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i s r e t a i l ’ sWhy inventory accuracy
I don’t know what’s in
stoooock!!
(and how item-level RFID can help)
SML Is Organized To Support Customers With All RFID Solution Needs
RFID Tag Solutions RFID Inventory Software Solutions
RFID Tags Encoding Solutions Supply Chain In-Store Value Added
Services
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A little background…
Clarity™ Software
Applications
Retail ITL Process Leader
Enterprise Class
Deployment Leader
RFID Tech
Experts
Total Solution Delivery
& Support
1 Billion RFID Transactions During 2013 Holiday Season >4 years running
in production
>20 Countries
100’s of Sites
>1000 of RFID Readers
100’s of Omni-channel orders daily
Partial or Complete Solutions Solutions:
Software, Hardware, Services, Support & Tags
Installer & Upgrade Technology
SLA Based Remote Solution Support
RFID Solutions For Brand Suppliers & Retailers
Business Cases – Hardware- Readers –Software – Deployment Services
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Agenda
Retail: the burning platform
Clarity™: helping put the fire out
Real world business cases
Easy adoption/how you can get started
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What To Do About The Burning Platform?
R F I D T e c h n o l o g y
I must innovate!
1 9 8 0 ’ s D a t a c o l l e c t i o n T e c h n o l o g y
M a n u a l / L a b o r I n t e n s iv e p r o c es s e s
Bi-Annual Freque ncy o f Cycle Counts
G a p s i n D a t a c o l l e c t i o n P r o c e s s e sPOS PLMWMS
Staff eCOM
Inventory Inaccuracy
Serialized IDsNon-Line of Sight Read Capability
>1000 tags/second data collection Enhanced Process Software Applications
Inventory Accountability & Control
$ $$ $ $
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Practical Omnichannel Execution
The problem
The solution
Inventory Accuracy is poor for most retailers and brand owners … causing them to “jump” off status quo technology
0102030405060708090
100
Spot on +/- 1 +/- 2 +/- 3 +/- 4 +/- 5 ormore
Cumulative % of items with variance
Source: “A Comprehensive Guide to Retail Out-of-Stock Reduction” (Gruen & Corsten)
• Retailers have a count within +/- 1 on only 65% of items
• These poor counts are driven by manual counting, POS, and restocking algorithms
• Because accuracy is so low, retailers must estimate stock conservatively
% of total
Item variance to actual
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a t r u e
$ $i n l o s t r e v e n u e f o r e v e r y
Lack of inventory accuracy drives significant out-of-stocks and lost sales
High demand itemshad almost6 times
the lost sales due toout-of-stocksthan low-demand items
This contributed to an average loss of
4% per year
i n s a l e s f r o mout-of-stocks…
For manufacturers, this translates to
$23 million dollars
$ 1 b i l l i o n i n s a l e s
M e aning t hat f o r e ve r y
1 3 i t e m sa customer wants to buy,
1 is out of stockM a k in g in ve nto r y accu rac y
Oh, the humanity!
Source: Gruen & Corsten Xterprise LLC. – Copyright ©2014 - All Rights Reserved
Retailers using non-item-level RFID inventory methods are behind the curve even before accounting for customers
A retailer without item levelvisibility can be over 10% in thehole on inventory accuracy evenbefore accounting for externalshrink, out of stocks, returns,damages and misplaced items—i.e., before customers are evenfactored in, inventory issignificantly off—and accuracydeclines another 2-3% everymonth under normal operations.
-5%
-4%
-1%
-11%100%
89%
Manual audits
Receiving/shipping
POSerror
This is your inventory the day after a comprehensive manual audit.
This error rate represents accuracy immediately after inventory is taken, and degrades by 2-3%
every month.
-1%
Internal shrink
Source: Xterprise research, Gruen & Corsten, “RFID-Enabled Visibility and Retail Inventory Record Inaccuracy: Experiments in the Field” (Hardgrave et al.)
