University of Wollongong

Research Online
Faculty of Informatics - Honours Theses University of Wollongong Thesis Collections

2006

Minimizing product shrinkage in the supply chain through the use of radio-frequency identification: A case study on a major Australian retailer
N. Huber
University of Wollongong

Publication Details
This thesis was originally submitted as Huber, N, Minimising product shrinkage across the supply chain using radio-frequency identification: A case study on a major Australian retailer, Bachelor of Information and Communication Technology (Honours), University of Wollongong, 2006, 192p.

Research Online is the open access institutional repository for the University of Wollongong. For further information contact the UOW Library: research-pubs@uow.edu.au

Minimizing product shrinkage in the supply chain through the use of radio-frequency identification: A case study on a major Australian retailer
Abstract

Radio Frequency Identification (RFID) has been used for over half a century. Today, RFID is commonly used for electronic toll collection on motor highways, document management, identification of gaming tokens and chips in casinos, tracking and sorting luggage at international airports, managing diamonds for jewellery businesses, and inventory management for pharmaceutical and retail industries. These are just a few of the many thousands of applications that RFID can facilitate. Currently, the retail industry uses barcodes to identify products and Electronic Article Surveillance (EAS) as an anti-theft mechanism solely within retail outlets. Both systems have the ability to play a role in an overall loss prevention strategy, yet they fail to minimise product shrinkage across the entire retail supply chain from the point of manufacture to the end customer. Recent developments in automatic identification (auto-ID) have seen the emergence of Generation-2 (Gen-2) RFID technologies as an asset management solution integrated into the supply chain. In addition, the recent ratification of a global standard for RFID tags and data storage is intended to oversee the technologys interoperability on a global scale. So far, this type of technology provides a means to uniquely identify tagged items, track and trace an item at any given time and rapidly capture data. One retailer who has fully embraced Gen-2 RFID technology is Wal-Mart in the United States. Wal-Mart has mandated its suppliers RFID enable products as part of this initiative. Retailers based in the United States are adopting RFID technology but it is yet to engage the Australian retail industry. Focusing on RFID as a potential technology to minimise product shrinkage across the retail supply chain, this thesis provides conclusive results in an attempt to complement existing works. It is also designed to further contribute to the field of information technology and the application of RFID, thus bringing with it benefits to the academic community and the retail industry.
Publication Details

This thesis was originally submitted as Huber, N, Minimising product shrinkage across the supply chain using radio-frequency identification: A case study on a major Australian retailer, Bachelor of Information and Communication Technology (Honours), University of Wollongong, 2006, 192p.

This thesis is available at Research Online: http://ro.uow.edu.au/thesesinfo/8

Abstract
Radio Frequency Identification (RFID) has been used for over half a century. Today, RFID is commonly used for electronic toll collection on motor highways, document management, identification of gaming tokens and chips in casinos, tracking and sorting luggage at international airports, managing diamonds for jewellery businesses, and inventory management for pharmaceutical and retail industries. These are just a few of the many thousands of applications that RFID can facilitate.

Currently, the retail industry uses barcodes to identify products and Electronic Article Surveillance (EAS) as an anti-theft mechanism solely within retail outlets. Both systems have the ability to play a role in an overall loss prevention strategy, yet they fail to minimise product shrinkage across the entire retail supply chain from the point of manufacture to the end customer.

Recent developments in automatic identification (auto-ID) have seen the emergence of Generation-2 (Gen-2) RFID technologies as an asset management solution integrated into the supply chain. In addition, the recent ratification of a global standard for RFID tags and data storage is intended to oversee the technologys interoperability on a global scale. So far, this type of technology provides a means to uniquely identify tagged items, track and trace an item at any given time and rapidly capture data. One retailer who has fully embraced Gen-2 RFID technology is Wal-Mart in the United States. Wal-Mart has mandated its suppliers RFID enable products as part of this

initiative. Retailers based in the United States are adopting RFID technology but it is yet to engage the Australian retail industry.

Focusing on RFID as a potential technology to minimise product shrinkage across the retail supply chain, this thesis provides conclusive results in an attempt to complement existing works. It is also designed to further contribute to the field of information technology and the application of RFID, thus bringing with it benefits to the academic community and the retail industry.

Certification
This thesis was produced and submitted to the Department of Information and Communication Technology, University of Wollongong, in partial fulfilment of the requirements for the award of the degree Bachelor of Information and Communication Technology (Honours). I, Nicholas Huber, declare this thesis to be wholly my own work unless otherwise referenced or acknowledged. The document has not been submitted for qualifications at any other academic institute.

Nicholas Huber

20 October 2006

ii

Acknowledgements
I would like to offer my sincerest gratitude to all the people that assisted me in the completion of this research. It would not have been possible without the help offered by others throughout this extended process.

Special thanks goes to my supervisor Dr Katina Michael. Her guidance and constant support over the past year has been extremely valuable to me and my research. Dr Michaels encouragement heightened my motivation to get to the next level even when I was feeling overwhelmed.

I would also like to thank all employees of the retail organisation and RFID vendors and associations who were willing to participant in my research. Their

willingness to accommodate me during my research was remarkable and I am highly appreciative of that.

Finally, I would like to thank my ever supportive family and friends. They provided me with confidence and the reassurance that there was actually light at the end of the tunnel. To them I express my love and gratitude for their patience and time they put in to making this research process an enjoyable experience for me.

iii

Table of Contents
Abstract Certification Acknowledgements List of Figures and Tables Acronyms and Abbreviations Chapter 1 Introduction 1.1 Overview 1.2 Significance of Research 1.2.1 Gap in the Literature 1.3 Research Objectives 1.4 Methodology 1.4.1 Interviews 1.4.2 Document Analysis 1.4.3 Justification of Methodology 1.4.4 Conceptual Framework 1.5 Outline 1.6 Conclusion 1.6.1 Limitations Chapter 2 Literature Review 2.1 Introduction 2.2 The Supply Chain 2.2.1 The Retail Supply Chain 2.3 Barcode Systems 2.3.1 What is a Barcode? 2.3.2 Why use Barcodes? 2.3.3 Disadvantages of Barcodes? 2.4 Product Shrinkage 2.4.1 What is Product Shrinkage? 2.4.2 Why is Product Shrinkage a Problem? 2.5 Loss Prevention 2.5.1 Existing Preventative Measures
2.5.1.1 Electronic Article Surveillance (EAS)

i ii iii viii ix 1 1 3 3 3 4 4 5 5 5 7 7 7 9 9 10 10 11 11 11 12 13 13 14 15 15 16 16 16 20 20

2.6 RFID 2.6.1 What is RFID? 2.6.2 Applications of RFID

2.6.2.1 Advantages of RFID

iv

2.6.2.2 Disadvantages of RFID

23 24 24 25 25 25 26 26 28 28 29 29 30 31 32 33 33 35 35 35 35 36 37 37 41 42 42 44 45 46 48 49 49 51 53 53 53 54 55

2.7 The Gap in the Literature 2.8 Conclusion Chapter 3 Methodology 3.1 Introduction 3.1.1 Research Objectives 3.2 Research Strategy 3.2.1 Case Study 3.3 Research Design 3.3.1 Unit of Analysis and Time Horizon 3.4 Qualitative Research 3.4.1 Interviews
3.4.1.1 Interview Protocol 3.4.1.2 Interview Structure 3.4.1.3 Content Analysis of Interview Transcripts

3.4.2 Document Analysis 3.5 Conclusion Chapter 4 The Retailer 4.1 Introduction 4.2 Background of the Retailer 4.2.1 Retail Regions and Interviewees 4.3 The Retailers Barcode and EAS System 4.3.1 The Retailers Barcode System 4.3.2 The Retailers EAS System 4.4 Product Shrinkage: the Retailers Dilemma 4.4.1 The Retailers perspective on Product Shrinkage
4.4.1.1 Contributing Factors of Product Shrinkage 4.4.1.2 Products that contribute to Product Shrinkage 4.4.1.3 Product Shrinkage: a Process, Technology or People problem? 4.4.1.4 Products Shrinkage across the Retail Supply Chain 4.4.1.5 Consequences of Product Shrinkage

4.5 Tracking Products across the Retail Supply Chain 4.6 The Retailers Perceptions of RFID 4.7 Conclusion Chapter 5 RFID Vendors and Associations 5.1 Introduction 5.2 Background of RFID Vendors and Associations 5.3 RFID Vendors & Associations perceptions of Product Shrinkage 5.4 Minimising Product Shrinkage using RFID

5.4.1 Visibility
5.4.1.1 Warehouse Discrepancies 5.4.1.2 Theft 5.4.1.3 Misplaced and Lost Products

55 56 57 57 58 58 59 59 60 60 61 61 61 62 63 65 65 65 66 67 67 69 70 71 72 73 74 74 75 77 77 79 80 80 81 81 83

5.4.2 Authentication
5.4.2.1 Recalls 5.4.2.2 Fraud 5.4.2.3 Counterfeits

5.4.3 Automation
5.4.3.1 Human Error

5.4.4 Auxiliary Applications

5.4.4.1 Damaged Products 5.4.4.2 Temperature 5.4.4.3 Expiration Date and Stock Rotation

5.5 Conclusion Chapter 6 Discussion 6.1 Introduction 6.1.1 Qualitative Content Analysis 6.2 RFID: The Emerging Technology 6.2.1 Barriers to Adoption
6.2.1.1 Cost 6.2.1.2 Lack of Awareness 6.2.1.3 Immature Technology 6.2.1.4 Differing Perceptions of Product Shrinkage and RFID

6.2.2 The Convergence of RFID and Legacy Systems 6.2.3 Level of Tagging 6.2.4 RFID Source-tagging 6.2.5 Integrating RFID across the entire Supply Chain 6.3 Conclusion Chapter 7 Conclusion 7.1 Principal Conclusions 7.2 Major Implications 7.3 Links to Earlier Findings 7.4 Limitations and Further Research 7.5 To Whom the Findings Apply 7.6 Recommendations References Appendix A Roles and Responsibilities of Retail Interviewees

89

vi

Appendix B Appendix C Appendix D Appendix E

Descriptions of RFID Vendors & Associations Retailer Interview Questions RFID Vendors & Associations Interview Questions Retailer Interview Transcripts Interview #1 Retailer Loss Prevention Manager (1) Interview #2 Loss Prevention Investigator Interview #3 Loss Prevention Manager (2) Interview #4 Liquor Manager Interview #5 Grocery Manager Interview #6 Store Services Manager Interview #7 Store Trading Manager Interview #8 Store Manager Interview #9 Delicatessen Manager Interview #10 Night-fill Captain Interview #11 Customer Implementation Executive

90 91 92 93 93 99 105 107 112 117 123 129 133 138 143 147 147 151 157 164 169 173 176 181 186 190 191 192

Appendix F

RFID Vendors & Associations Interview Transcripts Interview #12 RFID Vendor 1 Interview #13 RFID Vendor 2 Interview #14 RFID Vendor 3 Interview #15 RFID Vendor 4 Interview #16 RFID Vendor 5 Interview #17 RFID Vendor 6 Interview #18 RFID Vendor 7 Interview #19 RFID Association Interview #20 RFID Standards Body

