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Specialization: Transport Engineering and Logistics Report number: 2016.TEL.8092 Title: Application of RFID technology for omni-channel retailing strategies Author: M.J.C. Hooft Title (in Dutch) Toepassing van RFID technologie voor omni-channel retailing strategieën. Confidential: No Assignment: Literature Supervisor: Dr. ir. Y. Pang Date: January 10, 2017
TUDelft
FACULTY OF MECHANICAL, M A R I T I M E AND M A T E R I A L S E N G I N E E R I N GDepartment of Marine and Transport Technology Delft University o t T e c h n o l o g y Mekelweg 2 2628 CD Delft the Netherlands Phone + 3 1 (0)15-2782889 Fax + 3 1 (0)15-2781397 www.mtt.tudelft.nl Student: Supervisor: Specialization: Maurits Hooft Dr. ir. Y.Pang TEL
Assignment type: Literature Assignment Report number: 2016.TEL.8092 Confidential: No
Creditpoints (EC): 10
Subject: Application of R F I D Technology for Omni-Channel Retailing Strategies
Omni-channel retailing strategies are changing the retail landscape by delivering the customer a seamless shopping experience. RFID technology is widely applied for tracing and tracking by means of enhanced visibility and could help retailers enable omni-channel strategies. The development of RFID technology is significant in the past years and retailers could obtain many advantages by adopting the technology,
This literature assignment is to survey the state of the art RFID technology applications that help retailers enable omni-channel retailing strategies. The survey will discuss the following subjects:
• The retail industry and omni-channel retailing strategies • History and basics of RFID technology
• Applications of RFID technology in omni-channel retailing o Adoption of RFID technology in retailing
• Overview of application cases in the industry
This report should be arranged in such a way that all data is structurally presented in graphs, tables, and lists with belonging descriptions and explanations in text.
The report should comply with the guidelines of the section. Details can be found on the website. The mentor,
A
BSTRACT
This literature review aims to describe the application of Radio Frequency Identification (RFID) technology for omni-channel retailing strategies. In the changing landscape of retailing the rise of e-commerce and digitalization had a disruptive impact on the way customers shop. The latest change is that retailers pursue omni-channel retailing strategies. The customer stands central and is offered a seamless experience and the retailer creates a consistent brand across all retail channels. RFID technology is a technology that has many advantages for retailers in particular when retailers pursue omni-channel strategies. Enhanced inventory management and customer services trough higher item visibility enables this. Literature such as, scientific papers, journal articles, books, conference proceedings, case studies and web pages are being surveyed in order to describe the application of RFID technology for omni-channel retailing strategies. The paper covers literature about the retail industry, omni-channel retailing, RFID technology, RFID applications, RFID adoption and real application cases from the industry. The findings of this survey are documented in a structured way so the reader can learn how RFID technology is/could be applied by retailers pursuing omni-channel retailing strategies. RFID technology is an enabling technology that is essential for omni-channel retailing strategies.
T
ABLE OF
C
ONTENTS
Abstract ... III
List of figures ... VI
List of Tables ... VII
List of Abbreviations ... VIII
1
Introduction ... 1
1.1
Omni-channel retail strategy ... 1
1.2
The goal of the survey ... 2
1.3
Report outline ... 2
2
The future of retail: Omni-channel retailing ... 3
2.1
The basics of retailing ... 3
2.2
Changes in retailing strategies ... 4
2.3
Multi-channel retailing ... 4
2.4
Omni-channel retailing ... 5
2.4.1
The enablement of omni-channel retailing ... 7
2.5
concluding ... 8
3
Radio Frequency Identification technology ... 9
3.1
A brief history of Radio Frequency Identification ... 9
3.2
Basic RFID system ... 11
3.3
Tags ... 12
3.4
Readers ... 13
3.5
Middleware ... 14
3.6
Communication ... 15
3.6.1
Frequency ranges ... 15
3.6.2
Communication protocols ... 17
3.7
Standards... 18
3.8
Security & privacy ... 19
4
Applications of RFID in omni-channel retailing ... 21
4.1
Shop floor management ... 21
4.2
Customer Relationship management ... 22
4.3
Marketing and Promotion management ... 23
4.4
Logistics management ... 24
4.5
Inventory and Supply Chain management ... 24
4.6
Brand Protection ... 25
4.7
Concluding ... 25
5
Adoption of RFID by retailers ... 26
5.1.1
Implementation drivers ... 26
5.1.2
Barriers & Challenges ... 27
5.1.3
Benefits ... 28
5.2
concluding ... 31
6
Application cases of RFID as part of omni-channel retailing strategies ... 32
6.1
Macy’s omni-channel strategy ... 32
6.1.1
Inventory accuracy on an item-level ... 32
6.1.2
Macy’s “Pick to the last Unit” concept ... 33
6.1.3
Concluding ... 33
6.2
Marks & Spencer ... 33
6.2.1
The initiatives ... 34
6.2.2
Concluding ... 35
6.3
The JCPenney RFID initiative ... 36
6.3.1
The inventory accuracy improvements ... 36
6.3.2
The second generation RFID pilot ... 38
6.3.3
Concluding ... 39
6.4
Galeria Kaufhof ... 40
6.4.1
The project ... 40
6.4.2
Used RFID infrastructure and applications ... 41
6.4.3
Customer and staff surveys ... 42
6.4.4
RFID data analysis ... 42
6.4.5
Concluding ... 45
6.5
Concluding the application cases ... 46
7
Discussion ... 47
7.1
Recommendations ... 48
L
IST OF FIGURES
FIGURE 2.1: A RETAIL SUPPLY CHAIN (SIKANDER, 2005) ... 3
FIGURE 2.2: MULTI-CHANNEL VERSUS OMNI-CHANNEL (GUIDEDSELLING.ORG, 2015) ... 5
FIGURE 2.3: THE 4 ESSENTIAL TOPICS THAT HELP ENABLE OMNI-CHANNEL STRATEGIES (CAPGEMENI,2014) ... 7
FIGURE 3.1 HISTORY OF RFID (SYMONDS ET AL, 2009) ... 9
FIGURE 3.3 OVERVIEW RFID SYSTEM (DOBKIN, 2013) ... 11
FIGURE 3.4: OVERVIEW OF DIFFERENT TYPES OF TAGS (DOBKIN, 2013) ... 13
FIGURE 3.5: EXAMPLE OF A HANDHELD READER, OFTEN USED IN THE RETAIL INDUSTRY (ZEBRA, 2016) ... 14
FIGURE 3.6: MIDDLEWARE COMPONENT (WONG ET AL, 2014) ... 15
FIGURE 3.7: EXAMPLE OF AN UHF TAG (STAFF, 2010) ... 17
FIGURE 3.8: ELECTRONIC PRODUCT CODE BUILD-UP (FORRESTER RESEARCH, 2005) ... 19
FIGURE 5.1: CUSTOMER RESPONSE ON OOS SITUATIONS (SÄILÄ, 2013) ... 29
FIGURE 5.2: IMPROVEMENT OF KPI'S IN RETAIL SECTOR (RANDY UNGER, 2016) ... 30
