CASE: RFID at the Metro Group

Group: 2, Section A
Q1. What factors contribute to in-store logistics problems in grocery retailing? How would
pallet and case level RFID reduce these problems?
Answer: Logistics problems in grocery retailing are as follows:
1. Shrinkage problem: Estimated shrinkage levels approximately 2% of sales worldwide.
Shrinkage happened due to inventory theft- either by store employees or by customers.
2. Out of Stock:
a. Products not available on the shelf but available in the backroom of the store
b. Products not available both on shelf and in backroom of the store
3. Inventory: Costs involved are holding and carrying costs. Higher the inventory held, higher will
be the costs.
4. Low Productivity: Because labour is involved in every step of the process, human intervention
is present. Because of low labour efficiency, the productivity declines.
5. Demand Handling: With the number of SKUs higher than ever, making demand forecasts is
more difficult than ever. This leads to higher inventory stocking leading to higher costs. Also
sometimes some product is over stocked and some product is under stocked.
6. High Costs: High warehouse, transportation and distribution costs.
7. Promotion compliance: A supermarket could have as many as 100 promotions in a week, yet
lack the resources to carry out so many events.
Solution to the above problems using pallet and case level RFID

1
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4
5
6
(2) Examine the process flow in Metro's grocery supply chain and identify how these processes
would improve with the implementation of RFID at the pallet level and the case level?

Answer:
The process flow in Metros grocery supply chain was typically as mentioned below:

PM a allen tsu f ae ithc t e r s to re d in p la n t

PwMu araalleerenr ts'suh of awu cse tereu or sre emr n'sot vb ey d d ire c tly
PtrMD auisellecttkrrtssoibtou tMioe ntro D C s
NIteFMPD elauisewmtnt rrpsbtoibaep llerau octtskfioep wnda elleinretsc lea resfte c sae saiv nthe dde pyd uect pa oem n ed eind . oT nh e My e tro s to re fo rm a ts .
PSCS atote lleonrerttser ee sm top relo yd e ine s p wla on ut ld ty p ic a lly o p e n th e p a lle ts a n d tr a n s fe r
wwC eae nrere t hrs oee un st e o n a s fu ll p a lle ts to s to re s
ths e c a s e s to th e s e llin g fl o o r.
A t th e M e tro s to re s , p a lle ts w e re u s u a lly p la c e d in th e b a c k ro o m .
U n its th a t c o u ld n o t b e p la c e d o n th e s h e lv e s w e re re tu rn e d to
b a c k ro o m a n d s to re d till s e lf s p a c e w a s a v a ila b le

With

the implementation of RFID at Metro, processes can be improved in the following ways:
Improved labour productivity: Automating processes conducted manually
Reduction of inventory counts
Improved Product availability
Process Improvement by using Pallet level tagging would
Improve Truck loading process: With RFID, truck driver could automatically check the
identity of a pallet. There is no requirement of manual scanning
No need of Supervision of entire loading process: Saving time and 0.2 per pallet shipped
Process improvement by using case level to improve Mixed Pallet picking
Automatic recording of number of cases: The picker need not enter manually the number of
cases picked. Time saved 4 minutes for every 1300 pallets picked per day and amount saved is
0.017 per case.
Reduction in picking errors: warehouse employees no longer have to check the pallets
Improving shelf restocking: RFID would improve in-stock rate from 96% to 98% due to
improved replenishment and reduction of picking errors which would ultimately lead to a 0.5%
increase in store sales

(3) Is RFID a good investment for Metro? In your analysis, use the benefits listed in Exhibit 8
and any other benefits mentioned in the case. Quantify the total savings that Metro would
realize from full-scale implementation of RFIP (both pallet-level and case-level)
Answer:
Yes, RFID is a good investment. Labor productivity increases, error decreases and efficient tracking
of product enables increases efficiency of the whole supply chain.
Assumptions in the calculations are:

Sales of 2005= Sales of 2004

Implementation of RFID is considered in 250 Metro Stores and 10 Metro Distribution Centres
No. of mixed pallets transported per day =1300
No. of trucks transporting pallets from Manufacturing DC to Metro DC per day 15
Each truck carries = 34 pallets
1 pallet= 80 cases

Cost and benefit for RFID

implementation in 2004

Case level tagging

56,40,90,00,0
00

28,20,45,0
00

42,87,40,0
00

44,75,250

Pallet level tagging

56,40,90,00,
000

8,500

8,500

Cost of tag printer

No. of portals at Metro
warehouse

2,500

2,500

20

20

No. of portals at Metro stores

No of printers per facility
( manufacturer use)
Percentage cost for trainings
installation, IT Infrastructure etc.

500

500

0.50

0.50

Sales in 2005
Savings due to avoidance of
shrinkage (25%*2% *Sales)
Savings due to On self Availability
+ Savings from Productivity and &
Labour Efficiency
Cost of Tagging
Cost of portal

Total investment

1%
44,65,463

Total Savings 1st year

Case

1,60,14,00
0

21,675

Pallet

1%

44,65,463

70,18,44,2
88

44,65,463

44,65,463

1,15,26,86
3

tagging
Total Benefits to
retailers (per case)

Tagging

16.49

1.57

No.of cases per year

2,60,00,000

1,02,00,000

Total Savings per

year

42,87,40,00
0

1,60,14,000

Cost of RFID in a
pallet
Cost of passive RFID
in 2005 ( year of
decision)
No. of RFID per case
No of RFID pr pallet
No. of cases per
pallet
Total cost of RFID

Case
tagging

Pallet
Tagging

0.17
1
1

0.17
0
1

80
13.77

80
0.17

As per the calculations investment cost could be recovered within a year or few years
(depending on case or pallet tagging) as a result of benefits derived from RFID tagging.
Thus overall the investment in RFID is a good decision.

(4) Which of the following options would you recommend that Mierdorf and Wolfram propose
to the RFID steering committee?
(a) Expand the scope of current level RFID rollout
(b) Move to case-level RFIF with the manufacturers currently engaged in pallet-level rollout
(c) Stop the expansion of RFID efforts and focus on traditional process improvement
opportunities

Answer

ES t x o p a R n d F I t h D e a s n c d o p f e o c u f s c o u n r t e r n a t d p i t a o l n e a t l e m v e l t h R o F d I D r o l o u t
Another options Move to case-level RFIF with the manufacturers currently engaged in
pallet-level rollout

1 . WI n vi t oh l vc ea mse e ln e tv fe r l o Rm F mI D a ,n ou vf ae cr at ul r esar s v ai n g d s m e t r o
i n c r e a se h e n c e a p i l o t p r o j e c t su g g e st e d