Appendix G Appendix H Appendix I

Participant Information Sheet Consent Form Human Research Ethics Committee Approval

vii

List of Figures and Tables

Figures 1.1 2.1 2.2 2.3 2.4 2.5 2.6 3.1 3.2 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 5.1 5.2 6.1 6.2 6.3 6.4 7.1 Tables 2.1 3.1 3.2 3.3 3.4 4.1 4.2 4.3 6.1 6.2 RFID tag classes and chip generations Units of analysis Research interviewees Intended objectives of interview questions for the retailer Intended objectives of interview questions for RFID vendors and associations Retail regions for the study Products that contribute the most to product shrinkage Retail-based examples of process, technology and people problems Discussion themes created from the concept map Australian Demonstrator Project participants 17 28 30 31 32 36 44 45 66 70 Conceptual Framework for the study The retail supply chain EAS tags Connection between RFID tag, antenna and reader Barcodes versus RFID tags Electronic Product Code format Location of theft in Australia Data collection components of Conceptual Framework Creating themes using Leximancer Responsibilities of retail departments across the retail supply chain Checkpoint Metro EAS gates in a liquor store entrance Reusable EAS tag Adhesive EAS tag Products source-tagged from their suppliers Contributing factors to product shrinkage Products that contribute the most to product shrinkage Process, technology and people: contributing to product shrinkage The cascading effect of product shrinkage RFID as a means to minimise product shrinkage An RFID gateway at a retail receiving area Leximancer analysis report (concept map) RFID adoption model Smart Label RFID tags fitted at pallet-level Contributing factors and sources of product shrinkage (combined) 6 10 16 17 19 19 23 26 33 36 38 38 38 39 43 44 45 48 55 57 66 68 72 73 77

viii

Acronyms and Abbreviations

ACMA AIC ABS Auto-ID CAQDAS CSIRO DC EAN EAS EPC Gen-1 Gen-2 GPS GS1 ISO MHz OHIO POS RDC RF RFID ROI SSCC SCM UCC UHF UPC Wi-Fi WMS Australian Communications and Media Authority Australian Institute of Criminology Australian Bureau of Statistics Automatic Identification Computer Assisted Qualitative Data Analysis Software Commonwealth Scientific and Industrial Research Organisation Distribution Centre European Article Number Electronic Article Surveillance Electronic Product Code Generation-1 Generation-2 Global Positioning System Global Standards One International Organisation for Standardisation Megahertz Zero Human Intervention Operation Point of Sale Regional Distribution Centre Radio Frequency Radio Frequency Identification Return on Investment Serial Shipping Container Code Supply Chain Management Uniform Code Council Ultra High Frequency Universal Product Code Wireless Fidelity (wireless network) Warehouse Management System

ix

CHAPTER 1

INTRODUCTION

Chapter 1 Introduction
1.1 Overview
The research conducted within this thesis is concerned with the inevitable dilemma of product shrinkage in the retail industry. Sources that contribute to product shrinkage include criminal and non-criminal activities such as theft, administrative errors, damage, spoilage and product recalls. A direct consequence of this issue is considerable loss which is experienced by retail organisations, stakeholders, and retail customers (interchangeably used with the term consumer). This dilemma necessitates a solution be found to minimise product shrinkage.

As one of the largest industries worldwide, retail is primarily involved with the purchasing and selling of millions of consumer goods (Lefebvre et al. 2006). During this process, products need to be individually identified to allow for streamlined trading practices throughout the supply chain and at point of sale. Today, barcodes are the most commonly used technology for the automatic identification (auto-ID) of products in the retail industry (Cohen, 1994; Palmer, 1995). According to Bose and Pal (2005), barcodes have been used to identify products and coordinate supply chains in the retail industry since the 1950s. With the widespread proliferation of the barcode retailers are using it as a standard system to automatically identify their products. However, barcodes have many well known limitations.

Barcodes have a number of limitations which present problems to the storage and automatic capture of product data. Once a barcode has been printed on an item, the data is fixed and cannot be updated (Cohen, 1994). Data on a barcode identifies a product type but cannot be used to distinguish the individual difference between two or more products of the same type. Barcode technology automatically captures product data on a barcode using line-of-sight barcode scanners (Cohen, 1994). If a barcode scanners lineof-sight is obstructed it is unable to capture data. In addition, human involvement in the barcode scanning process can lead to errors (Singer, 2004) and individually locating or identifying large quantities of products can be labour and time intensive (Hecker, 2006). According to Garfinkel and Rosenberg (2005) in a study conducted on a retailer, it was discovered that up to 65 percent of inventory records maintained using a barcode system

CHAPTER 1

INTRODUCTION

were inaccurate. Consequently, barcodes fail to offer substantial provisions to be used as a loss prevention mechanism.

Today, retailers are using Generation-1 Radio Frequency Identification (Gen-1 RFID) systems commonly known as Electronic Article Surveillance (EAS), as an antitheft mechanism at store entrances (Lahiri, 2006; Fischer and Green, 2004). As

shoplifting costs retailers millions of dollars each year, EAS systems are designed to reduce overall levels of product shrinkage in effect, maximising the number of products available to retail customers (Fischer and Green, 2004).

EAS is one of the most basic applications of RFID (Bhuptani and Moradpour, 2005). Its main function is to notify staff (using an alarm system) that a tagged product leaving the store is potentially unpaid for. High-end products (e.g. razor blades, batteries, cosmetics) are generally the only types of products fitted with EAS tags. With the first implementation of EAS systems, products were manually tagged at store-level by retail employees. However, according to the Association for Automatic Identification and Mobility (AIM Global 2004), products are increasingly source-tagged by suppliers at point of manufacture or packaging. EAS tags are now built into the packaging of

products making suppliers an important part of securing products using EAS at storelevel. An EAS system merely monitors products as they pass store entrance and exit points, but product shrinkage undoubtedly occurs at various points across the retail supply chain. Surely newer RFID technologies can automatically identify and monitor products at various points across the supply chain and offer benefits that overshadow traditional EAS systems.

Developments in auto-ID technologies have seen Generation-2 (Gen-2) RFID systems cater for the enhanced storage and rapid capture of product data (Bhuptani and Moradpour 2005; Garfinkel and Rosenberg 2005; Kleist et al. 2005; Lahiri 2006). Within the next ten years, one the most anticipated ways in which RFID is to be integrated into supply chains is using tags to track the movements of consumer products from suppliers to point of sale (Bhuptani and Moradpour 2005; Borriello, 2005; Garfinkel and Rosenberg 2005). Tracking an item means that a retailer can locate a product anywhere and at anytime across the supply chain (Bose and Pal, 2005) and potentially minimise product shrinkage by identifying its various sources.

CHAPTER 1

INTRODUCTION

1.2

Significance of Research
The proposed area of research is significant as product shrinkage is a constant As product shrinkage is a major

challenge comprising of many unknown sources.

problem in the retail industry certain measures must be installed to minimise such activity. Currently, all products in the retail industry feature a barcode. Barcodes do not cater for loss prevention mechanisms and it is not foreseen that they could play large part in one. EAS operates within retail outlets as an anti-theft device, but fails to minimise product shrinkage across the entire retail supply chain. According to Fisher and Green (2003, p. 353), RFID is the latest addition to the retail arsenal. RFID is considered to be a loss prevention mechanism, while at the same time an asset (product) tracking technology to be integrated within the supply chain. As part of a loss prevention strategy, retailers can leverage RFID technologies in an attempt to minimise product shrinkage.

1.2.1 Gap in the Literature

There is a lack of academic literature in relation to RFID as a solution to minimise product shrinkage. An over-abundance of literature exists on the subject of barcodes, EAS and the benefits RFID systems have to offer organisations willing to adopt them. However, existing literature fails to mention the potential use of RFID systems to minimise product shrinkage across the retail supply chain. Hence, the following aims and objectives were created for this study.

1.3

Research Objectives
This thesis concentrates on two main groups; an Australian retailer and RFID The four precise research objectives for this study that

vendors and associations.

subsequently incorporate these two groups are: 1. Review literature to determine whether significant research exists on the application of RFID as a means to minimise product shrinkage across the retail supply chain. 2. Identify the contributing factors of product shrinkage and investigate the current state of RFID as part of a loss prevention strategy in a case study of an Australian retailer. 3. Determine the perceptions of RFID vendors and associations for the potential of RFID to minimise product shrinkage across the retail supply chain. 4. Explore the interplay between the retailers dilemma of product shrinkage and the solutions advocated by RFID vendors and associations to minimise product shrinkage.

CHAPTER 1

INTRODUCTION

1.4

Methodology
The research strategy for this thesis is a single case study on a large Australian

retailer. Using qualitative analysis, the case study was exploratory in nature and revealed what was actually happening in the retail industry. Research explored the current uses of RFID as part of a loss prevention strategy designed to minimise product shrinkage in a retail environment. Semi-structured interviews and document reviews were the two

forms of data gathering techniques used to collect qualitative data. Data was collected using interviews from two groups which formed the units of analysis for the study. The two units of analysis included a large Australian retailer and RFID vendors and associations.

1.4.1 Interviews
As described by Saunders, Lewis and Thornhill (2003), interviews are a primary method used when collecting data for qualitative research analysis. A total of twenty (20) interviews were conducted for this study. Data was collected on an Australian retailer and RFID vendors and associations through the use of semi-structured interviews. Interviewees from the retailer included staff members from the Loss Prevention Department and other department managers residing in retail outlets. Employees from RFID vendors and associations included managerial staff, technical staff, sales staff and consultants. Interviewees were selected on the basis of their availability, however, more importantly an interviewees applicability was determined on their assumed knowledge of product shrinkage and RFID technologies.

Interview transcripts were analysed using a Computer Assisted Qualitative Data Analysis Software (CAQDAS) program; Leximancer. As a tool used to extract main concepts from documents, the researcher was able to use these concepts in the creation of research themes. These themes then formed part of a narrative response to satisfy

objective four of this thesis.

As interview results were applied to situations in a real world context, the study has a better chance of gaining a higher degree of external validity (Leedy and Ormond, 2005). Furthermore, it enhances the possibility of this study to provide conclusive

evidence which could be used in further studies, or even as a tool in providing solutions to product shrinkage in the retail industry.

CHAPTER 1

INTRODUCTION

1.4.2 Document Analysis

As a secondary form of data collection, document analysis was used to supplement the information gathered in interviews and as supporting evidence to further validate thesis findings. According to Yin (1994), document analysis is designed to accompany results gathered through interviews. Types of documents analysed included academic literature (e.g. books, journals) and trade documents (e.g. Retail News, RFID Journal). These sources were used as supporting evidence where necessary, as they explained the challenges experienced by retail organisations and provided real world and practical examples of RFID applications in current industry environments.

1.4.3 Justification of Methodology

As this thesis is concerned with product shrinkage and how and why it occurs in the retail industry, it is advised to follow a case study research strategy. According to Yin (1994, p. 3), a case study generally highlights a decision or set of decisions; why they were taken, how they were implemented, and with what result. These

methodologies have been selected as they are the most appropriate research strategies for this thesis. The proposed qualitative research is designed to coalesce verbal and

document data into a form that provides coherence and ultimately a conclusion. The selected methodologies are also designed to provide succinct research procedures and guide the research process throughout its entirety.