FIGURE 6.1:EXAMPLE OF A TAGGED ITEM (MARKS&SPENCER, 2016) ... 34
FIGURE 6.2: PERFECT INVENTORY OVER TIME (REBECCA MILES, 2010) ... 37
FIGURE 6.3: OVERSTATED AND UNDERSTATED INVENTORY OVER TIME (REBECCA MILES, 2010) ... 38
FIGURE 6.4: LAYOUT OF RFID INFRASTRUCTURE IN THE SHOP AND DISTRIBUTION CENTER (JASSAR AL-KASSAB, 2010) ... 41
FIGURE 7.7: EXAMPLES OF SMART FITTING ROOMS, SMART MIRRORS AND HANDHELD DEVICES (RFID JOURNAL, 2007) ... 42
FIGURE 6.6: SALES AND TRY-ON CORRELATION (JASSAR AL-KASSAB, 2010) ... 44
FIGURE 6.7: BACK AND FRONT STORE INVENTORY OVER TIME(JASSAR AL-KASSAB, 2010) ... 45
L
IST OF
T
ABLES
TABLE 2-1:MULTI-CHANNEL VERSUS OMNI-CHANNEL STRATEGY (JUANEDA-AYENSA ET AL., 2016) ... 6
TABLE 3-1:APPLICATIONS AND CHARACTERISTICS OF RADIO FREQUENCIES (FERRER ET AL., 2010) ... 16
TABLE 3-2: COMMUNICATION PROTOCOLS (DOBKIN, 2013) ... 18
TABLE 6-1:OVERVIEW OF RFID DATA ANALYSIS AND PERFORMANCE (JASSAR AL-KASSAB, 2010) ... 43
L
IST OF
A
BBREVIATIONS
RFID Radio Frequency Identification EPC Electronic Product Code 3PLs Third-party Logistics Providers GS1 Global Standards One IFF Identification Friend or Foe IC Integrated Circuit EAS Electronic Article Surveillance AIDC Automatic Identification and Data Capture B2B Business to Business LF Low Frequency HF High Frequency UHF Ultra High Frequency MW Microwave IATA International Air Transport Association AIAG Automotive Industry Standards Group ISO International Standard Organization IEC International Electrotechnical Commission JTC Joint Technical Committee ETSI European Telecommunications Standards Institute FCC Federal Communication Commission POS Point-of-sale OOS Out-of-Stock ROI Return on Investment RAIN RAdio frequency IdentificatioN ERP Enterprise Resource Planning
PIA Privacy Impact Assessments KPI Key Performance Indicator (KPI) P2LU Pick to the Last Unit M&S Marks & Spencer PI Perpetual Inventory DC distribution center EPCIS EPC Information Service
1 I
NTRODUCTION
Retail has changed fundamentally the last hundred years and especially the rise of e-commerce led to an enormous shift in the way people shop. Nowadays the retail landscape is a complex and highly dynamic environment with extensive supply chains that handles a high variety of rapidly changing items. According to (Rizzi et al., 2016) products in the retail industry are often ‘perishable’ because they are sensitive for changing trends, with the result that products become obsolete and retailers are forced to give high discounts. The competition among retailers is fierce and customers demand more than ever. Retailers are forced to adopt new technologies and strategies to be competitive and survive in the ever changing retail landscape.
1.1 O
MNI-
CHANNEL RETAIL STRATEGYRetailers sell their products through varying channels, these channels are the different ways that a customer can buy from, and communicate with, a retailer (Elshout, 2016; Verhoef, 2015). In the early day’s, single channel retailing was the norm with customers having only one way to buy from the retailer, often by visiting the physical brick and mortar store (Elshout, 2016). The disruptive nature of digitalization and e-commerce leads to the rise of new channels like the online channel, mobile channel and social channels (Verhoef, 2015). Every big retailer rushed into the new online channel to profit from the rise of e-commerce (Napoli, 2015). With the rise of these online channels retailers switched to a multi-channel strategy, where multiple channels exist next to each other. This appears not to be enough for the demanding customers and a new strategy called omni-channel retailing is emerging. The omni-channel strategy embraces all the channels and integrates them into one seamlessly integrated experience for the customer. All the channels are used to interact with the customer and enables the retailer to offer a new and more unified personal experience. Omni-channel retailing wants to provide its customers with a service level of “anywhere, anytime and any product” (Angeles, 2016). Omni-channel retailing is only possible when a retailer has a high inventory accuracy, real time data and item visibility in their supply chain (Tyco, 2016). The retailer must know where and when the products are in order to sell them in a seamless experience for the customer. Radio Frequency Identification (RFID) is an auto-identification technology which enables retailers to identify and track & trace physical objects in real time to help to fulfil the omni-channel strategy. RFID will replace traditional barcode scanning, offering better inventory management and increased sales due to higher inventory accuracy, new innovative customer services, real time item visibility and reduced costs by operating more efficient (Nuce, 2014).
1.2 T
HE GOAL OF THE SURVEYRetailers are operating in a highly dynamical environment with rapidly changing products and high customer demands. The way retailers operate should adjust to the changing retail landscape in order to be competitive and profitable. By using RFID technology and work towards omni-channel retailing strategies these challenges can be tackled. This literature survey aims to give an overview of the state of the art RFID technology applications that help retailers enable omni-channel retailing strategies. The survey will discuss the following subjects; • The retail industry and omni-channel retailing strategies • History and basics RFID technology • Applications of RFID technology in omni-channel retailing • Adoption of RFID technology in retailing • Overview of application cases in the industry
1.3 R
EPORT OUTLINEThe report will be structured the following way. After the introduction an insight in the retail industry and omni-channel retailing is given in chapter 2. Chapter 3 will describe a short history, the working principle and other essential technical components of RFID technology. Then chapter 4 will discuss the possible applications of RFID technology in omni-channel retailing. In chapter 5 the adoption of RFID in omni-channel retailing, the implementation drivers, challenges & barriers and benefits are discussed. With all this information in mind it is time to review application cases performed by large retailers who adopt RFID as an enabling technology to become omni-channel retailers in chapter 6. The last part of this survey is the discussion in chapter 7, here the studied literature is reflected upon and recommendations are given.