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Behavior to compensate for poor inventory visibility…causes numerous compounding
consequences“Traditional” inventory management
High and low velocity items are stocked on the sales floor; high-velocity items can sell > 3x as fast
Due to distortion, high & low velocity items must be kept in stock
Front store Back stock or DC
High velocity items can sell 3 or more times faster than low; as they do, low velocity items are flexed to fill holes in rack space
Safety stock for slow items remains idle while fast-item stock is moved to the floor
Front store Back stock or DC
It can take days for an out-of-stock to be addressed; flexed inventory can exacerbate the problem
Eventually, stock of the high-velocity item is depleted.
Front store Back stock or DC
High-velocity itemRack B
Rack A Rack B
Rack A Rack B
Low-velocity item• Algorithmically driven
replenishment with known margin of error
• Must compensate via safety stock ‘buffer’ on both high and low-velocity SKUs, resulting in muda (waste)
• High-velocity product is consumedmuch faster than low-velocity
• Slow-velocity items are flexed to fill‘gaps’ in sales floor
• High-velocity backstock volume isconstrained by space needed forsafety stock of low-velocity items
• As high velocity stock is consumed, a higher relative proportion of low velocity items remain
• These items are flexed to fill gaps, giving the impression of full shelves
• Ironically, the sales floor can become disproportionately stocked with slower selling items
Source: Xterprise proprietary analysis, Gruen & Corsten
1
2
3
Rack A
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The net effect of inventory inaccuracy is to make physical retailers less competitive and relevant
E-tailer Retailer
Merchandising
Shipping trends
“Effective” Inventory accuracy 96%+ 70%
Usually warehouse; easier to maintain inventory accuracy vs. store
Typical accuracy 65-75% due to shrink, movement, human error, misinterpreted signals
Massive selection including ‘best sellers’ and ‘long tail’ items
Selection based on 20% ‘best sellers’ and average taste (1 σ or less from mean)
Increased shipping options are getting closer and closer to same-day delivery
Despite proximity to customers, inventory visibility acts as constraint to shipping speed
Implications• Inventory accuracy serves as the
bottleneck to implementing omnichanneltactics
• Retailers are limited in how much they can offer with multichannel due to lack of visibility, confidence
• Ultimately, poor accuracy limits flexibility and responsiveness
• E-tailers use their digital storefront to offera massive long-tail selection
• Physical retailers are constrained tocarrying a focused array of items cateringto mass appeal
• Stores have limited flexibility to tailorselection to local market
• The lack of confidence in inventory levelsacross channels prevents retailers fromfully capitalizing on one of their greatestadvantages: physical proximity
• E.g., most retailers do not offer same-dayor even overnight delivery from stores
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Retail: the burning platform
Clarity™: helping put the fire out
Real world business cases
Easy adoption/how you can get started
Agenda
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The Clarity™ Software Suite from Xterprise has numerous features that improve accuracy, eliminate out-of-stocks and enable practical
Omnichannel models… making existing systems better
Transfers/ShippingTransfers/Shipping
Receiving/Auditing Receiving/Auditing
Cycle CountingCycle Counting
ReplenishmentReplenishment
Transfers/ShippingTransfers/Shipping
POSPOS
OmnichannelOmnichannel
Receiving/Auditing Receiving/Auditing
Cycle CountingCycle Counting
Transfers/ShippingTransfers/Shipping
Receiving/Auditing Receiving/Auditing
Cycle CountingCycle Counting
Search/FindSearch/Find Search/FindSearch/Find
Search/FindSearch/Find
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Reporting, tag management, systems integrationReporting, tag management, systems integration
Item-level RFID from Xterprise extinguishes the ‘burning platform’ issues of inventory inaccuracy
70%Reduction in Out-of-Stocksusing Clarity™I t em -le ve l RFI D so lut io ns
+40%
70% 98%
I t e m l e v e l R F I D c a n
d r a s t i c a l l y i m p r o v einventory accuracyt o a s h i g h a s 9 8 %
Which enables
And up to a 50%increase
in SKU density……allowing retailers to have
Better selection Omni-confidence
In stock!