1.4.4 Conceptual Framework

A conceptual framework has been devised to guide the research process and identify the main issues to be examined and further discussed in this research. As suggested by Yin (1994), a conceptual framework directs and organises qualitative analysis. The proposed conceptual framework for this study (Figure 2.0) consists of four main components: RFID vendors and associations, the retailer, the retail supply chain and the convergence of RFID, barcodes (legacy systems) and other additional technologies.

The frameworks first component is the Retailer which includes an Australian retail organisation that has the desire to minimise product shrinkage across the supply chain. This is due to product shrinkage being a major problem in the retail industry (Bhuptani and Moradpour, 2005; Fischer and Green, 2004) and a concern to retailers across Australia (AIC, 2004b). As part of the retailer component, employees are primary sources of data collection through the use of interviews conducted in this thesis.

CHAPTER 1

INTRODUCTION

Qualitative data will be used to determine what is actually happening in the retail industry, where does product shrinkage occur across the supply chain and how are retailers using RFID technology as part of a loss prevention strategy?

RFID Vendors and Associations consists of organisations specialising in the field of RFID technologies and RFID business solutions designed to be integrated into the supply chain to automate supply chain processes. This part of the conceptual framework concentrates on the perspectives of RFID vendors, associations (including standards bodies) and the numerous benefits that RFID has to offer suppliers, retailers and their customers.

The third component of the conceptual framework is the Retail Supply Chain. This component draws the attention of both the retailer and RFID vendors and associations as both parties have a common interest in this topic. This component

involves the use of legacy barcode systems currently used in retail to semi-automate supply chain processes. As part of a loss prevention strategy EAS (Gen-1 RFID), is a widely adopted technology used to minimise product shrinkage in the retail industry. It is anticipated that newer, more sophisticated Generation-2 RFID systems can work alongside barcodes systems.

The Convergence of RFID, Barcodes (Legacy Systems) and other additional technologies is the fourth component. This component will explore the interplay between the retailers dilemma of product shrinkage and the solutions advocated by RFID vendors and associations to minimise product shrinkage.

Figure 1.1 Conceptual Framework for the study

CHAPTER 1

INTRODUCTION

1.5

Outline
In addition to the conceptual framework for the study, the thesis is structured to

satisfy thesis objectives stated in section 1.3. Chapter two will review and logically organise previous research associated with product shrinkage and RFID as a means to minimise product shrinkage across the supply chain. Investigation of academic literature will also clarify the issues directly related to this area of study with the intention of demonstrating the gap in academic research. Chapter three presents the formal academic methodologies relevant to this field of study which were used to gather data to produce answers to thesis objectives. Chapter four identifies the sources that contribute to product shrinkage and technologies used by a major Australian retailer as part of loss prevention strategy. Chapter five is intended to ascertain the perceptions of RFID vendors and associations for the potential of RFID to minimise product shrinkage and the main drivers to adopt an RFID system. Chapter six combines the results revealed in chapters four and five to explore the interplay between the retailers dilemma of product shrinkage and the solutions advocated by RFID vendors and associations. Chapter seven as the final

chapter of this thesis establishes principal conclusions, a connection between this area of study and earlier findings and suggests a number of recommendations to whom the findings apply.

1.6

Conclusion
Using qualitative research methods this thesis will investigate the potential for

RFID as a means to minimise product shrinkage across the retail supply chain. Research objectives were devised to outline the goals and the ultimate aim of this study. Interviews were used as a primary method for data collection and document analysis was used to further validate thesis findings. Subsequent chapters of this thesis present outcomes which satisfy the research objectives.

1.6.1 Limitations
The research had limitations and restricting factors that formed a central tenet of themes which the research did not deviate from. These limitations were designed to maintain a concentrated focus on the research scope and prevent the incorporation of information not necessitated by the research objectives. The research concentrated on a single Australian retail organisation for case study analysis and did not utilise quantitative data analysis to further prove thesis findings.

CHAPTER 2

LITERATURE

REVIEW

Chapter 2 Literature Review

2.1 Introduction
This chapter is to review literature to determine whether significant research exists on the application of RFID as a means to minimise product shrinkage across the retail supply chain. It will also logically organise and assess research which has already been conducted in the field of RFID as a means to minimise product shrinkage across the supply chain. The literature review will focus on the following key elements involved in the study: 1. The Retail Supply Chain 2. Barcode Systems 3. Product Shrinkage 4. Loss Prevention Strategies 5. RFID Systems Using the outcomes of objective one, a retailers use of an RFID system as part of loss prevention strategy to combat product shrinkage will be examined as a focal point for the case study.

This chapter will logically organise and assess previous research associated with this area of study. The fundamental components will be examined to create a foundation for further research. Examples will be provided when necessary to provide grounded understandings of the use of barcodes and RFID technologies integrated into the supply chain. Research pertaining to the use of RFID systems in minimising product shrinkage across the supply chain in the retail industry does not substantially exist in literature, thus, exposing a gap in research. In addition, reviewing relevant literature may assist in the formulation of supplementary questions that may need further research. The product shrinkage dilemma necessitates a solution be found to combat it, in turn, providing retail establishments with competitive advantages and overall improvements in supply chain operation.

CHAPTER

LITERATURE

REVIEW

2.2

The Supply Chain

Supply chains play an integral part in the creation and delivery of products and

services. As a network of organisations and associated activities, supply chains produce value for involved parties (Kumar, 2001) by organising the flow of products and services from suppliers and warehouses to end customers (Turban et al., 2004). The management and organisation of the supply chain is crucial to the overall performance of a consumerdriven business.

Supply Chain Management (SCM) is the principle used to manage the flow of these products and services throughout the supply chain (Bose and Pal, 2005; Michael and McCathie, 2005a, 2005b; Kumar, 2001). More precisely, SCM is the integration of these activities through improved supply chain relationships to achieve a sustainable competitive advantage (Ross, 2003, p. 14) and the design, maintenance, and operation of supply chain processes for satisfaction of end user needs (Ayes, 2001, p. 4). The ultimate goal of SCM generally involves achieving maximum end-user satisfaction at the lowest possible cost to an organisation (Bose and Pal, 2005). Typically, an entire retail supply chain is extremely broad, with unlimited international boundaries. Thus it is necessary to narrow the scope of the study and focus on a particular aspect of the retail industrys supply chain to enhance the value of the research conducted.

2.2.1 The Retail Supply Chain

A typical supply chain consists of manufacturer, supplier, distribution centre, retail store, and customer (Bose and Pal, 2005). The supply chain will be referred to throughout this study as the retail supply chain (Figure 2.1). In-transit has been added to the retail supply chain as the transportation of goods across the supply chain plays a critical part in the overall supply chain process. It is important to also consider

employees and customers as they play a key role in supply chain operations and directly influence decisions to be made to better improve supply chain processes.

Figure 2.1 The retail supply chain Maintaining an accurate track of products across the supply chain is a challenging task, which is critical to the overall success of retailers. For this reason, organisations are

10

CHAPTER 2

LITERATURE

REVIEW

always looking for ways to improve supply chain operations and it is quite common to see automated systems integrated as part of the supply chain process. Presently, the general trend pertaining to retailers is to manage stock using a barcode system.

2.3

Barcode Systems

2.3.1 What is a Barcode?

Barcode systems play a vital role in everyday retail trading practices and at various points across the supply chain. Whether it is during the delivery of goods from supplier to retailer, picking an order at the warehouse for dispatch or at point of sale (POS) barcodes are most likely part of that process.

A barcode is a label attached to a consumer product. This label is made up of parallel bars of varying thickness and separation that represent a code which can be read optically by a line-of-sight barcode scanning device (Finkenzeller, 1999). The first

barcode system was patented in 1949, and was applied to a rail car tracking system (Garfinkel and Rosenberg, 2005). Since then, barcode systems have developed to

become a common thread in the retail industry.

The reason for the worldwide proliferation of the barcode lies in the standards that support it (Garfinkel and Rosenberg, 2005; Stevenson and Wright, 2006). In the 1970s the Universal Product Code (UPC) and the European Article Number (EAN) were introduced as standards for barcode systems (Stevenson and Wright, 2006). It was not long until this initiative was accepted as a standard that barcode systems were adopted extensively by retailers. Beyond UPC and EAN, what made barcode systems so

appealing and widely accepted by the retail industry?

2.3.2 Why use Barcodes?

As recognised by Turban et al. (2004) barcodes have been operating as a standard system in supply chains for 25 years and are the most commonly used technology for the automatic identification (auto-ID) of products in the retail industry (Cohen, 1994; Palmer, 1995; Stevenson and Wright, 2006; Bose and Pal, 2005). Complete systems are generally affordable and barcodes can be easily printed and attached to products (Thompson, 2003; Lai, 2004). technology. Its popularity exists due to the many advantages that accompany the

11

CHAPTER

LITERATURE

REVIEW

The simplicity of barcodes is one of their most appealing aspects (Michael and McCathie, 2005b, p. 2). This simplicity lies with the ability of a barcode to carry data. Each barcode has a unique serial number which is used to identify each product (Albrecht and McIntyre, 2005). For instance, a two litre bottle of skim milk of a particular brand is assigned a unique barcode number across that entire product range. Represented as vertical lines, these unique numbers can be scanned and interpreted using barcode scanners (Albrecht and McIntyre, 2005).

In retail, barcode scanners are commonly fixed at point of sale. Fixed barcode scanners are typically installed at POS and are directly connected to an electronic cash register to calculate shopping totals. Mobile barcode scanners, apart from being mobile, are also designed to communicate with a retailers back-end system using radio frequencies. Mobile scanning devices are commonly known as RF-Units (Radio

Frequency). For example, the user of an RF-Unit has the ability to scan a variety of products individually and then automatically declare those products as being damaged goods by directly communicating with a back-end system. From here, data collected by the back-end system can calculate the total number of damaged goods for a given period.

The data collection process which identifies a product with a barcode is extremely accurate and consequently, the likelihood of human errors from mislabelled or misread products is low (Stephenson, 1998; Zebra, 2004). Barcode systems support an increase in workflow efficiency, enabling businesses to minimise costs and improve sales through heightened customer satisfaction (Zebra, 2004). For instance, in a Woolworths supermarket employees can determine the price of a product almost immediately. Using barcode systems, retailers can automate business processes, which has proven to be far superior to manual practices (Zebra, 2004). Although barcodes have advantages, they do have many well known limitations which present a number of problems.

2.3.3 Disadvantages of Barcodes

Barcode technology has been said to be outdated and plagued with problems (Albrecht and McIntyre, 2005; Turban et al., 2004; Stevenson and Wright, 2006). Once a barcode has been printed on a product, the data is fixed and cannot be updated (Albrecht and McIntyre, 2005; Cohen, 1994; Turban et al., 2004; Stevenson and Wright, 2006). A barcode system is essentially a semi-automated system which relies on much human intervention. Typically, personnel are required to use barcode scanners to scan barcodes, which can frequently lead to errors (Singer, 2004).