2 T
HE FUTURE OF RETAIL
:
O
MNI
-
CHANNEL RETAILING
First of all, a proper introduction to retailing and the key characteristics of the retail industry are described. This will give a clear perspective of the retail industry for the rest of the literature survey. Furthermore, single-channel and multi-channel will be introduced. Then this chapter will give a comprehensive look in what omni-channel retailing is all about and what the requirements are to enable this type of retailing strategies.
2.1 T
HE BASICS OF RETAILINGIn essence retailing is the selling of goods and services to customers for end use by means of different channels and often in small quantities (MSG, 2016). The retailing industry nowadays is a complex and highly dynamic environment with extensive supply chains that handles a high variety of continuously changing items. A basic retail supply chain is shown in Figure 2.1, from the initial raw material supplier to the manufacturer to the distributor and ending with the retailer selling finished products to the end customer. Supply chains can vary in the number of these entities, it is possible to have multiple suppliers or manufactures for example. Each entity either sells and/or buys materials, semi-finished products or finished products from one another. The goal is that everyone in the chain makes a little profit by adding value or providing the right service and operates in a cost effective way. Retailers need to forecast and communicate this forecast with the respective supply chain entities in order to improve the efficiency of the chain. The forecast is depending on several components such as; seasonality, price, promotions and advertising (Sikander, 2005). FIGURE 2.1: A RETAIL SUPPLY CHAIN (SIKANDER, 2005)
In this survey the focus lies on retailing, this is the defined as the interaction between retailer and end customer. This interaction between retailers and their customers is where retailers can distinguish themselves. Retailers have to think about the level of service they can provide to their customers in order to be competitive.
2.2 C
HANGES IN RETAILING STRATEGIESRetailing has seen some large changes over the past two decades. From the local corner store, retailing transformed to department stores, mall’s, big box stores and with the rise of e-commerce to online shopping (Leibowitz, 2013). The disruptive nature of digitalization and e-commerce leads to the rise of new channels like the online channel, mobile channel and social channels. They have gained a significant role in the way we buy things from retailers. Every big retailer rushed into the new online channel to profit from the rise of e-commerce (Napoli, 2015). With the rise of these online channels retailers switched to a multi-channel strategy, where multiple channels exist next to each other. This appears not to be enough for the demanding customers and a new strategy called omni-channel retailing is emerging. The omni-channel strategy embraces all the channels and integrates them into one seamlessly integrated experience for the customer. All the channels are used to interact with the customer and enables the retailer to offer a new and more unified personal experience. Omni-channel retailing wants to provide its customers with a service level of “anywhere, anytime and any product” (Angeles, 2016). The following sections will give a background on the development of multi-channel retailing towards omni-channel retailing strategies. Omni-channel retailing and its key characteristics will be discussed in more detail.
2.3 M
ULTI-
CHANNEL RETAILINGThe traditional retailer is applying a single-channel strategy with only one channel to serve the customer via the physical brick and mortar store where customers can buy goods. This rise of the online, mobile and other channels has caused a disruptive impact on retailing (Verhoef, 2015). The traditional retailers didn’t have any infrastructure in place to support the new channels like e-commerce. To counter this development, retailers introduced new internal teams that developed these channels, this led to the multi-channel strategy (Napoli, 2015). Multi-channel strategies have clear separations in channels with different objectives and customer experiences as shown in Figure 2.2. The retailers operate their brick and mortar stores separately from their online channel and there is not much integration. The lack of integration can be seen in the price differentiation in online channels and offline channels and a different customer experience (Schneider et al., 2013). The result of this strategy is that there is not a seamless experience and consistent message for the customer (Minkara, 2014). In short, with multi-channel retailing the customer is served by the retailer by means of separate channels. The customer is able to choose the channel they prefer in order to engage with a retailer, but might end up with a different experience depending on the chosen channel.
FIGURE 2.2: MULTI-CHANNEL VERSUS OMNI-CHANNEL (GUIDEDSELLING.ORG, 2015)
2.4 O
MNI-
CHANNEL RETAILINGDue to the developments of multi-channel retailing and digitalization, customer demands are changing. The most recent trend in retailing is the move of retailers from multi-channel to omni-channel strategies. “An omni-channel strategy is a form of retailing that, by enabling real interaction, allows customers to shop across channels anywhere and at any time, thereby providing them with a unique, complete, and seamless shopping experience that breaks down the barriers between channels” (Juaneda-Ayensa et al., 2016).
Omni-channel retailing places the customer central and uses multiple integrated channels to ensure an overall seamless customer experience as shown in Figure 2.2. Omni-channel retailing wants to establish a personal connection between retailer and customer in order to create a more engaging and personalized experience (Napoli, 2015). Actually omni-channel retailing has some overlap with single-channel retailing. In the 20th century the local corner shop was the place where people bought products, a clear example of single-channel retailing. The shopkeeper knew their customers and customers were very loyal to the retailer they visited. The shopkeeper would establish a connection with its customers and knew their size and preferences for models and colors.
