1. Case Analysis
Group L
RFID at
Anamay Jii, Bhupesh Doda, Hardik Shah, Nidhi Garg, Prachi Agarwal, Rahul Dua, Sangey R, Suhas M, Tarun K

2. Contents
• About METRO Group and RFID technology
• Observations
• Objective
• Problem Identification
• Options
• Evaluation
• Implementation and Recommendation
References
Introduction Metro Group RFID Observations Problem Identification Options Evaluation ImplementationObjective

3. Metro Group
• Heritage group started way back in 1964 by Otto Beishiem
• Started with one cash and carry store in 1964, the group expanded its business rapidly in 1970s
and went public in 1994
• Company increasingly promoted its international expansion to become world’s third largest retailer
by 2005
• Operated at more than 2300 locations in 30 countries with employee strength of 250,000
• The company always believed on high volume concept of retail and believed IT technology
is the controller of the same
• The company had span into a number of IT technologies like ERP, Data warehousing,
merchandize management systems etc.
• Created the centre for technology in retail – MGI (Metro Group Information technology) for
Promoting development in IT
• Company wants to incorporate RFID Technology in its retail supply chain
Introduction Metro Group RFID Observations Problem Identification Options Evaluation ImplementationObjective

4. Metro Group Retail Format
Real
Metro
Cash &
Carry
Media
Market
and
Saturn
Extra
Praktiker
Galeria
Kaufhof
Wholesale
Hypermarkets
Supermarkets
Consumer Electronics
Building materials
Department stores
Introduction Metro Group RFID Observations Problem Identification Options Evaluation ImplementationObjective

5. Metro Group – Case Background
• In 2004, METRO Group announced RFID technology rollout at 250 stores and 10 warehouses, in
collaboration with 100 suppliers
• Wolfram, Managing Director of Metro’s internal IT service group and Mierdorf, Chief information
officer were convinced that RFID would revolutionize retail supply chains
• Similar announcements by Walmart and Tesco signals the potential of RFID technology
• The initial rollout experience was positive and has led to significant improvement in operations
• They are considering expanding pallet level RFID tagging to more suppliers and introduce case-
level tagging with suppliers that had already introduced pallet level tagging
• But many argued that rather than focusing on RFID, as a cure-all solution, there were other
improvements that could be made to Metro’s supply chain
Introduction Metro Group RFID Observations Problem Identification Options Evaluation ImplementationObjective

6. RFID Technology - Benefits
• Radio-Frequency Identification
Small electronic devices consisting of a
small chip and an antenna that provides
unique identity of the object when scanned
• Direct Benefits
• Employee Identification
• Product Identification
• Ease of Billing and Reduced Shrink
• Improving On-shelf Availability
• Indirect Benefits
• Improved productivity
• Improving planogram
• Cost reduction in planogram
Introduction Metro Group RFID Observations Problem Identification Options Evaluation ImplementationObjective

7. Conformance Quality
Manage inventory
To appropriate levels
Prevention of
Stock out
Low Data entry errors
For items sold
Stage One Stage Two Stage Three Stage Four
Minimum
Requirements
Customer
Focus
Customer
Attitudes
Competitive Focus on
Targeted Markets
Customer
Satisfaction
• Ease of finding goods
• Ease of billing and
payment
Customer
Loyalty
• Retain customers by
providing better
services in terms of
availability
Customer
Value
• Meeting critical needs
of targeted customers
• Advantage over
competitors
• Creating new, unique
benefits like easy
identification
How RFID would add value to Metro’s Retail Supply Chain?
Introduction Metro Group RFID Observations Problem Identification Options Evaluation ImplementationObjective

8. RFID Technology – Challenges
• Problems related to implementation and standardization
• Dependency on suppliers for implementation – Backward integration
• Expensive tags
• Cost of installation of readers
• Reading Algorithms not very efficient
• New Technology not available to all suppliers
• Threat of security from competitors
• Difference in the quality of RFID tag affect the information reading by sensor
• RFID tags uses radio frequencies which have their benefits and limitations
Introduction Metro Group RFID Observations Problem Identification Options Evaluation ImplementationObjective

9. Radio Frequency Benefits and Limitations
Low frequency(125 to 134
kHz)
• Benefits: Frequency
accepted world wide;
works well near metal
• Limitations: limited read
range potential-less than
1.5 meters
High frequency (13.56
MHz)
• Benefits: Frequency
accepted worldwide;
works well in moist
environments
• Limitations: Does not work
well near metal; limited
range potential-less tan
1.5 meters
Ultra-high frequency(860 to
960 MHZ)
• Benefits: Longer read
range potential-more than
1.5 meters ; commercial
use is growing rapidly
• Limitations: Frequency not
licensed for commercial
use in Japan; detuning
when tags are near each
other; does not work in
moist environments
Introduction Metro Group RFID Observations Problem Identification Options Evaluation ImplementationObjective

