Whenever organizations test out a new technology there is inevitably a lot of trial and error involved. But an ongoing project at Staples Business Depot is proving to be that rarest of technology initiatives: a trial without error, at least as far as one of the key deliverables is concerned.
For the past year and a half, the office products retailer has been piloting a real-time inventory tracking system based on Active RFID tags. These tags use a battery as a continuous source of power and require only low-level signals from the reader, whereas Passive RFID tags reflect energy from the reader or borrow a tiny amount of it to generate a response.
Active tags have a number of advantages over Passive ones. For example, they can be continuously monitored at a distance of 100 metres or more, whereas Passive tags can only be read when they are scanned, and must be within three metres of the reader.
The Active tag technology hasn’t gained much of a foothold in the Canadian retail market, due largely to its relatively high cost (about $14 per tag; tags are reusable and have a life of about five years). But this will no doubt change as retailers figure out how to take advantage of the enhanced capabilities. Believing it had found just such an application, Staples Business Depot began piloting the technology in May 2007, using it to track high-ticket items such as laptops and printers.
“As soon as we receive high-value goods at one of our pilot locations, we put Active RFID tags on them before placing them in the store,” said Jeff Williams, vice-president, Information Systems. “The goods are tagged not only at a SKU level but also at an individual item level – so it’s not only an HP computer, it’s this particular HP computer, and we can associate the serial number of the computer with that tag.”
Two key objectives of the initiative were to reduce shrink and cut down on the time it takes to check inventory. And as this case study confirms, the company has been quite successful in meeting both of these objectives.
A FLAWLESS PERFORMANCE
Like most other retailers, Staples is always interested in looking at technology that can improve customer service or allow it to take cost out of operating its stores. So when Fujitsu Transaction Solutions Inc. presented a compelling argument for the use of the intelliTRACKER inventory tracking system from AbsoluteSKY Inc, Montreal, it caught Jeff Williams’ attention.
“We saw some promise in this technology,” he said. “Even though it’s fairly expensive, we looked at the return on investment and return on capital, and it appeared workable. Our internal returns had it paying for itself in a little over three years. And our hope is that as more organizations adopt the technology, it’ll become cheaper and we’ll be able to get a higher rate of return.”
Given the thumbs up on the project, Fujitsu came on board as Staples’s deployment partner. The business relationship began with a proof-of-concept test in 2007, followed by deployment of the real-time inventory tracking system in five stores in early 2008. Fujitsu was responsible for such things as installing the antennas, doing front-line support for the system, and working with AbsoluteSKY to make sure the system was physically integrated in the store.
“We had one success criterion. Staples wanted us to prove that we could provide a highly reliable solution and get a one hundred percent read rate,” said Peter Sciberras, general manager and vice president of sales, Canada, Fujitsu Transaction Solutions. “We were able to come out of the gate the very first day with that 100 percent rate, and the system has continued to perform at that level throughout the life of the project.”
This trial without error was just what Staples had been looking for, and so it’s been an easy progression from proof-of-concept to five-store trial, to the current expansion to ten more stores.
Williams said that there’s a business case for eventually rolling the technology out to all the Canadian stores, but the company is hoping that the cost will come down a little before it does any mass deployment.
HOW THE SYSTEM WORKS
Each store in the pilot has been segmented into four zones: front lock-up, back lock-up, high aisles (for lower-ticket items) and low aisles (for higher ticket items). Seven readers throughout the store monitor the signals from the tags and enable Staples to track the location of any tagged item.
“Our tags have a heartbeat; they’re beaconing out a signal,” said Sciberras. “This enables the system to identify the movement of an item within the store. For example, you can tell when an item moves from a low-shelf area to a high-shelf area, where a thief might take it to remove the packaging.”
The system also lets Staples know exactly what’s going out its front door. If an item goes out without its tag removed, an alarm will sound. The tags don’t create a privacy issue for consumers for two reasons, noted Williams. First, they are removed before the product leaves the store, and second, the information on them is changed when they are reused, and mapping to products is arbitrary. So even if someone outside the store could somehow track a tag, he still wouldn’t know what it was associated with.