The customer of today wants the old personal and engaging experience in a modern way. These new type of customers visits websites to check inventory availability, uses mobile applications, visits the physical brick and mortar store to get a feel of the product and then maybe even order it online and thus using all kinds of channels. According to an infographic of (Rudolph, 2016) customers think the following are top omni-channel retailing capabilities: 1. Check product availability 82% 2. Buy or reserve online and pick-up in store 57% 3. Stored profile information across channels 50% 4. Consistent and personalized shopping experience 47% 5. Social media usage for access across channels 24% So retailers will need to take down the walls of the existing channels and look at overall sales across channels, integrated channels and learn to respond to channel preferences of customers. The customer experience stands central in omni-channel retailing and the retailer establishes a consistent brand across channels. Retailers that implemented a omni-channel strategy are retaining 89% of their customers on average compared to 33% for retailers with weak or no omni-channel strategy. The same research even suggest that the opportunity cost of no omni-channel strategy is a lost 10% in revenue (Cybra, 2016). In Table 2-1 the differences between multi-channel and omni-channel strategies are shown. The main difference is that multi-channel retailing is trying to optimize customer experience of each channel separately. Omni-channel integrates and manages all channels toward one seamless customer experience. TABLE 2-1:MULTI-CHANNEL VERSUS OMNI-CHANNEL STRATEGY (JUANEDA-AYENSA ET AL., 2016)
2.4.1 T
HE ENABLEMENT OF OMNI-
CHANNEL RETAILINGIn a research conducted by Capgemini and Global Standards One US (GS1) several leading US based retail executives and industry veterans were interviewed. The goal of this survey was to understand the current state of omni-channel strategy creation and adoption efforts in the retail industry (Capgemini, 2014). The conclusion of the survey was that there were 4 key topics on top of mind of the surveyed professionals namely; inventory visibility, web-ready products, predictive customer analytics and fulfilment strategy. In Figure 2.3 the 4 topics are displayed and based on the research of Capgemini they will be described in the following sections. FIGURE 2.3: THE 4 ESSENTIAL TOPICS THAT HELP ENABLE OMNI-CHANNEL STRATEGIES (CAPGEMENI,2014) 2.4.1.1 Inventory visibility The key to successfully implement omni-channel strategies is inventory visibility, know where your products are. The retailers should invest in infrastructures and processes that accurately track, trace and move their inventory. These systems should help retailers to manage the inventory in an optimized way that exceeds channel boundaries. It helps to fulfil orders faster, with lower costs and with improved customer service. Capgemini identified 4 sub elements that are essential to obtain the required inventory visibility. 1. Item identification: The key to inventory visibility is to have item-level identification. 2. Electronic Product Code (EPC) enabled RFID: EPC enabled RFID is a standardized technology to track and trace products in the supply chain and even in-store by tagging it. It helps “easier, faster, more accurate and more profitable fulfillment trough enhanced inventory management and responsiveness” (Capgemini, 2014). 3. Tagging at source: The earlier a product is tagged in the supply chain the better the efficiency and inventory traceability is. 4. Partnerships with third-party logistics providers (3PLs): Often 3PLs will fulfill orders, thus they prove to be essential in providing omni-channel retailing. The systems of the 3PLs and the retailers should be integrated to some extent.
2.4.1.2 Web-ready products brought to market more rapidly: The marketing aspect of improved retailing in the form of omni-channel is to have fast web-ready products. Nowadays the uniformity of data, lack of information, quality of information, time and required to launch products are all bottlenecks for a smooth omni-channel experience. Customers need the same accurate and complete high quality information about products on every channel. So standardization of product set-up procedures helps to improve the needed time and labor to launch a product online. 2.4.1.3 Predictive customer analytics: To create a personalized experience for the customer it is essential for retailers to collect and analyze data about customer shopping patterns. This data can be obtained through multiple channels and by means of different technology. For example, by using EPC enabled RFID, online profiles, browsing behavior and shopping history. Based on the collected data the retailers can forecast and provide personal promotions to get the omni-channel experience. 2.4.1.4 Fulfillment strategy: According to the participants of the survey of Capgemini the goal of the omni-channel strategy is to “provide the customer with the products they desire when, where and how they want them while enabling a seamless experience across channels” (Capgemini, 2014). To manage the new fulfillment strategy, infrastructures and processes need to be reconsidered. Retailers need to achieve it by means of thinking differently about assets such as inventory and facilities. It may require moving more inventory to stores so that it moves closer to customers and enables pick-up in-store. Cooperation with skillful 3PLs that pick, pack and ship orders must be integrated better than ever with retailers systems. Also drop-picking is used to provide more product options and thus a better customer experience. Drop-picking is a retail fulfillment where retailers don’t hold inventory of the item that is being sold. When the item is sold the retailer buys it from the third-party and ships it directly to the customer (Shopify, 2016). All in all omni-channel retailing requires flexible, fast and accurate fulfillment to satisfy the customers.
2.5
CONCLUDINGThe main focus of this survey is to explore the RFID applications that help retailers to enable omni-channel strategies. In this chapter the retail industry and the road towards omni-channel strategies are discussed. This gives a perspective to the survey and explains why omni-channel trends are emerging and what the essential topics are to enable this type of retailing. All these topics require thoughtful attention in order to be a successful omni-channel retailer. But for this survey we will look closer into the possibilities and applications of RFID to enable omni-channel retailing. The main topic that will be discussed is the item-level inventory visibility that RFID makes possible.
3 R
ADIO
F
REQUENCY
I
DENTIFICATION TECHNOLOGY
Before RFID applications in omni-channel retailing systems in the retail industry are explored a general overview of the state of art of RFID technology is given in this chapter. This chapter will first cover the basic working principles of RFID systems and a deeper explanation on several key components is described. The chapter will elaborate on tags, readers and middleware for the hardware side of RFID. The way RFID communicates is explained by means of frequency ranges and communication protocols. After that the current standards are explored and a deeper insight in EPC is given. The chapter will conclude with a section about security and privacy of RFID systems.