10. Observations I
Benefits from RFID Business Initiatives
Factory Finished Goods Warehouse Distribution Center
In-store
Handling and
store shelf
Plant Inventory
accuracy
Low Labor cost; Decrease in
wrong order delivery
Improved efficiency in receiving
and paying for receivables
Inventory
Reduction
Improved goods transfer and
payment process
Improved on
shelf availability
and reduction
Reduction in reverse logistics/returns and claims Low theft
Less error prone and continuous monitoring of goods across the supply chain possible
Introduction Metro Group RFID Observations Problem Identification Options Evaluation ImplementationObjective

11. Observations II
• Many problems in In-Store logistics and Grocery Stores Problems
• RFID can be a solution to the following commonly faced problems:
• Products in backrooms but not in selling area
• Products in wrong place in selling area
• Promotion non-compliance
• Checkout Scanning problems
• Obsolete products not removed or returned from shelf
• Merchandize receiving problems
• The consequence of above are: Stock outs, low customer goodwill, low benefits from promotions,
inefficient usage of shelf space, Inventory accumulation due to poor inventory management
Introduction Metro Group RFID Observations Problem Identification Options Evaluation ImplementationObjective

12. Observations III
• Following observations can be made from Process flow without RFID
• Pallet Scan and storage together with assignment of bar code takes place at Manufacturer’s end
first during production and then before transportation
• Scan of Pallet’s barcode again takes place at Metro DC when the goods arrive together with
Manual counting of cases  Error prone process
• Again transportation from DC to store’s inventory and from store’s inventory or back room to shelf
and each stage is involved with recounting and bar code scanning
• So there is inefficiency and transport waste over the entire supply chain with error prone
points like: Barcode scanning, counting etc. which can be overcome in RFID
Introduction Metro Group RFID Observations Problem Identification Options Evaluation ImplementationObjective

13. Observations IV
Following observations can be made from Metro’s Financial Statements:
• The company is operating on a high volume low margin business of retailing as clear from
the Net profit as compared to sales volume ~1.4%
• The company has Fixed assets turnover ratio of about 3.56 in 2003 and 3.68 in 2004 which
is better even the top players like Walmart (2.59 and 2.56 respectively for two years)*
• However, the company being still working on expansion and implementation has a lower
operating margin as compared to Walmart
Source:http://financials.morningstar.com/ratios/r.html?t=WMT
Introduction Metro Group RFID Observations Problem Identification Options Evaluation ImplementationObjective

14. Objectives
• The underlying mission for the company is to provide its customers with a contemporary lifestyle
and also to achieve perfection in all their endeavors by ensuring excellence, commitment and
integrity in order to be a leading national developer with commitment to create value for customers
and loyalty to customers
• They also want to become leader in RFID technology which they believe is the future of tomorrow
• To improve the performance of retail supply chains by incorporating RFID technology
• This will improve performance in terms of reduced shrink, increased product availability, better data
quality, and higher labor productivity
Introduction Metro Group RFID Observations Problem Identification Options Evaluation ImplementationObjective

15. Problems Faced by METRO Group
• There are various issue faced by the METRO Group while implementing RFID technology
• Increased complexities and increased implementation cost when switching from pallet to
case level tagging
• Many from the top management believe that many of the METRO’s supply chain problems
could be solved without the use of new technology like store improvement, DC processes
and HR practices
• Numerous changes have to made to METRO’s IT system to switch to CASE level tagging
Introduction Metro Group RFID Observations Problem Identification Options Evaluation ImplementationObjective

16. Problems Faced by METRO Group
• Human errors like suppliers sometimes forgot to put tags on pallets or putting the tag on
the wrong side of the pallet
• Technology problems like reading tag information through metal and water with the existing
tags
• Problems with the middleware
• Suppliers used low quality tags which made it difficulty to read tags
• Suppliers can easily switch to barcodes to read shipments
• RFID implementation involve significant cost for METRO as well as suppliers
Introduction Metro Group RFID Observations Problem Identification Options Evaluation ImplementationObjective