12

CHAPTER 2

LITERATURE

REVIEW

Barcode scanners require an unobstructed line-of-sight to retrieve data stored on a barcode. If the scanners line-of-sight is interrupted then the barcode is unable to be scanned (Cohen, 1994; Turban, et al., 2004; Stevenson and Wright, 2006). Everyday activities in the workplace can be affected if multiple attempts are taken to read a barcode, or worse, a barcode cannot be read at all. Furthermore, these types of errors not only make it difficult for staff members but have the tendency to cascade down to the customer, especially at POS. The data in which a barcode can carry is also limited.

A barcode identifies the manufacturer and the product type, not the actual physical product that has been scanned. For instance, a bottle of multi-vitamins from a given manufacturer has the same barcode as another identical bottle of multi-vitamins, regardless of when it was produced, or at what factory. Thus, barcodes are considered useless when determining the expiration date of a product (Turban et al., 2004) or when recalling products (Stevenson and Wright, 2006). Consequently, barcodes fail to offer substantial provisions as a loss prevention mechanism.

2.4

Product Shrinkage

2.4.1 What is Product Shrinkage?

Product shrinkage describes a combination of events which are directly related to loss experienced by retailers (Seider, 1996). These events contributed to a considerable loss in 2001, with an estimated US$32.3 billion lost due to product shrinkage (Fischer and Green, 2004, p. 345). According to the Seider (1996, p. 71, cited in Australian Institute of Criminology (AIC), 2004b, p. 11), product shrinkage refers to:
unexplained stock shortages; that is, missing merchandise that has not legitimately left the store. This form of retail loss arises through diverse avenues such as vendor or supplier fraud, administrative and vendor error, stock wastage through deterioration or breakage, poor stock control, thefts of stock while in transit, employee theft and customer theft.

This definition is quite thorough and encompasses the majority of areas where product shrinkage occurs in the retail industry. However, it can be extended to include bad checks and recently, shop return frauds (Fischer and Green, 2004, p. 345). Bad checks include occasions when products are incorrectly traded across the supply chain. For instance, a grocery assistant may attempt to scan 20 boxes of Coca-Cola with a barcode scanner, but only 19 boxes register as being successfully scanned. Consequently, one box is not calculated as part of the total, and thus, is now unaccounted for. Over the past ten years shop return frauds have had a direct affect on retail profits. Shop return fraud involves customers dishonestly returning products to an incorrect store for the
13

CHAPTER

LITERATURE

REVIEW

purpose of receiving a refund. Although, Fisher and Green (2004), identify the cause of this issue to be a retailers over-generous return policies.

Product shrinkage includes other areas that are not related to criminal activity. These areas generally include damages, spoilage and recalls. Consumer products are generally damaged during transit or by the mishandlings of employees. As determined by the Food Marketing Institute in the United States, revenue lost due to spoilage cost retailers 15 to 20 percent of the value of perishables (Shrady, 1995). Perishable items need to be kept at a certain temperature. If the temperature fluctuates higher or lower, or is not consistently maintained, products may be spoiled and need to be disposed of, thus contributing to product shrinkage. Product recalls can contribute immensely to the issue of product shrinkage. Product recalls involve the occasion when an entire product line or a batch of products is considered to be defective (Product Recalls Australia, 2000). Products that are deemed to be defective, unsafe, or likely to cause damage or injury in any way are usually recalled from the marketplace (Product Recalls Australia, 2000). For the purpose of this study, the term product shrinkage will be used to refer to all of these occurrences.

2.4.2 Why is Product Shrinkage a Problem?

Product shrinkage is a primary contributor to loss in the retail industry. A retailers success in industry depends on the sustainable relationships it can create with its customers and the ability it has to respond to increasing customer demands (Bhuptani and Moradpour, 2005). Product shrinkage can directly affect the availability of products on display in-store and is thus related to the needs of the customer. A case study conducted by supply chain specialists, Savi Technology discovered that Woolworths in the United Kingdom, like most global retailers, experience problems with product shrinkage due to lack of asset visibility in the supply chain. Shrinkage problems are due to: incorrect shipment of deliveries, stock losses in the distribution centre and theft of goods in transit and from the stores themselves (Bhuptani and Moradpour, 2005, p. 208). Interestingly, this case study revealed that theft was not the only problem pertaining to product shrinkage, but the lack of visibility in the supply chain and the incorrect shipping of goods. However, there is no evidence to suggest that a formal methodology for data collection was used in the case study. It should be noted however, that Savi Technology are a supply chain operations vendor and their vested interest should be taken into account when analysing their findings.

14

CHAPTER 2

LITERATURE

REVIEW

Retail businesses, small and large, suffer from the problem of product shrinkage. Retail Security (Chapter 19) of Introduction to Security, Seventh Edition by Fisher and Green (2004, p. 345), is a comprehensive study on todays loss prevention strategies in the retail industry. According to this study the National Retail Security Survey found that losses in the retail industry were up 1.75 percent in 2000, compared to 1.69 percent in 1999 (Fisher and Green, 2004). The three main contributors to loss identified in the study were; external theft, internal theft and losses from carelessness and mismanagement (Fisher and Green, 2004). It is up to retailers to asses their current loss prevention strategies and install new measures, where appropriate, to combat product shrinkage. However, it is not just the retail organisations which experience the ill effects of product shrinkage, customers do as well.

Loss due to product shrinkage needs to be counteracted in some way. For retailers, this means increasing product prices on sale to consumers. As demonstrated by Parker (1990), an organisation sustaining $5,000 loss due to product shrinkage, operating on a 3 percent profit margin, would need to increase sales by $166,666.66 to recover the initial loss. Moreover, in an attempt to regain loss due to product shrinkage, retailers may also experience a diminishing customer base and thus a further reduction in profits (Fischer and Green, 2004, p. 346). This dilemma necessitates an alternative solution be found to minimise product shrinkage, in effect, providing retail establishments with improved customer relationships, competitive advantages and overall improvements in profit margins.

2.5

Loss Prevention
It is quite common in the retail industry for a large retailer to have a department

solely dedicated to loss prevention. Within this type of department daily activities of staff members may include maintaining in-store procedures and constantly working towards improving their loss prevention strategy. A loss prevention strategy comprises of a number of preventative measures to help minimise product shrinkage and ultimately, minimise loss experienced by the retailer.

2.5.1 Existing Preventative Measures

There are many existing preventative measures to minimise product shrinkage. These include: surveillance, Electronic Article Surveillance (EAS) systems, closed-circuit television, uniformed and plain-clothes store detectives, security personnel, convex mirrors, dummy products, ink tags, warning signs, fixed-glass display cabinets, strategically placed merchandise and employee and customer awareness (Fischer and
15

CHAPTER

LITERATURE

REVIEW

Green, 2004; Felson, 1996; Seider, 1996; Weinstein, 1998; Gill, Bilby and Turbin, 1999; AIC, 2004b). Each preventative measure has a distinct purpose with the ability to Retail is an industry were anti-theft

participate in an overall coordinated solution.

applications are crucial (Lahiri, 2006). As part of a loss prevention strategy, EAS is an anti-theft mechanism which is of interest to this area of study. 2.5.1.1 Electronic Article Surveillance (EAS) EAS is a theft preventative mechanism which has been embraced by the retail industry. As outlined by Heinrich (2005), EAS systems are used to protect products against theft. Large retail corporations with high revenues can justify the expense of EAS technology. Through these implementations have they realised the true benefits EAS can have in reducing product shrinkage (Burrows and Speed, 1996; DiLonardo and Clarke, 1996). Also known as anti-theft tags, EAS tags (Figure 2.2) are fitted to items and deactivated at point of sale (Heinrich, 2005, p. 88; Garfinkel and Rosenberg, 2005, p. 262). Otherwise, tags which are not deactivated and pass through a detector (antenna) at a stores entrance and exit area trigger an alarm.

Please see print copy for Figure 2.2

Figure 2.2 EAS tags: Adhesive tags (left), reusable tags (right) (ADT Security, 2006) An EAS system is made up of the following components: tag, antenna and deactivator (Finkenzeller, 1999). Some EAS systems require an activator to reactivate reusable tags. Reusable tags are commonly used on expensive products and products which attract a high rate of theft. The way in which an activated EAS tag is detected by an antenna is through the use of a radio frequency. This type of technology is covered by a blanket term called: Radio Frequency Identification (RFID).

2.6

RFID

2.6.1 What is RFID?

The general concept of RFID has been around for many years. RFID was used by the British military forces in World War II to identify friendly aircraft on approach (Turban et al., 2004; Finkenzeller, 1999). Today, RFID is being used as an alternative method to barcodes for the purpose of auto-ID in the supply chain (Granneman, 2003). RFID can be described as:

16

CHAPTER 2

LITERATURE

REVIEW

a generic term for technologies that use radio waves to automatically identify individual items. There are several methods of identifying objects using RFID, but the most common is to store a serial number that identifies a product, and perhaps other information, on a microchip that is attached to an antenna (Turban et al. 2004, p. 421).

This quote provides an overall well rounded description of RFID technology. An RFID system requires an RFID tag (also called a transponder), a reader and an antenna to communicate via radio frequency with the tag (Figure 2.3). This type of communication is referred to as backscatter or magnetic coupling (Bhuptani and Moradpour, 2005).

Please see print copy for Figure 2.3

Figure 2.3 Connection between RFID tag, antenna and reader (Bhuptani and Moradpour, 2005, p. 37) In addition, RFID tags can be active, passive or semi-active (also known as semi-passive, Lahiri, 2006). Active tags (Class 4) utilise an on-board power source, such as a battery or vehicle power and can transmit a signal over broad distances (approx. 100 feet) (Garfinkel and Rosenberg, 2005). Whereas, passive tags (Classes 0, 1 and 2) utilise the power from a radiating antenna field and are generally less expensive (Gerdeman, 1995; Kleist et al. 2005). This is the main reason why passive tags have been applied to RFID systems in supply chains (Kleist et al. 2005). Semi-passive tags (Class 3) have the same characteristics as passive tags but they also have a battery to extend the tags transmission range (Kleist et al. 2005). According to Garfinkel and Rosenberg (2005), RFID tags can also be classified into chip generations and classes (Table 2.1, adapted from Garfinkel and Rosenberg, 2005, p. 19). The chips embedded in an RFID tag can either have Generation-1 (Gen-1) or Generation-2 (Gen-2) specifications. The class-type of an RFID tag refers to the way in which data can be read and/or written to a tag. Note that EAS tags are passive read-only tags. Table 2.1 RFID tag classes and chip generations
Tag Class Class 0 Class 1 Class 2 Class 3 Class 4 Chip Generation Gen-1 Gen-1 Gen-2 Gen-2 Gen-2 Tag Type Passive (EAS) Passive Passive Semi-passive Active Feature Read-only Write-once and read-many Re-programmable Re-programmable Re-programmable

17

CHAPTER

LITERATURE

REVIEW

The Gen-2 standard of RFID tag was only recently ratified in late 2004 by Global Standards One (GS1) (Kleist et al., 2005). This newly developed standard offers a wide range of improvements over the earlier Gen-1 standard. Besides having the benefit of compliance with global standards (Garfinkel and Rosenberg, 2005), Gen-2 also offers enhanced tag readability through improved read speeds and memory capabilities, security features and smaller microchips that are cheaper to manufacture (Kleist et al., 2005).