Reduced shrink…ultimately resulting in
h a p p i e r c u s t o m e r s
omnichannel excellencehigher sales/lower costs
I retail
+ =
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Agenda
Retail: the burning platform
Clarity™: helping put the fire out
Real world business cases
Easy adoption/how you can get started
Xterprise LLC. – Copyright ©2014 - All Rights Reserved
Inventory accuracy ~ 80% > 98%
Inventory cycle count 2x per year Up to 200x per year
Receive audits 1-5% random sample
100%
Internal shrink 0.5 – 1% 70% reduction
Out-of-stocks (sales floor)
10 – 25% < 5%2 – 7% sales lift
3rd-party audit costs $3K – $30K per store, per year
$0
Sales floor density 2 SKUs/ft2 3 SKUs/ft2(50% increase!)
Retail business case
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Item-level inventory management with Clarity™ leads to improved competitiveness & omnichannel fulfillment
Front store Back stock or DC Front store Back stock or DC
Before Clarity™ item-level RFID After Clarity™ item-level RFID
With low visibility, retailers must keep higher ‘safety stock’ on hand—as much as 50% above minimums
Higher accuracy reduces the quantity of each item that must be carried, reducing excess inventory and freeing up floor space
Item-level allows a reduction in safety stock numbers both in front and back of store
Item-level drives accuracy and fast replenishment, permitting more SKUs
With low accuracy it makes sense to focus almost exclusively on a small number of fast-moving items
With high accuracy, retailers can take advantage of liberated floor space to offer a longer tail of items, making selection comparable to online
Item-level enables ship-from-store and in-store pickup with higher confidence
x1-2 daysRetailers without item-level accuracy must manually check stock before committing to fulfilling an online order
With item-level visibility, retailers know with a high degree of confidence what they have in stock, enabling faster, more flexible shipping options
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• Roll out Specs – 250 stores, 20countries, 40M units a year
– 99.x% tagged
– First stores since q1/2009
– Handhelds + Fixed readers in Back Stock and POS
• Why did the customer purchase and deploy RFID?– Out of stocks….. eliminated out of stocks on sales floor by
70%, increased sales 1%<x<10%
– But found shrink reduction “paid for the system” … reduced shrink by >50%
– Also found that eliminated need for balance sheet 3rd party inventory audits and increased inventory accuracy helped in banking relationships
– 40% increase in skus/sqft. Used to have 5k skus in store.. now >7k skus
– 80% reduction in back stock. Used to have 1x of sales floor in back stock … now have < .2x of sales floor in back stock
– Omnichannel orders accuractely filled daily in stores
American Apparel has used Clarity™ for 5 years to reduce out-of-stocks by over 70% and drive 1 – 10% sales lift
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“..RFID (deployments)..have allowed us to reduce our unit inventory levels..”“..RFID (solution) .. Increase sales, reduce costs and increase liquidity..”
American Apparel felt strongly enough about RFID’s contribution that they featured it in their 10-K
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Inventory accuracy
Inventory cycle count
Receive audits
Shipping audits
Documented shipping errors
Estimated excess inventory
~ 80% > 98%
1x per year
12-24x per year
Random sample 0.1%-1.0%
100%; every container, every item
Random sample 0.1-1.0%
100%; every container, every item
> 1% 0
10 – 20% 3 – 5%
Supply chain business case
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• 100% Carton Level Auditing for JCP and Sears Shipments
– Solution went live 4/2011
– 1 distribution center
– Over 100,000 cases processed
– 250 ft/min, 40 cartons/minute
• Business Case (payback in <9 months)
– 100% elimination of mis-packed cartons
• Determined Packing Errors >1.2% of cartons, for business process improvement
A large brand owner has used Clarity™ to eliminate carton packing errors at their DC
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Clarity Business Case Model
• We have developed a business case model that is based on real/proven best practices + full solution costs vs. an estimated partial picture
• Includes accurate software solution and tagging solution costs based on specific customers business model
• Supply Chain & In-Store benefits
Company Info (North America
Only)Number of DC's? 3Locations of DC? LA, Dallas, NJ
How many company stores do you operate? noneTotal Number of Skus 500
Where are existing price tickets applied to item? Factory in AsiaCost of average price ticket? $ 0.001
% of business through big box stores (Dick's, etc.) 30%% of business through pro shops (Dr. Pepper center, etc.) 40%% of business through small retailer (Players Bench, etc.) 30%