17. Problem IdentificationSuppliers
• Adaptation to New
Technology
• Revamping of
infrastructure and
Employee training
• Increased cost of
implementation Retailers-Metro
• Lack of Common
Standards for all
suppliers
• Initial Investment in
Infrastructure
• Scalability to suppliers
and other parts of Metro
• Difference of opinion
between upper and
middle management
Customers
• Customers may have
to bear the increase
in cost during the
initial phases of
implementation
Introduction Metro Group RFID Observations Problem Identification Options Evaluation ImplementationObjective

18. Four Options
1. Sticking to the earlier retail supply chain process that is using barcode
2. Incorporating RFID technology in the retail supply chain
3. Instead of adopting new technology improving existing store and DC processes, giving
better training to employees, creating initiatives to reduce employee turnover, and
limiting the size of the backroom or eliminating it altogether
4. Switching from Pallet level tagging to Case level tagging
Introduction Metro Group RFID Observations Problem Identification Options Evaluation ImplementationObjective

19. Evaluation: Option1
RFID
• Can be read without
line of sight
• Multiple tags can be
read simultaneously
• New information can
be overwritten
Barcode
• Require line of sight
to be read
• Can only be read
individually
• Cannot be updated
• Cheaper than RFID
tag
Introduction Metro Group RFID Observations Problem Identification Options Evaluation ImplementationObjective

20. Evaluation: Option2
Manufacturers/Suppliers
• Better control of procurement
(Kinsella and Elliot,2005)
• Quicker identification of
products
• Decreased counterfeiting
• Decreased Stock levels
• Ensuring continuity in
production and supply
availability
Distributors/logistics providers
• A more accurate inventory,
reduced shrinkage and theft
and more efficient use of
storage space
• Quicker data collection
• Decreased charge back
• Decreased stockouts
• Minimization of distribution
errors
• reduced number of incorrect
manual counts, mislabeling and
inaccessible or misplaced
inventory
Retailers
• Quicker collect of data
• Allowing retilers to spend more
time selling products rather than
stocking or tracking them
• Improved customer service
• Improved inventory
management
• Improved process visibility
• Improved security control
• Promoting products and
stimulate up selling
• reduced damage
• reduced human errors
• effectiveness of retail sales and
promotions
Introduction Metro Group RFID Observations Problem Identification Options Evaluation ImplementationObjective

21. Evaluation: Option3
• This option focuses on improving the supply chain activities that are within the boundary of
the organization but since METRO Group deals with many suppliers, improvement must
focus on integration across the entire supply
• Moreover it is uncertain that this improvements will really convert to value added to the
supply chain
Introduction Metro Group RFID Observations Problem Identification Options Evaluation ImplementationObjective

22. Evaluation: Option4
Following observations can be made from Financial Benefit from Pallet Tagging for Manufacturer and
Retailer
• Considering the redundant task being done by labor and computing on per pallet bases it is observed
that Manufacturer saves around €-cent 50 and Retailer benefit €-cent 15.7
• For a case level tagging the observed cost benefits €-cent per case to manufacturer is €-cent 7 per
case and to the retailer is €-cent 8.9 per case
Evaluations
• Assuming about 30 cases in a pellet we get a pellet benefit for case-level tagging = €-cent 210 per pellet
and €-cent 267 per pellet
• Hence per case tagging is more desirable financially as compared to per pallet
• This is because due to per case tagging we are able to improve not only the labor productivity but also
shipment accuracy and product availability improving the total CLV
Introduction Metro Group RFID Observations Problem Identification Options Evaluation ImplementationObjective

23. Implementation and Recommendation
• By mid-2005, METRO group has successfully implemented RFID technology in its supply
chain covering 33 suppliers, 13 stores, and 9 DC and had already started realizing benefits
• Second generation tags which are cheaper and offer improve read rates would soon be
available
• Many suppliers will be concerned about the increase in implementation cost by employing
Case level tagging but this will provide valuable information like point of sales data and
inventory data from Metro store
• We believe that RFID technology will directly add significant value to the supply chain as
compared to other options
• Successful incorporation of RFID technology will provide METRO Group with
sustainable competitive advantage
• We believe that adoption of RFID Technology is in line with company’s mission of
providing contemporary lifestyle to its customers
Introduction Metro Group RFID Observations Problem Identification Options Evaluation ImplementationObjective

24. References
• Managing Customer Value by Bradley T. Gale, (New York, The Free Press, 1994)
• Walmart Store Inc. MorningStar. [online] Available at: <
http://financials.morningstar.com/ratios/r.html?t=WMT > [Accessed 23 March 2014].

25. Thank You
A presentation by Group L