Albrecht and McIntyre (2005) suggest that EAS (Gen-1) tags, commonly used as anti-theft devices, resemble RFID tags but do not possess all necessary characteristics of one. EAS tags lack the silicon chip for storage of data. Albrecht and McIntyre (2005), state that an RFID tag must contain a data storage facility in order to be classified as an RFID tag. EAS tags which are strategically placed within valuable products may look like RFID tags, yet they do not contain unique identification numbers (Garfinkel and Rosenberg, 2005). Nonetheless, as suggested by numerous academic sources as EAS technology does utilise radio frequencies to communicate with antennas at store entry and exit points it is appropriate they be referred to as RFID tags (Cohen, 1994; Garfinkel and Rosenberg, 2005, Graafstra, 2006, Finkenzeller, 2003). To further support this, Lahiri (2006) and Bhuptani and Moradpour (2005), argue that EAS have essentially 1-bit of memory, where 1 represents an active tag and 0 represents a deactivated tag. Hence, EAS technology will be referred to as a Gen-1 RFID technology throughout this thesis.

Another opinion on EAS and traditional barcode systems used in retail, comes from Albrecht and McIntyre (2005, p. 28); RFID tags make the barcodes look downright primitive by comparison. Recent developments in the auto-ID field have seen RFID tags fitted to consumer products for more than just an EAS loss prevention mechanism (Bose and Pal 2005, p. 100).

It is difficult to compare the emerging technology of RFID and well-established barcode systems (Michael and McCathie, 2005b). Nonetheless, RFID technology offers benefits unachievable through existing barcode technology. Rather than relying on

employees to manually scan products using line-of-sight barcode scanners, RFID technology allows for the automatic capture of product data. This automated process also minimises erroneous scanning and manual data entry errors (Heinrich, 2006). Furthermore, the data which RFID tags carry can be used to identify products differently to that of barcodes (Figure 2.4, adapted from Heinrich, 2005, p. 65).

18

CHAPTER 2

LITERATURE

REVIEW

Please see print copy for Figure 2.4

Figure 2.4 Barcodes versus RFID tags The standard for product identification stored on RFID tags is the Electronic Product Code (EPC) (Bhuptani and Moradpour, 2005; Turban et al., 2004). The EPC standard to data storage allows a tag to carry more data than a barcode (Weinstein, 2005). Developed by GS1, the EPC is regarded as the next generation in product codes and has earned support worldwide, hence its internationally recognised name; EPCGlobal (Bhuptani and Moradpour, 2005, p. 55; Heinrich, 2006, p. 67). The EPC format now has the support of the two main standards bodies; Uniform Code Council (UCC) and EAN International (Atock, 2003). Similar to barcode data storage conventions, the EPC system contains information about a products manufacturer, the date it was produced and a unique identification number (Albrecht and McIntyre, 2005, p. 26; Turban et al., 2004, p. 421).

Please see print copy for Figure 2.5

Figure 2.5 Electronic Product Code format (Kleist, 2005, p. 88) According to Kleist et al. (2005), the general format of data on an EPC tag can be broken down into four sections (Figure 2.5): 1. Header which identifies the version number of the code; 2. EPC Manager identifies an organisational entity e.g. a company or government; 3. Object Class represents the exact type of product e.g. consumer-packaged goods; and, 4. Serial Number which is unique to every product within an object class. The EPC standard provides a way of uniquely identifying a product. For instance, each individual packet of razor blades can be assigned its own unique serial number, making it possible to track and trace a specific packet of razor blades as it moves across the supply chain. The use of a standard for data storage, such as EPCGlobal, helps to enable RFID technology and influence its adoption in industry, especially as an integrated system to automate supply chain processes.

19

CHAPTER

LITERATURE

REVIEW

2.6.2 Application of RFID

RFID systems are utilised in a vast array industries, such as manufacturing, document tracking, security, food supplies, healthcare and retail (Garfinkel and Rosenberg, 2005). In these industries, RFID tags are adhered to assets or products to manage their progressions across the supply chain (Atock, 2003). In retail, the level at which tags are placed can be at: palette-level, carton-level or item-level tagging. As proposed by Bhuptani and Moradpour (2005, p. 181), [i]tem-level tagging is arguably the final frontier for RFID deployment. The applications of RFID systems at various tagging levels offers a wide range of advantages for businesses willing to adopt them.

2.6.2.1 Advantages of RFID RFID systems present a vast array of benefits to organisations willing to adopt them. The worlds fifth largest retail establishment, the METRO Group, have integrated RFID technologies into a test lab which is, in fact, a working retail outlet open to the public (Edwards, 2004; Heinrich, 2005). Located in Rheinberg, Germany, all METRO Group products delivered to the store are fitted with RFID tags which allow for sales tracking, automatic inventory replenishment and prevent congestion at the checkouts (Edwards, 2004). All these are beneficial to METRO Group and their consumers, yet the authors fail to mention RFID as a means to minimise product shrinkage.

Recently, RFID has become a hot topic as a system to be integrated into retail supply chains as an asset management technology. Logistics and Retail Management: Insights into Current Practice and Trends from Leading Experts by Fernie and Sparks (2004), claim that RFID can produce an abundance of benefits. RFID has the ability to reduce labour costs, simplify business procedures, improve inventory control, productivity and turnover, increase sales, reduce shrinkage, and improve customer satisfaction (LakeWest Group, 2002 p. 1-2, cited in Fernie and Sparks, 2004, p. 197). When focusing on an RFID systems ability to reduce shrinkage, regrettably the Fernie and Sparks (2004) suggests the technologys ability to track the movements of tagged products is the sole solution provided by the technology. Surely, RFID systems can offer more solutions to product shrinkage. As previously mentioned, in a retail context RFID can assist in the replenishment of shelves in-store and facilitate the identification of products using unique serial numbers.

The journal article by Want (2006) An Introduction to RFID Technology acknowledges many different topics in the field of RFID. The author recognises that

20

CHAPTER 2

LITERATURE

REVIEW

RFID functions alongside computerised databases and inventory control.

Due to

infrastructure of this nature, a significant benefit to the supply chain is the ability to identify individual items as they move between buildings (Want, 2006, p. 26). This may be an advantage which RFID has to offer, but what about the related issue of product shrinkage?

The study titled The Pros and Cons of RFID in Supply Chain Management by Michael and McCathie (2005a), employs qualitative content analysis as a primary method of investigation. As a result, the paper provides insights into the adoption of RFID relevant to organisations concerned with optimising their supply chains (Michael and McCathie, 2005a, p. 623). The international retailer Wal-Mart, one of the papers

primary case studies, recently authorised the use of RFID across its supply chains. In addition, Wal-Mart mandated that its suppliers slap and ship RFID enabled products to form part of their strategy as well (Michael and McCathie, 2005a, p. 623). The authors scrutinised a wide variety of literature which helped establish advantages and disadvantages of RFID in the supply chain. The resulting paper reveals many issues on the topic of RFID in the supply chain but it merely touches upon the issue of product shrinkage. It does identify product shrinkage as a widespread problem which causes up to US$30 billion in loss each year (Michael and McCathie, 2005a, p. 626), but fails to elaborate on the advantages it offers in minimising product shrinkage.

The book Radio Frequency Identification Application 2000, by Gerdeman (1995) would be considered a foundation study of RFID technology. Gerdeman provides a broad overview of RFID technology, standards and the range of possible applications in industry. Yet the author fails to mention the benefits of RFID as a system used to minimise product shrinkage.

As an emerging technology, RFID has generated much interest in supply chain management. More recent works provide comprehensive instances where RFID has been integrated within the supply chain to control inventory. A paper by Lee, Cheng and Leung (2004) named Exploring the Impact of RFID on Supply Chain Dynamics employs quantitative analysis as its methodology. In this study, the authors use a

simulation to quantify the indirect benefits of RFID and a supply chain model consisting of supplier and retailer (Lee, Cheng and Leung, 2004, p. 1145). There were three main factors that were analysed in this study:

21

CHAPTER

LITERATURE

REVIEW

1. Inventory accuracy, 2. Shelf replenishment; and 3. Inventory visibility. As stated by Lee, Cheng and Leung (2004, p. 1145) inventory accuracy includes shrinkage or stock loss. Interestingly, the authors established that:
RFID did not directly reduce the shrinkage, its ability to identify the shrinkage losses contributes to potential improvements in inventory levels and/or customer service levels. (Direct losses of the shrinkage in material costs could also be reduced after identifying where the losses are occurring (Lee, Cheng and Leung, 2004, p. 1148)

Surprisingly, this study found that RFID did not reduce product shrinkage, but it did have the potential to improve inventory levels. The authors did, however, mention that product shrinkage could be located, but how, and whereabouts in the supply chain was not elaborated on.

A seminal work by Cohen (1994) provides an in-depth description of auto-ID and data collection systems. As a main focus, the book provides the reader with the basic principles of auto-ID and data collection systems, with a special interest in RFID systems (Cohen, 1994). Cohen is considered a pioneer in setting the foundations for study on RFID technologies. Regrettably, Cohens book does not explore the use of RFID or its application as a means of reducing product shrinkage.

Recent studies from the Australian Institute of Criminology (AIC, 2004a; AIC, 2004b) cover many issues relating to the causes of product shrinkage and related preventative measures. However, the study does not identify preventative measures

utilising any kind of RFID technologies. This may suggest that government departments have little knowledge of RFID systems as a means to combat product shrinkage in the retail industry. They do, however, have statistical data calculated by the Australian Bureau of Statistics (ABS, 2004, cited in AIC, 2004a, p. 35), which revealed that 26% of theft took place in a retail location (Figure 2.6). It is important to realise that a retail location is, in fact, the largest of all crime categories included in the Australias national statistics. This further reinforces the fact that product shrinkage is indeed a major

problem for Australian retailers.

22

CHAPTER 2

LITERATURE

REVIEW

Please see print copy for Figure 2.6

Figure 2.6 Location of theft in Australia (ABS, 2004, cited in AIC, 2004a, p.35) 2.6.2.2 Disadvantages of RFID RFID systems may offer significant advantages to companies willing to manage inventory across the supply chain. Nonetheless, RFID is not always as beneficial as expected and is not always regarded as the answer to inventory tracking. As suggested by Venables (2005, p. 8), RFID technologies may have potential benefits, yet the technology is having trouble proving its worth. According to Venables (2005, p. 8), RFID systems have delivered fewer benefits than expected, and the majority have not progressed to rollout. While Venables may not support the ideas presented in other academic

literature, such opinions should be taken into consideration as they may be valuable in the formulation of the findings of this thesis.