What percentage of your business is on-line 40%
Scenario 1: Big Box
Product InfoNumber of stores that carry product 300
Average sales price $ 2.00 Average cost of goods sold $ 1.00
Average number of items/store 1000Average number of Skus/store 300
Average number of items sold/year/store 500Is there a back stock yes
% of inventory in back stock 30%
Business Performance
(today)Rough Estimates % out of stocks 20%
Rough Estimate % shrink 2%Are you charged for errors in shipments? (wrong sku and /or qty) yes
What is your shipment error rate? 0.5%Penalty for missed shipments? $1/case
How are returns processed? manual at DCHow are replenishment orders generated? By who? retailers system
How often are replen orders generated? dailyHow often are cycle counts performed? 2x year
How are cycle counts performed? manual by store associates
Input Fields
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Agenda
Retail: the burning platform
Clarity™: helping put the fire out
Real world business cases
Easy adoption/how you can get started
Xterprise LLC. – Copyright ©2014 - All Rights Reserved
Example In-Store Clarity System Topologies… match to customer business case and error prone processes
POS
SCM
ClarityCentral Server
InventoryTerminal
POS
POS
Front & Transition Portal
SCM
ClarityCentral Server
InventoryTerminal
POS
SCM
ClarityCentral Server
InventoryTerminal
POS
“Full” “Medium” “Light”
Front & Transition Portal
Clarity™ Inventory SCM Solution Physical Configurations
RFID Fixed Reader Portable Read Station (Case & GOH)
RFID Fixed Reader Manual Station
(Pallet, Case & GOH)
RFID Fixed Reader Conveyor Read Station
(Case)
RFID Mobile Reader Mobile Read Station(Case & GOH)
Piloting and proof of concepts can be surprisingly easy, depending on initial targeted processes
Bene
fit:
Valu
e ca
ptur
e*
Cost: Technology + Use Case Footprint
*Value capture for solution configuration shown, on a per-store basis
“Typical” solution configurations (specialty retailer example) & the value they capture
“Light”: 65-75% valuecapture
• Two handheld readers• Central/Cloud Application Server• Web based reporting portal with
out of stock, replenishment andmultisite inventory reporting
“Medium”: 80-90%value capture
• Two handheld readers• 1-2 receive/transition portal/ exit
readers• Central/Cloud Application Server• Web based reporting portal with
out of stock, replenishment andmultisite inventory reporting
“Full”: 100% valuecapture
• Two handheld readers• 1-2 receive/transition portal/
workstation readers• 1 reader for POS with Clarity POS
companion integration• Central/Cloud Application Server• Web based reporting portal with
out of stock, replenishment andmultisite inventory reporting
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Xterprise helps in all phases of the item-level RFID adoption and implementation curve
ROI model tailored to the customer’s business and highlighting value of various aspects of item-level RFID
Simple, easy-to-implement, packaged approach to POCs/pilots that are very cost-effective while demonstrating real value
Analyze data, derive lessons learned and develop proposal for full rollout
Solution, Tags, Training, implementation and integration to make existing teams and systems better
Full spectrum of support at whatever level is desired by the customer
Investigation/ Prelim Bus
Case POC/ Pilot
Business Case
Validation
Phased Rollout Support
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To get started, begin with the business case… Technology is not the question anymore
Key questions for understanding the business case of item-level RFID
Brand Owner:• Will items come into your DC tagged?• If not where is the best place in the supply chain to tag them? Now? Down the road?• What is the process to receive goods into your warehouse? Picking and Shipping?• What is the accuracy of those processes (measured by assortment, not just count) today?• How many items do you receive and ship each day?• What inventory levels are you carrying today?• What existing systems would find value to be integrated with ITL RFID system? POS, WMS, ERP,
etc.• Average cost of each item?
Retailer: • How many items per store will be tagged? Across how many stores? • Does this represent all items, or just select categories?• Where will items be tagged (factory, DC, in-store)?• What existing systems would find value to be integrated with ITL RFID system? POS, WMS, ERP,
etc.• Will the solution be hosted on an in-store server, or in the cloud?• What is the average gross margin—both % and $--of products being tagged?
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Thank You
Q&A
@xterpriseRFID [email protected] www.xterprise.com
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