3.1 A
BRIEF HISTORY OFR
ADIOF
REQUENCYI
DENTIFICATIONThis section will describe the history of RFID to put this survey into context. A brief history of RFID is shown in Figure 3.1 from the 1800s until 2006 (Symonds et al., 2009). The information about the history is based on the book “The RF in RFID: UHF RFID in practice” by Daniel Dobkin (Dobkin, 2013), extra information that is used to enrich this section is referred to the right sources in the text. FIGURE 3.1 HISTORY OF RFID (SYMONDS ET AL, 2009)
In the 1800s the fundamentals of electromagnetic theory where founded by Michael Faraday and soon the radio was invented. The first radar was invented in 1922 which were used to detect planes. On of the most commonly problems with the early radar systems in 1922 was that there was no way to identify whether the plane was a friend or a foe. The story goes that the Germans came up with the idea of rolling their planes when returning to base. This roll led to a change in the reflected signal thus the radar operator would know that the plane is friendly. Although this was a simple solution,
any plane can roll and the Allies were working on an identification system. This early Identification Friend or Foe (IFF) system used a mechanically tunable receiver and transmitter with six different codes to identify the plane. After the war radar was developed more and with the invention of integrated circuits (IC) the size of the required components greatly reduced (Symonds et al., 2009). The next step was that businesses and researchers gained more interest in RFID concepts and in the early 70’s the first Electronic Article Surveillance (EAS) products where sold on the market (Agon-Systens, 2015). These anti-theft systems work with 1 bit tags that allow the systems to know whether there is paid for the item or not (Roberti, 2005). Other areas of implementation were factory automation, animal tracking, access control, vehicle tracking, toll automation and smart cards. The reading speed as well as the reading distance where both greatly enhanced (Symonds et al., 2009). The most interesting development in the scope of transport and logistics came in the late 90’s when RFID was introduced in the supply chain. In 1999 the Auto-ID center was established at the Massachusetts Institute of Technology helped with funding of the Uniform Code Council, Procter & Gamble, Gillette and EAN International. The center grew rapidly and by 2003 they had over 100 sponsors and 6 laboratories spread over the world, where RFID applications in the supply chain are researched. One of the main initiatives the Auto-ID center, in cooperation with large retailers such as Walmart, Proctor & Gamble and Gillette, has worked on is the setup of the EPC. EPC is meant to provide a unique numbering scheme that acts as an identifier for any physical object, anywhere, any time in the world. Numerical schemes have been used to identify items worldwide and the best example is the bar code standard that is used in optical scanning technology. These one dimensional bar codes are numbered schemes that are used in the industries like retailing to identify items and collect data about the product and the manufacturer (Frederic et al., 2006). The retail industry has acted as an early adapter before when the barcode technology was developed in the 70’s for use in the retail industry and soon other industries would follow (Gaukler et al., 2007). In contrast to barcode standards like GS1, EPC is able to identify on the item-level. This means that even the same products have a unique code and that they can be distinguished, for example apparel with different sizes (Frederic et al., 2006). Due to the growing interest and to support the diffusion of RFID technology the Auto-ID center founded EPCglobal in 2003, a non-profit organization, which aims to achieve world wide adaptation and standardization of EPC technology. In 2002 Gillette ordered 500 million tags from Alien Technology, this was the first time a commercial order was placed with EPC integrated technology (Journal, 2003). Around this time the largest retailer in the world, Wal-Mart, announced a mandate that 100 of its top suppliers must apply RFID tags to the pallets and cases they deliver by January 2005. By January 2006 the following 100 suppliers must follow as well. This mandate of was along with the order of Gillette the beginning of the adoption of RFID technology in the retail industry. The following retail companies shortly followed by announcing mandates to their supplier to install RFID tags as well; Metro, Target and Tesco.
3.2 B
ASICRFID
SYSTEMRFID is a wireless Automatic Identification and Data Capture (AIDC) method which identifies objects based on radio frequencies (Symonds et al., 2009). A basic RFID system consists of tags, readers, antennas and middleware which handles the information that is exchanged between the tag and the reader. Figure 3.2 gives an overview of how a basic RFID system would look like. The tag and the reader use antennas to communicate wirelessly by means of radio waves. The middleware filters the data to ensure data accuracy and feeds it into back-end application systems to optimize business systems and operations (Vlachos, 2014). As (Ferrer et al., 2010) suggests, a RFID systems has 3 fundamental capabilities in which it answers the following questions, “who/where and how are you?”. So first of all the item that has an RFID tag is able to identify itself automatically. Then the system is able to locate and track the item trough wireless communication of the tag and the reader. Some systems even have tags that allow to monitor their surroundings and thus are able to provide the middleware with possible environmental data (Dobkin, 2013). So the tags sometimes act as mobile sensors. This provides lots of opportunities for retailers to gain insight in their processes and to create more business value (Violino, 2005). FIGURE 3.2 OVERVIEW RFID SYSTEM (DOBKIN, 2013)
3.3 T
AGSA so called tag or transponder is labelled to the object and collects real time data and consists of a memory chip, an antenna and an integrated circuit to connect the two. The chip contains of a microcontroller that is able to process queries, cryptography and responses. There is also a memory that stores relevant information and the unique identification number of the tag, often EPC. The tag is also equipped with an antenna that is used to communicate within a specific frequency band (Vena et al., 2016). There are three types of RFID Tags that can be distinguished according to their power supply; passive, active and semi-passive. These different RFID tags and there components are shown in Figure 3.3. 1. Passive tags: The passive tags have no power supply and power is obtained from the signal of the reader and are usually read only. They don’t have a transmitter and reflect back the signal from the reader, this is called inductive coupling (Symonds et al., 2009). The passive tags only operate when they receive an authenticated radio signal from a reader or other source. These passive tags tend to be cheap and are used in industries like retail where RFID applications are more on an item level. 2. Active tags: The active tags have a power supply and use an antenna to receive and transmit information. These type of tags are often read/write devices and are larger and more expensive than passive tags (Roberts, 2006). Due to the power supply these active tags often have larger memories and allow for a larger range of broadcasting. So the active tags are usually connected to large assets such as railcars and reusable containers which are tracked over large distances (Violino, 2005). 3. Semi-passive tags: Semi-passive tags behave like passive tags but have a power supply, this tag switches on the power supply when a radio signal is received. These semi-passive tags fall between the price of a passive tag and an active tag. Though a battery is installed, this energy supply is only used to power its own chip, no energy is used to broadcast a radio signal (Ramos et al., 2016).
FIGURE 3.3: OVERVIEW OF DIFFERENT TYPES OF TAGS (DOBKIN, 2013)
3.4 R
EADERSThe main function of a reader, or also called an interrogator, is to facilitate the communication between itself, tags and the middleware. The reader communicates with tags within its range and extracts information from the tags and decodes and passes this data on into the middleware. A reader consists out of two parts, an antenna that emits radio waves to wake up a nearby tag and can read or write data onto it. The second part is a transceiver which is used to decode the extracted information (Higgins, 2007). When the data is decoded it will be passed on to the middleware that handles the information accordingly. According to (Wong et al., 2014) there are four categories of readers; 1. Handheld: These handheld readers act like barcode scanners, they feature wireless networking and multi-protocol communication. 2. Vehicle-mount: Here hands-free scanning is the main advantage with a reader that is attached to a mobile vehicle. 3. Fixed: Readers are attached locally on a fixed position so they can read tags that pass by. 4. Hybrid: The readers above can either read active or passive tags but hybrid versions can switch between these types of tags (Azevedo et al., 2012).