Literature by Venables (2005) opposes the results of Michael and McCathie, 2005a; Want 2006; Bhuptani and Moradpour 2005; Edwards 2004. RFID systems have been seen as positively influencing inventory management procedures (Michael and McCathie, 2005a) and also as a means of directly locating an item across the supply chain (Want, 2006, p. 26). Furthermore, a case study conducted by a global leader in supply chain management revealed that if an RFID system were to be rolled out across an entire distribution infrastructure, the system would pay for itself in the first year (Bhuptani and Moradpour, 2005, p. 212). Edwards (2004, p.134) also contradicts Venables findings, as an RFID system can not only tell a retailer a products current location, but also its intended destination. As a result, it would be expected that RFID systems do, in fact, offer a wide variety of business opportunities.

The outlook consumers have on new technologies may also act as a deterrent to such RFID solutions. The article by Crawford (2005, p.11), What does RFID do for the consumer? raises certain issues directly related to the benefits of consumers. These issues pertain to the consumers ability to remove an RFID tag and the choice to purchase

23

CHAPTER

LITERATURE

REVIEW

a product with or without an RFID tag. Other issues which challenge the idea of RFID are discussed by Albrecht and McIntyre in their recent book Spychips: How Major Corporations and Government Plan to Track Your Every Move with RFID. Such issues include RFID invading the privacy of the consumer and manipulating consumer behaviour. The authors present a negative outlook on RFID and may not realise that RFID holds a potential to minimise product shrinkage, consequently, reducing product prices for customers.

2.7

The Gap in the Literature

There is a plethora of studies which identify the use of RFID as an advantageous

solution to complement the supply chain. At the same time, there is a lack of academic research relevant to the problem of product shrinkage in the retail industry. Furthermore, the retail industry calls for complementary solutions designed to help minimise product shrinkage. These two opportunities have been revealed throughout this literature review, as research pertaining to the minimisation of product shrinkage across the supply chain in the retail industry is not sufficient. As existing literature does not provide conclusive results of extensive correlation between product shrinkage and RFID systems, conducting research in this field may contribute to, and complement existing works, bringing with it benefits to the academic community.

2.8

Conclusion
This literature review has examined recent research conducted in the field of the

retail industry and its supply chain, the problem of product shrinkage and the use barcode and RFID technologies. The majority of publications reviewed embrace the common theme of RFID as an emerging technology which can supplement existing supply chain processes. It has been revealed that product shrinkage is an inevitable dilemma in the retail industry experienced by retailers at many different levels. Whether they are large corporations or a small convenience store, product shrinkage is an anticipated reality. Hence, a widespread desire to possess the ability to further combat and minimise product shrinkage using RFID systems is a conceivable notion.

24

CHAPTER

METHODOLOGY

Chapter 3 Methodology
3.1 Introduction
This chapter presents the methodologies that are utilised in discovering an answer to the gap in research pertaining to the use of RFID in the retail industry. As discussed in the Literature Review, the relevant issues to this thesis have been extensively examined and it was discovered that there was little literature that discussed product shrinkage and RFID technology together. More specifically, there is an evident gap in academic literature relevant to the topic of minimising product shrinkage using RFID across the retail supply chain. Research following this chapter was designed to develop further knowledge in this area and the methodologies used to facilitate this have been designed accordingly.

A single case study approach using qualitative analysis was taken to investigate a major Australian grocery retailer and its experiences with RFID technologies and product shrinkage. Semi-structured interviews were used to gather qualitative data needed to produce substantial findings related to this area of research. To effectively undergo such analysis, the methodology was designed to concentrate on the main objectives of this thesis. The objectives are as follows:

3.1.1 Research Objectives

1. Review literature to determine whether significant research exists on the application of RFID as a means to minimise product shrinkage across the retail supply chain. 2. Identify the contributing factors of product shrinkage and investigate the current state of RFID as part of a loss prevention strategy in a case study of an Australian retailer. 3. Determine the perceptions of RFID vendors and associations for the potential of RFID to minimise product shrinkage across the retail supply chain. 4. Explore the interplay between the retailers dilemma of product shrinkage and the solutions advocated by RFID vendors and associations to minimise product shrinkage.

25

CHAPTER 3

METHODOLOGY

This chapter will outline formal academic methodologies which are relevant to this field of study. A research strategy will provide a brief summary of the proposed methodologies and support why they were selected. To follow, the research design will further elaborate on the qualitative data gathering techniques selected. These techniques were used to gather data and ultimately, produce answers to the objectives of this thesis. This research is supported by well-structured and credible methodologies designed to assist in determining valid findings, thus, bringing unbiased truths to the academic community.

3.2

Research Strategy
The research strategy is a general plan of how this thesis answered the research

objectives. As advised by Saunders, Lewis and Thornhill (2003), a research strategy contains clear objectives and specifies the sources from which data is intended to be collected. Figure 3.1 illustrates the two main components of the Conceptual Framework used for data collection. The two main components of the study are: The Retailer and RFID Vendors and Associations. It should be noted that the retailer was the single organisation used for case study analysis and RFID vendors and associations were used to supplement the case study. The primary method used for data collection was

interviewing and document analysis was used as a secondary source of data to further support the thesis findings.

Figure 3.1 Data Collection components of Conceptual Framework

3.2.1 Case Study

A large Australian grocery retailer was used as the main focus for the single case study. As defined by Leedy and Ormond (2005), a case study involves qualitative research in which in-depth data are gathered in relation to a single organisation with the intention to learn more about an unknown or poorly understood situation. Using

qualitative analysis, the case study was exploratory in nature. Exploratory case studies are a valuable way to reveal what is actually happening in the real-world (Robson, 2002 cited in Saunders, Lewis and Thornhill, 2007). Furthermore, they provide a means to

26

CHAPTER

METHODOLOGY

clarify an understanding of a problem by using three principal methods as recommended by Saunders, Lewis and Thornhill, (2007, p. 133): 1. A search of literature; 2. Talking to experts in the subject; and 3. Conducting focus group interviews.

The first recommendation suggests searching literature relevant to this thesis and this was completed by satisfying objective one in chapter two of this thesis. Nonetheless, further research and review of current literature was conducted in chapters four, five and six. To supplement the other data collection method, document analysis of academic literature and trade documents were conducted to further substantiate and augment the supporting evidence (Yin, 1994).

Saunders, Lewis and Thornhills (2007, p. 133) recommendation; talking to experts unavoidably includes a combination of both principle methods two and three. This process involves conducting interviews. Interviews are a data collection method relied on regularly by researchers (Marshall and Rossman, 1995; Cavana, Delahaye and Sekaran, 2001). They are described as a conversation with a purpose (Kahn and Cannell, 1957, p. 149, cited in Marshall and Rossman, 1995, p. 80). Interviewees

included employees from the Australian retailer and members of RFID vendors and associations.

As this thesis is concerned with product shrinkage and how and why it occurs in the retail industry, it is advised to follow a case study research strategy. According to Yin (1994, p. 3), a case study generally highlights a decision or set of decisions; why they were taken, how they were implemented, and with what result. Therefore,

interview questions with the purpose of data collection focused on the reasons how and why product shrinkage occurs and how can it be minimised using RFID.

27

CHAPTER 3

METHODOLOGY

3.3

Research Design
Information gathered for this thesis involved semi-structured interviews and

document analysis. This combination of data collection techniques was designed to assist in the creation of thorough and well-informed thesis findings. Real-world examples of the retailers current use of RFID technologies to combat product shrinkage were used extensively to provide grounded understandings of this area of study. The following research design will explain the unit of analysis and time horizon for the study. In addition, it will thoroughly describe the proposed qualitative data gathering techniques used throughout this study.

3.3.1 Units of Analysis and Time Horizon

Units of analysis for this study included two distinctly separate groups. The two groups included a large Australian grocery retailer and RFID vendors and associations (Table 3.1). As legitimate representatives of each organisation, employees were primary

sources from which data was gathered. A total of eleven employees from the Australian retailer and one employee from each of the nine RFID vendors and associations were interviewed for data collection. Table 3.1 Units of analysis
Unit of Analysis (Group) The Retailer RFID Vendors & Associations Interviewees for Data Collection Employees with managerial roles from the Loss Prevention Department and various departments within retail outlets. Employees from technology providers, manufacturers, system integrators, resellers of hardware and software (or a combination of them). An RFID association and an RFID standards body also formed part of this group.

Each unit of analysis or group is to be left unnamed to protect the privacy and confidentiality of employees and their immediate employer. Therefore, generic names have been given to each group. The Australian retailer is alternatively referred to as the retailer or the retail organisation and RFID vendors and associations are referred to as e.g. RFID vendor #1 or RFID association. The first interview for this study commenced on the 26th August 2006 and the last interview was completed on the 11th of October 2006. The approximate time taken to conduct interviews ranged from the shortest interview taking 10 minutes and the longest interview taking 41 minutes. As interviews were conducted progressively over a short period of time (47 days) it is assumed that the data gathered produced accurate results to satisfy thesis objectives.

28

CHAPTER

METHODOLOGY

3.4

Qualitative Research
Qualitative research encompasses the study of phenomena which occurs in the

real-world without exercising the use of statistical or mathematical procedures (Strauss and Corbin, 1990; Leedy and Ormrod, 2005). This thesis used two types of qualitative data collection methods: interviews and document analysis.

3.4.1 Interviews
Interviews were conducted to achieve objectives two and three; identify the contributing factors of product shrinkage and investigate the current state of RFID as part of a loss prevention strategy in a case study of an Australian retailer; and, determine the perceptions of RFID vendors and associations for the potential of RFID to minimise product shrinkage in the retail supply chain.

As a form of qualitative research, interviews are a purposeful discussion between relevant personnel (Saunders, Lewis and Thornhill, 2003, p. 245) and can yield a great deal of useful information (Leedy and Ormrod, 2005, p. 146). Using interviews, a researcher can discover facts, peoples beliefs and motives, standards for behaviour and reasons for actions (Shank, 2002, cited in Leedy and Ormrod, 2005, p. 146).

As part of the case study, interviewees from the retail organisation included three members from Loss Prevention departments and eight managers from five different supermarkets (Table 3.2). Employees from RFID vendors and associations primarily included managerial staff, but also technical staff, sales staff and consultants (Table 3.1). Interviewees were selected on the basis of their availability for an interview, but more importantly, on their assumed knowledge on the topics of product shrinkage, the retail industry and RFID systems. All employees who were willing to participate viewed the participant information sheet and signed a consent form (Appendices G and H).