The tags can work with other security devices as well. For example, Fujitsu is working with AbsoluteSKY to build the Active RFID tags into a regular Spider Wrap form factor. Spider Wrap secures items with high-tensile cable that goes around the box and sounds an alarm if cut.
“The interesting thing about this is that you now have a device on there that can broadcast a signal,” said Williams. “So if a bad person tries to pull on a Spider Wrap, the tag can broadcast to our system and say I’m being tampered with, or if they cut the Spider Wrap, the system can broadcast a signal saying this particular product in this particular part of the store is being forced open or whatever. That is a very powerful thing. We haven’t deployed it yet but it’s being developed and we’re very interested in trying it out.” Active RFID tags can also be put in Alpha boxes or ‘Keepers’ – clear tamper-proof containers for smaller items. When put in an Alpha box, the tags can help determine when a box is being squeezed or pried open.
“The tags have been useful from a loss prevention perspective already,” said Williams. “They’ve helped us see when product has moved within the store that has later gone missing.”
According to Sciberras, the technology has virtually eliminated shrink on the tagged items. “We’ve taken their shrink down to zero percent,” he said. “And we’ve also improved their out-of-stock position by 21 percent. This is very significant.”
MANAGING INVENTORY
Williams confirms that keeping track of inventory has been one of the key benefits of the system.
One surprising benefit of the system has been an increase in sales and gross margin on the products that have been tagged. Williams believes that these increases are due to the fact that the system has made it easier for staff to find these products. Say, for example, that a customer is looking for the last laptop of a certain type in the store. If the associate doesn’t know that the laptop has been moved to a different location or has been put in a locked area, the sale might be lost. With the Active RFID tag, the item can be easily located. Looking ahead, Williams thinks that these tags may have other merchandising benefits, especially when prices come down and they can be used on more items.
“If you add an accelerometer to these chips then the system could tell you when customers are picking things up and putting them down. And that might give you important information about your customers,” he said. “People are now using video analytics to analyse customer behaviour at the store shelf, and this would give you more data in that area. Did somebody pick up these two cell phones and compare them? And which one are they walking out with? Knowing the answer to such questions could give you an idea about things like features or packaging.”
PROVING THE CONCEPT
The fact that Staples is expanding the five-store trial to a further ten stores speaks to the perceived success of the system. As for metrics to support that perception, Williams says that the five pilot stores are being compared to a five-store control group in order to do proper statistical analysis.
“We look at the labour hours we’re saving and we estimate shrink on the classes of products that are tagged. We also look at how sales and gross margins change in those classes of merchandise, compared to the control group of stores,” he said.
Joe Soares, Staples’ director of process engineering, was the main liaison with the vendor on the project. He summed up the benefits succinctly: “Results from the five-store pilot confirm the positive outcomes we witnessed during our proof-of-concept phase. Supported by broader data collection and intense scrutiny, we experienced 100 percent inventory accuracy, reduced shrink, increased sales and reduced store labour costs, all against an extremely compelling ROI.”
Perhaps the most important metric, though, comes from the pilot stores themselves.
“We look at how the stores react when you offer to remove the technology. If they find it helps them with their jobs, even if we’re taking a little bit of labour hours away from them, then they don’t want to give it up,” said Williams. “But if the stores don’t like it for whatever reason, or if they don’t see it as helping them, then it’s rarely going to be successful.” So far, none of the pilot stores have wanted to go back to the old way of doing things.
One of the best things about the inventory-tracking system was the modest demand it put on IT to implement. “The test has been pretty straightforward from a technology perspective and from a support perspective,” said Williams. “We had some issues with the data integration but we sorted that out, so nothing too dramatic. The system itself has worked pretty much as advertised.”
So the project really has been pretty much a trial without error. Too bad it’s the exception rather than the rule.
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Jim Love, Chief Content Officer, IT World Canada
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