FIGURE 3.4: EXAMPLE OF A HANDHELD READER, OFTEN USED IN THE RETAIL INDUSTRY (ZEBRA, 2016)
3.5 M
IDDLEWAREMost RFID applications feature a lot of tags that are read frequently by multiple readers thus generating huge amounts of data. A RFID system needs a tool to manage, collect, process and integrate the filtered data into the back-end business applications. Middleware is the collection of soft- and hardware that connect RFID hardware components with RFID application systems (Wong et al., 2014). As shown in Figure 3.5 middleware consists out of a few layers. The reader interface provides all the communication with the RFID hardware. It allows users to configure, deploy and issue commands to readers (John Soldatos, 2013). Next is the ability of middleware to process and store data. The readers collect large amounts of EPC data that need to be filtered, transformed and aggregated. To do so low-level logic and complex algorithms are used. The application interface is used to configure, communicate and access the middleware component. Last is the middleware management layer, this layer manages the setup of the middleware components. Examples are the configuration of filters in the application layer. Adding, removing or configuration of readers and of middleware services (Wong et al., 2014). The main advantages of having a good middleware component is to manage all the EPC data before handing it to the back-end applications. This reduces useless data such as duplicate reads. It also provides an interface to manage all the RFID hardware in an organized way. Another important role that middleware can play is to provide B2B integration so that RFID data can help improve shared processes (John Soldatos, 2013). Think about a retail store that shares inventory management data with its suppliers to help enhance the demand forecasting.
FIGURE 3.5: MIDDLEWARE COMPONENT (WONG ET AL, 2014)
3.6 C
OMMUNICATIONRFID systems communicate by means of wireless radio communication, different frequencies and communication protocols are used. The frequency that is used has a large impact on several factors such as the read rate, read distance, antenna size and the penetration of materials. Communication protocols enable information exchange agreements to ensure correctly transferred data. This section will elaborate on the different types of frequency ranges and communication protocols.
3.6.1 F
REQUENCY RANGESThe wavelength of radio waves in RFID systems can range from 2000m to 12cm and with this variation in wavelength different frequencies are established. The waves behave differently at different frequencies, this has an impact on its properties and where they can be applied best. In general, when the frequency gets higher the radio waves tend to behave more like light. So low frequencies can penetrate materials better and higher frequencies bounce off materials. In Table 3-1 the 4 different frequency ranges that are commonly used in RFID are shown with their properties. Below each range is explained in further detail: 1. Low frequency (LF) systems operate in 125 to 134 kHz and is often used in short range applications with passive tags. Typical reading range is below 0,5m and the reading rates are lower than higher frequency systems. Compared to the other frequency ranges the LF range has better tag reading performance with tags applied to objects containing metals and/or water. Applications are access control and sometimes the tags of a LF system are encapsulated in glass and used for livestock identification or human identification and implemented under the skin. These applications don’t require large reading ranges and rates.
2. High frequency (HF) systems usually operate at 13.56 MHz and allow for better reading rates and distances than LF systems. Typically, the read range is less than 1m and read rates are in the order of 10’s of kbps (kilobytes per second). Applications of HF systems are smart cards and labels, 3. Ultra-high frequency (UHF) systems operate between a range of 868 to 915 MHz and the reading rates and distances are higher. An UHF system can read up to 15m depending on the RFID setup and read rates are in the 100’s of kbps. The antenna design of an UHF system is relatively simple and this allows for potentially help reduce tag costs. Due to the higher frequency the UHF cannot pass water or metal objects. UHF systems are applied in the retail industry, car toll systems, railcar tracking, asset tracking and supply chain management (Dobkin, 2013). An example of an UHF tag is shown in Figure 3.6. 4. Microwave frequency (MW) systems operate in the range of 2,45GHz – 5,8GHz. This range has the highest reading rates and allows for multiple reads at the same time. The MW systems can penetrate non conducting materials well but cannot penetrate water or conducting materials. This is a relatively new territory and not much applications are being deployed with MW systems. TABLE 3-1:APPLICATIONS AND CHARACTERISTICS OF RADIO FREQUENCIES (FERRER ET AL., 2010)
FIGURE 3.6: EXAMPLE OF AN UHF TAG (STAFF, 2010)
3.6.2 C
OMMUNICATION PROTOCOLSThe following section is based on the book of Dobkin (Dobkin, 2013). To ensure that the data is transferred correctly it’s necessary that the reader and the tag operate within the same communication protocol. This protocol makes sure that the parts of the system, in this case the tag and the reader, are able to communicate. It can be compared to spoken language, when two people don’t speak the same language there cannot be communication by speech. Protocols tackle communication issues such as access to the communication medium, making the data structured and meaningful, code and modulate data into transmittable radio signals. There are two ways to ensure that two devices can communicate, either both devices are from the same manufacturer and they are interoperable, or they comply to a communications standard that is agreed upon. Table 3-2 shows a set of standards that are used for physical layer protocols of RFID systems. Most of the tags are only compatible with one of these standards and don’t support multiple communication protocols, this is often not necessary or to reduce costs and minimize complexity of the tag. So the different types of frequency bands such as LF, HF and UHF often have different standards and thus handle coding and modulation differently. The standard will be discussed in the upcoming chapter 3.7.
TABLE 3-2: COMMUNICATION PROTOCOLS (DOBKIN, 2013)
3.7 S
TANDARDSWith manufactures of RFID systems all over the world and decentralized supply chains it is important that RFID products are interoperable with each other. With the help of international organizations RFID standards are developed. These standards provide guidelines and specifications of RFID systems, to help develop RFID products. They also allow for a more competitive and broader market, this results in reducing the price of these products (Impinj, 2016). These standards are made for specific industries and applications, they also can differ on a regional, national or global scale. For industry specific standards there are organizations such as IATA (International Air Transport Association) for aviation industry. The automotive industry has AIAG (Automotive Industry Standards Group). A few examples of global organizations that issue RFID standards are the ISO (International Standard Organization), EPCglobal by GS1 US, IEC (International Electrotechnical Commission) and JTC 1 (Joint Technical Committee). There are also regional organizations that govern standards for regional use, in Europe this is ETSI (European Telecommunications Standards Institute) and in the United States it is the FCC (Federal Communication Commission). As described in section 3.1 the EPC is a numbering scheme that is designed to replace the barcode. In Figure 3.7 the breakdown of the EPC, which is used to electronically identify goods via RFID, is shown. The EPC consists of 4 classes, from left to right, the header with 8 bits, the domain manager of 28 bits, the object class of 24 bits and the serial number with 36 bits. The header is the EPC type, this may be further developed. The domain manager shows a unique number that is assigned to a specific company/manufacturer. The object class indicates a certain product type and the serial number indicates the unique item. This EPC can generate up to 7.9 ∗ 10'( possible unique codes, that are a lot of possibilities.