29

CHAPTER 3

METHODOLOGY

Table 3.2 Research interviewees

ID Organisation 1 2 The Retail Organisation 3 4 5 6 7 8 9 Retailer Retailer Retailer Retailer Retailer Retailer Retailer Retailer Retailer Interviewees Position Loss Prevention Manager (1) Loss Prevention Investigator Loss Prevention Manager (2) Liquor Manager Grocery Manager Store Services Manager Store Trading Manager Store Manager Delicatessen Manager Night-fill Captain Customer Implementation Executive Business Development Manager Systems Engineer Managing Director Conducted Signed Consent 04/09/06 04/09/06 08/09/06 02/09/06 28/08/06 29/08/06 01/09/06 05/09/06 26/08/06 29/08/06 02/09/06 04/09/06 15/09/06 05/09/06 Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes

Unit of Analysis (Groups)

10 Retailer 11 Retailer 12 RFID Vendor 1 RFID Vendors and Associations 13 RFID Vendor 2 14 RFID Vendor 3 15 RFID Vendor 4 16 RFID Vendor 5 17 RFID Vendor 6 18 RFID Vendor 7 19 RFID Association 20 RFID Standards Body

Vice President of Marketing and Business 06/09/06 Development Managing Director Managing Director National Sales Manager RFID Consultant Standards Development Coordinator 11/09/06 07/09/06 12/09/06 01/09/06 11/10/06

Interviews for the purpose of data collection included both face-to-face and telephone interviews as advised by Cavana, Delahaye and Sekaran (2001) and followed a semi-structured approach. This non-standard approach varied due to the interviewees role within an organisation, or depending on the flow of conversation, as advised by Saunders, Lewis and Thornhill (2003). In addition, a non-standard interview allows for a more free flowing conversation and provides the interviewer with greater flexibility to adapt questions to areas of interest that may develop during the interview. 3.4.1.1 Interview Protocol A total of twenty (20) semi-structured interviews were conducted involving eleven employees from the retailer and nine members representing RFID vendors and associations. Each interview covered the majority of predetermined interview questions. However, answers provided by interviewees did encourage additional questions to be asked which helped to provide more exploratory research information.

Interview questions were created prior to the event but allowed for topics to be discussed in greater detail depending on the responses given by the interviewee. Questions that were not premeditated by the researcher did arise during the interview process. Each interview revolved around closed and open-ended questions. Closed

30

CHAPTER

METHODOLOGY

questions were used to provide a foundation for further questioning. For instance, if an interviewee was asked: Do you know what product shrinkage is? and they replied: yes. The interviewer then knew that they could proceed with the ensuring questions. If the answer was alternatively no, the interviewer would then proceed to another set of questions.

Interview questions that were not self explanatory or misunderstood by the interviewee were accompanied by probes. Probes were intended to provide the

interviewee with an example to assist in answering the question. Probes were generally used if questions needed to be elaborated on or the interviewee was not fully aware of what the question was asking. The following section provides guidelines to how

interview questions relate to the overall structure of this thesis. 3.4.1.2 Interview Structure Two separate sets of interview questions were created for data collection (Appendices C and D). Interview questions were divided into five sections for the retailer and four sections for RFID vendors and associations. Each section concentrates on a core topic area for the study and interview questions to follow, were designed to fulfil the intended objectives (Figure 3.3 and 3.4). Table 3.3 Intended objectives of interview questions for the retailer
Interview Section (1) Background knowledge (opening questions) (2) Product shrinkage Intended Objective of Interview Question - Determine the interviewees job title and their role and responsibilities - Gain an understanding of their experience in the retail industry Identify the contributing factors to product shrinkage in retail Identify items that constitute product shrinkage Determine loss encountered by the retailer due to product shrinkage Investigate EAS as part of a loss prevention strategy Confirm the geographical size of the retailers supply chain Identify how many suppliers and how many transactions are made Learn how products are monitored through the supply chain Specify where product shrinkage occurs in the supply chain Ascertain the retailers knowledge of RFID (EAS) Discover the advantages/disadvantages of EAS Investigate how EAS minimises product shrinkage Determine the overall performance of EAS

(3) Supply chain

(4) Gen-1 RFID systems (EAS)

(5) Gen-2 RFID systems

- Discover the general awareness of Gen-2 RFID technology - Ascertain the retailers overall interest in Gen-2 RFID technology - Determine the advantages that Gen-2 RFID system have over the wellestablished barcode (legacy systems) perceived by the retailer

31

CHAPTER 3

METHODOLOGY

Table 3.4 Intended objectives of interview questions for RFID vendors and associations
Interview Section (1) Background knowledge (opening questions) (2) Product shrinkage Intended Objective of Interview Question - Determine the interviewees job title and their role and responsibilities - Gain an understanding of their experience in their given industry - Gain an understanding of their experience with RFID technology Identify the contributing factors to product shrinkage in retail Identify items that constitute product shrinkage Identify areas where product shrinkage occurs in the supply chain Specify where product shrinkage occurs in the supply chain Identify characteristics of the organisations customer-base Discover the main drivers to adopt an RFID system Discover the benefits of RFID as part of a retail supply chain Discover the barriers to RFID adoption in the Australian retail industry Investigate the possibility for RFID to minimise product shrinkage

(3) RFID Systems and Retailers

(4) Gen-2 RFID systems

- Determine the advantages that Gen-2 RFID system have over the wellestablished barcode (legacy systems) perceived by the retailer - Identify standards used by the organisation - Ascertain the organisations view on source-tagging from the supplier - Learn how RFID can be used with additional technologies - Discover other perceived benefits of RFID besides minimising product shrinkage

3.4.1.3 Content Analysis of Interview Transcripts With the interviewees consent, interviews were recorded using a dictaphone, with the exception of one which had to be written down at the time of the interview. All recordings were then typed up by the researcher as a written transcript (Appendices E and F). From here, interview transcripts were analysed using a Computer Assisted

Qualitative Data Analysis Software (CAQDAS) program; Leximancer Version 2.25. Leximancer is a content analysis tools used to extract main concepts from documents. The program is especially useful when analysing interview transcripts for academic research purposes.

As suggested by Leedy and Ormond (2005, p. 144), this type of analysis involves categorising and interpreting data in terms of common themes and synthesising an overall portrait of the case. Concepts identified by Leximancer were displayed visually in an interactive conceptual map which provided a birds-eye view of concepts contained within the transcripts and how they are related (Leximancer, 1997). Leximancer extracts key words and encircles words which are related to a key concept. The program is designed to (Leximancer, 1997): 1. Extract the main concepts; 2. Determine the relative importance of concepts; and 3. Determine the strength of association between concepts.

32

CHAPTER

METHODOLOGY

Using this method for content analysis, the researcher was able to extract common words and their key concepts and create main themes for a narrative discussion in chapter six (Figure 3.2).

Figure 3.2 Creating themes using Leximancer

3.4.2 Document Analysis

As a form of data collection, document analysis is designed to be used in conjunction with interviews (Yin, 1994). In this study, document analysis was used to supplement the information gathered in interviews and to further validate thesis findings. Document reviews are an important aspect of gaining an understanding of the issues raised and further supporting the ideas expressed in interviews. For instance, an

interviewee may suggest that warehouse discrepancies are a primary contributor to product shrinkage, thus documents would be provided as supporting evidence.

Documents collected and analysed included academic literature and trade sources. Academic literature incorporated journal articles, books and other academic materials. Trade sources included documents and websites describing RFID solutions and their benefits, RFID specifications, trade show conferences and other relevant trade sources. For example, authors of Retail News and RFID Journal provided applications where RFID is currently used in industry. All documentation was reviewed to

complement the case study and data which was collected through interviews.

3.5

Conclusion
The research methods used within this thesis involve qualitative forms of

research. They have been selected as they are the most appropriate research strategies for this thesis. Data gathering techniques included interviews and document analysis. These techniques will be used to conduct case study analysis on a major Australian grocery retailer. An insight into the use of RFID systems as a means to minimise product

33

CHAPTER 3

METHODOLOGY

shrinkage was carried out by interviewing RFID vendors and associations. The use of semi-structured interviews was the main data gathering technique, with a total of eleven from the retailer and nine from RFID vendors and associations been carried out. The following research is designed to combine verbal and documented data into a form which provides coherence and ultimately, an answer to the specified research objectives. Subsequent chapters of this thesis have employed this methodology designed to accurately gather data and present outcomes which satisfy the research objectives.

34

CHAPTER

THE

RETAILER

Chapter 4 The Retailer

4.1 Introduction
This chapter will identify the contributing factors of product shrinkage and investigate the current state of RFID as part of a loss prevention strategy in a case study of an Australian retailer. The case study included a total of eleven interviews conducted with members of the retailers Loss Prevention Department and managers of departments within retail outlets. The results regarding the retailer will present the use of barcode systems to identify products and Gen-1 RFID (EAS), an anti-theft technology, as core features of a loss prevention strategy. As a key driver to the existence of a loss

prevention strategy; product shrinkage and sources which comprise it were identified. Background information regarding the Australian retailer and the interviewees is offered as an initial introduction by providing a context in which the results can be understood.

4.2

Background of the Retailer

The grocery retailer representing the unit of analysis for the case study is one of

Australias leading supermarket chains, with approximately 270 stores in New South Wales and over 700 Australia wide. Supported by thousands of suppliers, the retailer has over 42,000 product lines on sale to consumers. Product lines include both Australian made consumer goods and internationally imported goods. Goods on sale by the retailer consist of long-life foods (e.g. confectionary, canned fruit, condiments), perishable foods (e.g. vegetables, bread, frozen meals) and general merchandise (e.g. electrical appliances, cosmetics, liquor). Over 100,000 staff members across Australia work together to get these products into stores and on display, which are then purchased by over 13 million customers each week. Two regions covering extensive geographical space were

examined as part of the case study.

4.2.1 Retail Regions and Interviewees

Two regions were examined as part of the study. Each region has a specific number of stores (Table 4.1) and its own Loss Prevention Department which is based at the regional office.

35

CHAPTER

THE

RETAILER

Table 4.1 Retail regions for the study

Region Eastern and western suburbs of Sydney Southern suburbs of Sydney and the Illawarra Number of Stores 75 73

A total of eleven retail employees were interviewed by the researcher for data collection (interview transcripts are attached as Appendix E). Interviews were conducted with employees from Loss Prevention and various departments within five retail stores. As illustrated by Figure 4.1, the Loss Prevention Department is responsible for a broad area of the retail supply chain, whereas store and department manager responsibilities reside within the retail store.
Loss Prevention Department

Store & Department Managers

Manufacturer & Supplier

In-Transit

Distribution Centre

In-Transit

Retail Store

Customer

Figure 4.1 Responsibilities of retail departments across the retail supply chain Employees within Loss Prevention work as a team to ensure policies and procedures are adhered to at store level. These policies and procedures are directly related to an overall loss prevention strategy for retail stores (Appendix A for a full list of the roles and responsibilities of retail employees). Product shrinkage is considered to be the general indicator of how well a stores loss prevention strategy is performing, or how well it has been executed. Furthermore, loss preventions primary motivator is to reduce product shrinkage. As stated by the Loss Prevention Manager (2): [The Retail

Organisation] has been fairly focused on shrinkage for the last 5 years. This statement further validates product shrinkage as a major concern to the retail industry, especially when taking into account the existence of a department dedicated to its resistance.

4.3

The Retailers Barcode and EAS System

The retailer currently uses barcodes for the automatic identification of products

across the supply chain and EAS for anti-theft purposes as part of a loss prevention strategy. Both systems have distinct functions and operate independently of one another. Barcodes provide a way to record damaged products and identify targeted areas, whereas EAS is used to deter thieves.

