SCM - Case analysis on

RFID at the METRO

group

Sec B Group 6 | Anjani Kumar | Nikhil Narayan | Pavan Kumar Gathala |

Pradeep Kumar | Rajagopalan S | Vivek Krishnan | Vishwas TM
Company
 A wholesale business serving commercial
customers

 Founded in 1964 by Otto Beisheim and

company went public in 1996

 In 1996, Company merged its cash and carry

operations with its retail holdings into one
holding company, The METRO group

 Company operated in more than 2300

locations in 30 countries

 It was organized around 6 independent sales

divisions – Cash and carry (wholesale), Real
(hypermarkets), Extra (supermarkets), Media
Markt and Saturn (consumer electronics) and
two other divisions
The flow of Goods

A typical Extra Store

Pallets are sent by truck to
received 24 to 26 pallets per
Metro owned DC’s or Stores
week from Metro DCs

Packed items into Cases

and then put on pallets.
These pallets were stored
either in Plant Warehouse or
Manufacturer’s DC
Final sales point. Store
Here, at Metro DC, Pallets
Employees opened the
are normally repacked into
pallets and transferred the
Mixed pallets
cases to the selling floor
Factors that contribute to in-store logistics
problem
Problem Reduction from Case and pallet
level RFID

 Reducing Shrink in the supply chain

 Improved On-Shelf Availability and Reducing Out of Stocks
 Improving Planogram and Promotion Compliance
Productivity and Labour Efficiencies
Increase Customer Service level
Increase Fill rate
Reduced Lead time
Both Manufacturers and Retailers are benefitted as Demand variability is reduced
Total Supply Chain Surplus is increased
Process improvement with implementation
of RFID at Metro
Potential Benefits
 Improving labor productivity through automating processes conducted manually
 Replacing existing processes with more efficient ones
 Reduction of inventory counts
 Improved Product availability

Using Pallet level to improve Truck loading process

 With RFID, truck driver could automatically check the identity of a pallet – No Manual
Scanning
 No need of Supervision of entire loading process
 10 minutes of supervising time for each of the 15 trucks leaving the warehouse
everyday. Euro 0.2 per pallet shipped is saved
Process improvement with implementation
of RFID at Metro
Using case level to improve Mixed Pallet picking
 The picker no longer have to manually enter the number of cases picked
 4 minutes is saved for every 1300 pallets picked per day
 A cost of euro 0.017 per case is saved
 Reduced picking errors, warehouse employees no longer have to check the pallets

Using case level to improve shelf Restocking

 RFID would improve in-stock rate from 96% to 98% due to improved replenishment
and reduction of picking errors
 This would lead to a 0.5% increase in store sales
 Profit would increase by euro 0.5 per additional product sold
 Efficiency improvement, theft reduction and improvement of product availability
Is RFID a Good Investment for Metro? (1/5)
Cost Savings for Case Level RFID Tagging
  For Metro Cents
Labour Productivity Elimination of counting in receiving goods 0.30
Labour Productivity Labour reduction in picking mixed pallets 1.70

Labour Productivity Elimination of sample checks of mixed pallets 0.30

Labour Productivity Reduction of Inventory Counts 0.10
Shipment Accuracy Reduction of mispicked cases 1.50
Product availbility Increased profit from better on-shelf status 5.00
Shrinkage Reduction in Shrinkage 0.60
  Total Saving 9.50
  Total Saving per month per store 91,200.00

  Total Saving per year per store (Euros) 10,944.00

  Total Savings for Metro (Euros) 27,36,000.00

  Total Costs for Metro (Euros) 59,80,000.00
*Considered 250 stores and 10 warehouses
Is RFID a Good Investment for Metro? (2/5)
 
Cost Savings for Pallet Level RFID Tagging
 

  For Metro Cents

Labour Productivity Automating bar code scans in receiving and storing pallets 11.20

Automating bar code scans in order assembly for store

Labour Productivity shipment 2.80

Labour Productivity Truck Loading for store shipment 1.70

  Total Saving per pallet 15.70

  Total Saving per month per store 2,47,275.00

  Total Saving per year per store (Euros) 29,673.00

  Total Savings for Metro (Euros) 2,96,730.00

  Total Costs for Metro (Euros) 2,30,000.00

 Is RFID a Good Investment for Metro? (3/5)
  2004 2005 2006 2007 2008 2009
Total Savings witnessed   27,36,000.00 28,72,800.00 30,16,440.00 31,67,262.00 33,25,625.10
Total Costs 59,80,000.00          
Total Cash Flow for Case tagging -59,80,000.00 27,36,000.00 28,72,800.00 30,16,440.00 31,67,262.00 33,25,625.10

Total Present Value at 10% discount rate 53,76,017.72          

  2004 2005 2006 2007 2008 2009

Total savings witnessed   2,96,730.00 3,11,566.50 3,27,144.83 3,43,502.07 3,60,677.17

Total Costs 2,30,000.00          

Total Cash Flow for Pallet tagging -2,30,000.00 2,96,730.00 3,11,566.50 3,27,144.83 3,43,502.07 3,60,677.17

Total Present Value at 10% discount rate 10,01,604.95          

Is RFID a Good Investment for Metro? (4/5)
Cash Flows – Case Vs Pallet
Is RFID a Good Investment for Metro? (5/5)

 RFID is a Good Investment for Metro, because with this technology they can
reduce shrink and other benefits are increased product availability, better
data quality and higher labor productivity
 Metro can earn savings of € 296K million per year if RFID is implemented at
pallet level tagging
 Net present value of this project over 5 years is € 1 million using pallet-level
tagging and € 5.3 million using case-level tagging
 Metro should implement RFID using case-level tagging so that it can earn
more savings with better service
Analyzing the options
 Limited launch of RFID was the right move
 New IT implementations are extremely difficult and it is often impossible to
foresee all of the possible problems
 By doing small test cases and rolling out RFID to only a few supplier they greatly
increased their chance of success

 Company did a nice job of getting full "buy in" by top management
 The RFID implementation would definitely take several years and if top
management did not fully buy in then support for the project would begin to wane

 Company did a nice job of doing research to immediately substantiate their benefits of
RFID. 
 This research helped to prove the merits of the project.  Furthermore, because
they did research internally and through outside consultants, the benefits of RFID
could proven and authenticated.
Analyzing the options
Stop RFID and focus on Traditional method
 Shrinkage may not be reduced with traditional methods
 On shelf availability and out of stocks can be improved but overhead increases.
Retailer may not be ready to share sales data with manufacturer
 Metro’s objective is to increase in-stock rate from 96% to 98%. Achieving this with
traditional methods may be a problem

Expand the Scope of current Pallet level RFID roll out

 Second generation tags would be available and Metro wanted to replace older model
 These Gen 2 tags would have one global standard, offered improved read rates and
were cheaper
 However, Metro had to replace existing readers with new ones compatible to new tags
Recommendation: Case Level RFID
Pros
 Since the overall savings increases in case level RFID, we suggest
Metro to do a pilot study with case level RFID

 Based on the learnings in pilot study, it can go on a full scale

implementation of case level RFID
Cons
 Lot more involvement from both manufacturers and metro
 Manufacturers have to purchase more tags
 Manufacturers have to change processes inside their plants
 Read rates may not be 100%
 Data storage in IT systems needs to be changed
 Metro has to invest in training at its stores and DCs
Thank You