FIGURE 3.7: ELECTRONIC PRODUCT CODE BUILD-UP (FORRESTER RESEARCH, 2005) Nowadays there are standards for active tags and passive tags along all the frequency bands. But the most interesting standard is the UHF Gen 2 standard for passive UHF tags issued by EPCglobal. This standard is globally regulated and makes RFID adoption easier worldwide. This standard provides a communication protocol for passive backscatter reader talks first RFID system in the UHF range of 860 MHz-960 MHz When products are certified for this standard they undergo a conformance test and an interoperability test to make sure the product complies with UHF Gen 2. This standard is continually being improved and a new versions will be more complex and offer more security options to ensure to protect data and tag falsification (Impinj, 2016). The following section, Security & privacy, will go into more detail about the security and privacy concerns of RFID technology.
3.8 S
ECURITY&
PRIVACYOne of the biggest challenges nowadays is to make sure that data is safe and secure. RFID systems generate lots of data and if the security is lacking it can be potentially harmful for customers or companies. According to a study of (Bhattacharya, 2012) privacy is along with costs the main challenge for RFID adoption. In a RFID system the channel between the reader/middleware and the back-end system is generally speaking assumed safe. In this part known network security precautions such as an access control policy can be taken. The most vulnerable part is the communication channel between tag and reader. The risk of malicious activities here is high and the main problem of creating a safe RFID system is the computational capabilities of RFID tags. This insecure channel is the main focus of RFID security research according to (Tan et al., 2013). There is also a distinction in the level of needed security when tags are re-writable or when they are not. When the tag is re-writable there needs to be a protocol that allows readers to access the data and securely re-write data onto the tag. (Tan et al., 2013) suggests that there are 3 key security issues that RFID systems should prevent;
1. Illicit tracking: One of the main features of RFID is it capabilities of tracking the tags in the system. Tags always respond to signals from readers and this might lead to illicit tracking. A device pretending to be a reader will get a tag response. Even without unauthorized access to tag information the encrypted tag response can be compared. If the same encrypted tag response is obtained at multiple locations the tag can be tracked. With tags being attached to physical objects this can lead to security and privacy issues. If RFID tags in clothing for instance are read at multiple locations this means a person’s movement is tracked. 2. Unauthorized access: A property of RFID systems is that readers can wake up tags and that tags respond to interrogation of nearby readers. So this means that any device can act as a reader and obtain an answer from a tag. This response is encrypted and only readers that are authorized can obtain a tag ID or other information from the tag. There is always a risk that this malicious reader is granted access by bypassing the protocol. Another way of gaining unauthorized access is by eavesdropping. The information that is communicated between an authorized reader and a tag is obtained. 3. Skimming: The last key issue is a method where an adversary tries to replicate a legit RFID tag. The communication between the reader and the tag is observed and a fake tag is created. When this fake tag can mimic a real tag and can communicate with the reader the attack worked. Skimming usually involves identity or credit card theft. Identification documents such as passports and driver licenses and credit cards are wirelessly skimmed.
4 A
PPLICATIONS OF
RFID
IN OMNI
-
CHANNEL RETAILING
RFID has a lot of potential applications where retailers that pursue omni-channel strategies could benefit from. An important decision on how to apply RFID in the retail industry is the level upon which is tagged. The literature clearly makes a difference between pallet-level, case-level and item-level tagging. This level of tagging influences the amount of detail the generated RFID data contains. According to (Gaukler et al., 2007) the interest of the level of tagging differs between manufacturers and retailers. Manufacturers typically show more interest in pallet or case level tagging (Gaukler et al., 2007). With this method they can track their goods from production through the supply chain to the retailers. The retailers benefit more from item-level tagging because this allows them to have a more granular view from in-store movements (Hardgrave, 2010). Tags are almost always placed on the wrapping or sewn into the product by the manufacturer because attaching the tag to the product on the retail site is more expensive (Gaukler et al., 2007). This will create a situation where there must be contractual agreements on cost sharing among supply chain partners. In the paper of Rizzio et al a new framework is proposed for RFID applications in the retail industry, with the focus on fashion and apparel retailing (Rizzi et al., 2016). This framework splits the RFID applications area’s up in 6 different categories that all have their own sub-level use cases. The framework was constructed by means of an extensive literature review of up to 160 papers. The framework is validated by a panel of experts such as professors, RFID manufactures, system integrators, managers from retailers. This chapter will survey the following 6 different categories and their sub-level use cases; shop floor, customer relationship, marketing & promotion, logistics, inventory & supply chain and brand protection as proposed by (Rizzi et al., 2016). All these categories help retailers to become omni-channel retailers in a certain way except maybe for brand protection. This is an additional application that could be embraced when retailers adopt RFID technology.
4.1 S
HOP FLOOR MANAGEMENTThe first category where RFID could be applied is in shop floor management. This category covers all the activities where staff, shop personnel and managers are assisted by RFID to manage the store better. The main goal of RFID in this category is to support and assist people so that these people can focus more on their primary tasks. 1. Locating items: RFID proves to be very convenient in helping staff to locate specific items within a store or the backroom. When items can be located real time the potential to sell an item is much higher. It often happens that an item is in stock at a store but cannot be located, this may cause the loss of a potential sale. RFID could be deployed in several different forms such as smart shelves, fixed RFID infrastructure of by means of mobile readers. The use of RFID increases the chance to sell to the last item in stock.
