product availability_ Due to reduction in theft

    Hence total savings for Metro implementing Case-level tagging would be €15,097,790 annually There were many unquantifiable benefits for Metro’s store and DC operations if they implemented case-level tagging such as: The store would be better equipped to react to frequent events in the store such as promotions & new product introductions which triggered demands of other products. This would be possible only if RFID was implemented to keep check on the out-of-shelf stock at point-of-sales & maintaining the inventory data at the back-room.

    This would alert the back-room staff in a timely manner Question 3 – Which of the three options do you recommend that Mierdorf and Wolfram propose to the RFID steering committee on December 13? Of the three options, we recommend Mierdof & Wolfram implement the option of *moving to case-level RFID with the manufacturers currently engaged in the pallet-level rollout*. While the case-level implementation would require major process changes for Metroand its suppliers, the estimated financial benefits of successful implementation are too large to pass up. A large portion of these financial savings would also be realized by Metrosuppliers s well. The major process changes would include: Adjusting Metro’s IT system to distinguish between backroom and selling floor inventory Trigger backroom replenishment by pairing point-of-sale data with inventory tracking Supplier would have to change tag affixing process at warehouse Ensure RFID process compliance through increased training and education While some of the benefits are being captured by pallet-level RFID implementation, case-level implementation has huge potential financial benefits to warrant the process changes above.

    Migrating to Gen-2 level tags at the case level offers the following benefits over pallet level tagging to Metro and its suppliers: Shrink reduction. The study by IBM showed that pallet-level tagging would not reduce shrink and case-level tagging would reduce it by 25% (or rather a savings of € 12. 5 million for the Metro Group annually– see Exhibit 2).

    Labor reduction & improvement in mixed-pallet picking process at DCs Eliminating case counting while receiving goods at the DCs Reduction of inventory counts at DCs Improved on-shelf availability of products and reduced out-of-stocks at stores Reduction of picking errors at stores and DCs Metro’s main suppliers would have several concerns regarding implementation at the case level such as: Need to purchase higher quality Gen-2 tags in large quantities.

    However the cost of a single tag was several €cents cheaper than the Gen-1 pallet level tags Need to re-design their process of slapping-and-shipping Need to employ more labor to attach the tags at the case-level to the products Financial benefits for the suppliers seemed smaller as compared to Metro’s benefits There would be many unquantifiable benefits as well for the manufacturers, such as improving reverse-logistics and production due to more accurate forecasts. This would improve pricing of its products and reduce excess production and inventory-holding costs.

    Hence the suppliers would benefit immensely as well by investing its time, money, and labor towards fulfilling the high-quality requirements demanded by Metro. These arguments merely reflect the fact that the financial benefits which METRO will realize by implementing RFID will offset the costs incurred by training personnel staff, upgrading the middleware and hardware systems, and re-designing their processes. Not implementing RFID and following other company models will prove effective up to a certain level as there are inherent inefficiencies, but RFID implementation offers drastic improvements over the entire system.

    Exhibit 1 – Pallet Level Benefits Calculations To find the number of pallets produced by the manufacturer at each warehouse, the following assumptions were used. There is an average 15 trucks leaving the manufacturer’s warehouse each day. These trucks carried approximately 35 pallets each. Also it was assumed that these trucks operated on 250 working days per year. By commuting all this information, the number of pallets manufactured per year which is 131,250 pallets. Assumptions were also made for the calculation of savings for Metro’s Distribution Centers.

    Here it was assumed that the DC handled 1300 pallets per day. Also, the number of days was taken as 250 working days. These assumptions commuted with 15. 7 euro cents saved per year gives the Metro DC savings. Manf. Quantity=15 trucksday35 palletstruck250 working days=131,250palletsyear (per plant) Manf Savings=131,250*0. 5=€ 65,625 DC Savings=1300 pallets250days0. 157=€ 51,025 per DC Store Savings=€0 Table-1, Benefit per warehouse using RFID Exhibit 2 – Case Level Benefits Calculations Calculations for case-level benefits included several assumptions.

    For number cases placed on each pallet, it was assumed the average was 70 and this occurred at 99% rate. The extreme of where 900 cases being placed on pallet was also taken into account, but it was assumed that this occurrence was observed only 1% of the time. These assumptions were applied to the savings calculations for the distribution centers, stores, and manufacturers. For Metro Distribution Center savings calculations, it was assumed that savings were derived from picking savings. Thus it was assumed that the number of pallets handled were 1300 pallets per day.

    For Metro Stores the major assumption made was that the stores operated approximately all year long. Hence 52 weeks was used in the savings calculations. Another assumption made was that stores received 30 pallets per week regardless of whether it can from For the manufacturer it was assumed that the number of pallets coming to the store was the number leaving the manufacturer each week. It was concluded that the manufacturer could be treated as supply Metro stores exclusively. Thus, the number of pallets per week was assumed to be 30.

    Shrink per year=0. 02*€ 2. 5 billion(sales in 2004)=€ 50 million Shrink Savings=0. 25*€ 50 million= € 12. 5 million Metro DC Savings=1300 palletsday*250 days0. 004700. 99+9000. 01=€ 612,790 Metro Store Savings=30palletsweek52 weeks70casespallet0. 99+9000. 010. 065case250stores=€ 1,985,000 Manf. Savings=0. 07*30week52 weeks250 stores70casespallet0. 99+9000. 01=€ 2,137,590 Table-2, Case Level Benefit *Exhibit 3 – *Pallet* Level *Process Flow {draw:frame} *Exhibit 4 -* Case* Level *Process Flow {draw:frame}

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