Magazine Article | June 22, 2006

Driving RFID Adoption

Source: Field Technologies Magazine

Mandates surrounding RFID (radio frequency identification) technology usually come with negative connotations. But, this isn’t always the outcome.

Integrated Solutions, July 2006

Retailer and DoD mandates have certainly changed how companies view RFID technology. If you’re on the receiving end of a mandate, rest assured you’re going to be deploying the technology to some degree. But mandates do more than force RFID into a given business process or application. Mandates necessitate that companies develop expertise and make at least basic resource commitments to the technology. With in-house knowledge, there’s a better chance that RFID will be deployed more broadly – beyond the scope of a mandate. Consequently, RFID adoption will steadily grow.

At a recent conference on RFID, a representative from The Hershey Company outlined the company’s relationship with RFID technology. What started as a mandate is now blossoming into what might become a strategic commitment to the technology. What justifies this expanded commitment to RFID? Well, that’s tough to say at this point.

Currently, Hershey is supplying RFID-tagged products to three different retailers as part of mandate or compliance initiatives. The chocolate manufacturer started shipping tagged products to Albertsons in April 2005 and did the same for Target in June 2005. In terms of Wal-Mart compliance, that started in January 2006. To be clear, the company is only tagging and shipping a handful of the 1,700 total SKUs (stock keeping units) it manages. That tagging is automated, however, which makes Hershey far more aggressive than the companies that have opted for manual slap-and-ship processes. The company also has a plan to eventually tag all of its products with RFID labels and will implement this plan as the mandates continue to expand.

After more than a year of tagging products for three retailers, the company has arrived at two seemingly incongruous conclusions. First, the current deployment of RFID technology yields no business benefits to Hershey. Second, the company is bullish on the future role of RFID within its enterprise. How can a company reconcile these two thoughts? It comes down to the mandates.

The retail mandates will remain in place and continue to expand. By 2008, Hershey is expecting that its shipments to DoD exchanges will also be tagged with RFID labels. These circumstances mean Hershey’s commitment to RFID (and its costs) will continue to grow. Hershey and similar CPG (consumer packaged goods) suppliers face a choice: continue to absorb the RFID costs indefinitely or find a better way to deploy the technology. The latter seems to be the obvious option.

For its part, Hershey is revisiting ROI opportunities that were either overlooked or not considered in the past 12 months. For example, the company is just starting to evaluate the RFID data gathered from retailers. This could lead to changes in business processes that reduce out-of-stocks, for instance. Promotions management is another application that could be improved by RFID and is drawing attention. Hershey is also reviewing its internal plans and projects that were under way when the mandates were handed down in 2005. At that time, RFID was not even considered as a potential solution in those cases. That disposition has now changed.

Hershey, like many CPG suppliers, was faced with multiple RFID mandates. However, its approach to the technology is refreshing. The company has its eyes open when it comes to the lack of business value related strictly to RFID compliance tagging. This hasn’t stopped the company from evaluating all areas where the technology may make sense. Would this type of exploration have happened without a mandate? It’s doubtful.