2. Point of Sale (POS) transactions: Checkouts are time consuming activities for staff and customers. The staff member is costing money to scan all the items and customers may be annoyed when there forms a queue. RFID is able to shorten this process, resulting in freed up time for staff and a higher customer service. The goal is that RFID helps automating the checkout process. Another advantage of using RFID in the checkout procedure is that is more accurate than barcode scanning. This results in a better inventory accuracy because the retailer exactly knows which specific items were sold (Hardgrave, 2010). 3. Prevention of loss: Every retailer nowadays has some sort of an EAS system to prevent theft of items. Traditional anti-theft systems also work based on RFID technology, but these EAS tags are not disposable due to their high costs. The removal of these tags during checkout is a labor intensive process. The EAS tags also don’t identify which item is stolen so inventory inaccuracies arise along the fact that lost or stolen items cost money. Newer UHF RFID tags that are disposable could be an outcome in loss prevention and anti-theft measures. 4. Stock visibility: The use of RFID over barcodes can result in much better stock visibility. Barcodes only provide information on stock levels for the complete store. Everything that is received minus the items that are scanned at checkout. With RFID it is possible to exactly know what type of items, with specific properties such as size, color and model, are being sold. So when a store is small and has a small display area there are not so much items on display. With RFID the store is replenished from the backroom when an item is about to sell out. This leads to less Out-of-Stock (OOS) situations and according to (Bertolini et al., 2012) it can lead to an increase of 15% in improved sales performance.
4.2 C
USTOMERR
ELATIONSHIP MANAGEMENTThe category of customer relationship management is aimed at improving the customer shopping experience. In retailing it is useful to know what your customers want and RFID could be very helpful in achieving that. Also it helps to enable omni-channel strategies to combine social, mobile, online and offline channels. The two most important use cases within this category are explained below. 1. Social shopping: The rise of social networks has changed our lives completely. We are sharing information and the publicity possibilities are enormous. Retailers are looking to make shopping more social by means of RFID technology. In this case the products are being tracked as well as the customers’ behavior. The products by means of tags and the client has a personal card that is RFID enabled. This enables the customer to share the products he or she is interested in and the retailer gets more insight in the shopping behavior.
2. Know your customer: Retailers must know their customers if they want to manage them well. If RFID is used and the client has a personal RFID enabled card it is possible to collect valuable data about this customer. For example, when a customer walks in to the store, the staff is immediately aware of what kind of customer just walked in. This ensures that important customers with high turnover and known purchase history are treated well. It allows the retailer to directly give the right service to the right person. These kind of applications are very privacy sensitive because customers are being tracked, both physically and their behavior. Well taken precautions and customer agreement is of the most importance to ensure the security of the obtained data. The customer should be clearly informed on what the retailer is using the data for.
4.3 M
ARKETING ANDP
ROMOTION MANAGEMENTThe retail industry heavily relies on marketing and promotion to boost sales and achieve a higher turnover. The omni-channel strategy comes into play again with improved customer experience and cross-selling by means of RFID technology. The upcoming sections will explain the applications that allow for better marketing and promotion for retailers. 1. Customer experience: The customer experience can be more intense and enjoyable when RFID applications are used. There are magic mirrors, smart fitting rooms and smart shelves that provide customers with more information and a more satisfying experience. The mirrors are using augmented reality to let you virtually try on specific clothes. The smart fitting rooms that are RFID enabled could read what products the customer is trying on and can give suggestions. These suggestions could be items that match the chosen products or allow for the customers to order items online. Smart shelves can show customers relevant information about specific items. 2. Cross selling: This type of selling is to offer customers other related products so they buy more. With RFID it is possible to know what exact type of product a customer has bought or wants to buy. Then cross selling can be more beneficial because the retailer can offer more targeted discounts and increasing the chance that the customer buys the suggested product. So this could be applied in real stores with smart shelves, smart fitting rooms or smart mirrors, all providing the customer with more information and possibilities. The paper of (Wong et al., 2012) emphasizes that this will only work when the right products are linked to one another and that customer behavior should also be taken into account.
3. Staff empowerment: The paper of (Rizzi et al., 2016) also suggests that RFID could be used to empower staff. Retailers experience relatively high employee turnover rates, the hay group experience a 67% median turnover rate (Phibbs, 2014). This leads to less trained staff and higher costs for retailers. RFID is able to help unexperienced staff to help key customers in the correct way. With the information that RFID generates the staff is able to give sensible advice and help the customer get what he wants. It is similar to cross selling but in this case the staff member is given the information.
4.4 L
OGISTICS MANAGEMENTThe logistics category is where RFID is able to enhance certain logistical processes. This could be the optimization of certain processes to reduce labor and the increase of process accuracy to reduce errors. This includes the forward flow in the supply chain, such as receiving items from a distribution center and to count the received inventory automatically. Also the backward flow is affected when RFID is used, this comes in the form of returned items and unsold items. 1. Process optimization and accuracy: RFID can be deployed in current processes of retailers such as receiving products and cycle counts. This will lead to optimized processes that will reduce labor and saves costs. Retailers can install readers at the receiving side of the store to reduce the time needed to read al the received goods. This will free up valuable time of staff members. RFID could also be used to achieve more accurate cycle count reads and thus a more accurate inventory status is accomplished. 2. Backward flow: The backward flow of retailers consists from products that are being returned by clients and unsold products. RFID is able to give better information on the authenticity of the product, where it was purchased and if the warranty is still valid. The application can lead to more streamlined backward flow of products (Rizzi et al., 2016).
4.5 I
NVENTORY ANDS
UPPLYC
HAIN MANAGEMENTOne of the best categories to apply RFID in the retail industry is the inventory and supply chain management where lots of advantages can be gained. The surveys and papers of (GS1US, 2014a; Hardgrave, 2010; Randy Unger, 2016) all state that the inventory accuracy can be improved OOS situations are reduced and the visibility in the supply chain is better. With better inventory and supply chain management omni-channel retailing is possible. 1. Inventory accuracy: The use of RFID helps to achieve higher inventory accuracy that allow for better replenishment and higher sale counts. RFID makes inventory counts more accurate en a lot faster, so inventory is counted more. The higher accuracy rate will cause the retailer to order the right product so that the stores never have OOS situations, which leads to higher sales. Also this could lead to lower inventories at stores because the data is more accurate.
Inventory is financially a high cost for retailers and the possibility to lower this cost and still offer all products to customers can be of great value. 2. Supply chain visibility: It is possible to achieve higher visibility in the supply chain when using RFID. Customers and supply chain stakeholders are able to retrieve real time information on products in the supply chain. For retailers this means that they know where their products are and in which quantities. This results in better knowledge of inventory levels and retailers are able to forecast better. For customers supply chain visibility can lead to better services. This means that retailers can offer clients correct availability of products at specific stores.