36

CHAPTER

THE

RETAILER

4.3.1 The Retailers Barcode System

The retailers barcode system is primarily used to identify products in a variety of daily activities. One of these activities, closely related to loss prevention, is its ability to help keep track of damaged goods. For instance, damaged products can be scanned and automatically declared as damaged goods, electronically recorded and then disposed of. This process notifies the automatic stock ordering system that products are damaged and need to be re-ordered, thus helping to maintain product availability in the retail outlet. Barcodes can assist in minimising product shrinkage by recording damaged products but exist primarily to semi-automate supply chain operations. When the Night-fill Captain of one of the retailers leading stores was asked if barcodes play a role in minimising product shrinkage, he responded: It makes you aware of it. It doesnt actually deter or prevent it in any way. It gives you more knowledge of whats going on and where the targeted areas might be. In other words, stock which has been misplaced or stolen is not readily identified by retail staff. As supported by the Loss Prevention Investigator: [b]arcoding really has no impact. All it does is identify that we have lost something by scanning it at the end of the day. Furthermore, these targeted areas are usually brought to the retailers attention once a store has been hit by a thief or when stock fails to arrive from the distribution centre. It is in this light that barcodes offer knowledge through recording goods as damaged or by identifying targeted areas. As a result, barcodes play a minor role in a loss prevention strategy. EAS however, plays a more active role in loss prevention as an effective deterrent against theft.

4.3.2 The Retailers EAS System

The retail organisation currently utilises Gen-1 RFID technologies as part of a loss prevention strategy. More commonly known as Electronic Article Surveillance (EAS), the systems primary activity is to reduce theft within supermarkets and liquor stores. The brand of EAS system implemented throughout all retail outlets is a According to Lahiri (2006), EAS tags are generally

Checkpoint Metro system.

unaffected by magnets and are available in various sizes to be applied to particular products. The retailer uses a combination of adhesive and reusable EAS tags which are strategically fitted to certain products. EAS antennas, also known as gateways, are installed at store entrances and exits (Figure 4.2). When a product with an active tag passes through a gateway, an alarm sounds to notify staff of possible theft.

37

CHAPTER

THE

RETAILER

Please see print copy for Figure 4.2

N.Huber

Figure 4.2 Checkpoint Metro EAS gates in a liquor store entrance For the retailers particular application, EAS tags are attached to products at itemlevel. Tagged products generally include high theft lines and high dollar value items. Not all products were found to be tagged, in fact, most products were not secured by the EAS system. As expressed by the Loss Prevention Manager (1):
its what we deem to be high-theft lines and obviously what our stores are recording as known stolen as well. So you look at the high-theft lines as well as the most attractive lines, some of it is going to be cost driven just by the unit price, in terms of what we put an EAS tag on.

On more than one occasion, the researcher discovered that the retailer was currently testing new reusable EAS tags designed to be attached to liquor bottles (Figure 4.3). Instead of using an adhesive tag (Figure 4.4), which is easily removed or a tag which is concealed within a packet, reusable tags are encased in high density plastic and manually fitted to products. Attached to the neck of a bottle with a zip locking

mechanism, this new type of tag is removed by staff with a decoupling device at point of sale. As revealed by the Loss Prevention Manager (2):
[w]e are running trials at the moment on new tags in our liquor departments in five stores. They have been extremely successful, as they have minimised product shrinkage across our range of spirits by 62%, which is a great result.

Please see print copy for Figure 4.3

Please see print copy for Figure 4.4

N.Huber

N.Huber

Figure 4.3 Reusable EAS tag

Figure 4.4 Adhesive EAS tag

38

CHAPTER

THE

RETAILER

Other than the obvious benefit of the tags ability to be reused, this type of EAS tag has a number of other benefits. The tags are difficult to remove by hand, tagged products standout and regularly deter thieves. Many times I have seen people walk into a store and be overwhelmed by the EAS tagging explained the Sydney-based liquor manager. The use of reusable tags by the retailer may help to minimise product shrinkage by deterring thieves, however, additional labour is required by retail employees to manually apply and remove tags.

Products bearing adhesive or concealed tags within a products packaging are either tagged in-store manually by retail employees or source-tagged from the supplier. As revealed by the Store Trading Manager: we have a specific list that we have got to stick to. A lot of the stock actually comes in pre-tagged now. Source-tagged products provide the only example where EAS is used across the supply chain. However, by the same token, those tags remain idle until they come in contact with an EAS antenna or tag deactivator. As suggested by the Loss Prevention Manager (1), with the help of a

recently designated Source Tag Manager the retailer is attempting to extend the sourcetagged list and push suppliers to tag products at the point of manufacture. Essentially, suppliers then take part in the overall process of applying EAS tags to products which will definitely reduce some overhead costs for the retailer. However despite this, it was found that the retailers EAS system had a number of inefficiencies.

Please see print copy for Figure 4.5

Figure 4.5 Products source-tagged from their suppliers The retailers thoughts on the overall performance of the system varied. One of the main questions relating to EAS was whether the technology was considered a deterrent or a total solution. All employees agreed that it was definitely a deterrent and it would be hard to find a total solution. As supported by the Loss Prevention Investigator: [l]ook as a deterrent, yes. As I said before its not the be-all and end-all. Theres certainly some new stuff coming out. As part of a loss prevention strategy, EAS was believed to be a deterrent on many occasions. When the Loss Prevention Manager (1) was asked for his opinion, he also said that it was a deterrent: I wouldnt say its a total solution. I suppose with any loss prevention initiative or procedure, there are thousands of bricks in the wall and EAS is one of those. To further support the responses of the
39

CHAPTER

THE

RETAILER

loss prevention staff, Lahiri (2006, p. 77) also suggests that RFID is an effective deterrent against theft. To be an effective anti-theft solution within a retail environment an EAS system is required to operate consistently and meet the demands of customer traffic.

During initial testing phases of EAS systems some time ago, tests were conducted between two brands; Sensomatic and Checkpoint. The Loss Prevention Manager (2) was asked whether he was happy with the overall performance of the EAS system: Not really I thought Sensomatic performed better. But unfortunately we have invested in the Checkpoint system. This suggests that a retailer may not always consider an EAS systems level of performance a high priority. Other factors, such as the cost of a system may also have a direct effect on the retailers willingness to invest in an anti-theft solution.

In one particular case, the way in which the system was installed revealed some drawbacks of the technology. When the Liquor Manager from one of the retailers leading liquor stores was asked if he was happy with the overall performance of the system, he revealed our gates leading out of our shop into the centre are too far apart, so there is a gap in the middle that can be exploited if you walk down the middle. He believed that incorrect measurements had been made during the installation of the EAS system and as a result, he was unhappy with the overall performance of the system. An additional view which also supports a negative outlook on EAS was the way in which it can be exploited even when it has been correctly installed and functioning the way it was intended. According to the Loss Prevention Investigator:
Some of the practices of professional thieves and even people that associate with certain people within a community know how to beat EAS systems. The EAS tagging that we have can be beaten, three or four main ways and good crooks or people that associate with people that target our stores would know those ways of doing it.

This highlights the fact that an EAS system can be exploited by people who know about the technology. It was also understood by the Night-fill Captain that: people are aware that EAS is out there, people know about it, so they can work around it. Poor work

practices at store level also contribute to the ineffectiveness of EAS. Store practices have an effect. Double tagging, bending tags past 90 degrees, putting tags behind metal, those sorts of things all detract from the system. explained the Loss Prevention Investigator. EAS tags are generally damaged because they are applied manually by hand, hence it is important to realise that retail employees play an active role in overall workings of an EAS system.

40

CHAPTER

THE

RETAILER

The Store Trading Manager highlighted the fact that the EAS system requires staff members to work as part of the system. Apart from manually attaching tags to products, staff members must react to the EAS alarm system and act accordingly. She said I dont think the cultures there for it Occasionally staff members at point of sale do not respond to the alarm system appropriately. Employees either fail to respond to an alarm, or when a customer activates the alarm the employee assumes that they did not deactivate a tag and allow the customer to leave the store. In this typical scenario, the employee has not taken into account the possibility that the customer may in fact have a packet of batteries in their bag. The Store Trading Manager claimed that the EAS gates are not monitored properly and responding to the systems alarm is not always enforced by staff supervisors.

Retail employees agreed that EAS plays an important role in their loss prevention strategy and accepted the fact that the system was designed to be a deterrent against retail theft, rather than a total solution. According to the Grocery Manager at the moment, its the best it can be. If the EAS system is operating at an optimum level and in the way in which it was designed, it raises much concern when reflecting back on some of the short comings of the system. The retailers EAS system may play an active role in minimising product shrinkage at point of sale, but what about across the entire retail supply chain? Contributing factors to product shrinkage need to be identified before the possibility for an alternative loss prevention mechanism can be explored.

4.4

Product Shrinkage: the Retailers Dilemma

To ensure stock levels are maintained in-store, an efficient supply chain is

required to provide an uninterrupted supply of products for shelf replenishment. However, it is far from unusual to come across an empty shelf in a supermarket. On many occasions, this empty shelf can be directly linked to theft or unsupplied stock due to warehouse discrepancies, both of which contribute to product shrinkage the retailers dilemma.

When Loss Prevention Manager (2) was asked whether product shrinkage was a major concern to his organisation he replied: [i]ts a huge problem, especially from distribution centre to retail outlet. This concern reinforces the importance of this issue to the retailer and is fundamental to this study. But from a retailers perspective, what actually is product shrinkage and what are its sources?

41

CHAPTER

THE

RETAILER

4.4.1 The Retailers perspective on Product Shrinkage

A broad range of phenomena were found to contribute to product shrinkage. Within the boundaries of the retail organisation under analysis, it was discovered that product shrinkage comprised of a number of factors which differed to what had previously been researched. 4.4.1.1 Contributing Factors of Product Shrinkage From the retailers perspective, product shrinkage is broken into two main categories; known and unknown. This was brought to the researchers attention during the following part of an interview with the Loss Prevention Investigator:
at the end of each half of the financial year we record an unknown shrinkage which is obviously the difference between our book-stock and our physical counts at stocktake times. So there are two separate figures. Interviewer: So there is known and unknown? Loss Prevention Investigator: Yes.

The contributing factors of known shrinkage are calculated progressively throughout the financial year by the retailer. For example, the retailer may calculate that 75% of stock was lost due to warehouse discrepancies, 20% due to internal theft and 5% due to other sources. Whereas, the figure found for unknown shrinkage is calculated only twice a year by stocktake and can be contributed to by any number of sources (Figure 4.4). It was unsettling to discover that out of the two main categories, unknown was the largest contributor to product shrinkage (Store Manager; Store Services Manager).

According to the retailers Grocery Manager of a supermarket in Sydneys south, product shrinkage is damaged stock, theft, warehouse discrepancies, paper work errors; not checking stock correctly off invoices, recalled stock and withdrawn stock. It was mentioned in the Literature Review that product shrinkage included poor stock control (AIC, 2004b, p. 11). In the retail industry, poor stock control across the supply chain covers misrouted and unsupplied products due the common occurrence known as a warehouse discrepancy. More specifically, it was discovered that warehouse

discrepancies were the largest contributor to product shrinkage. Through experience I would say warehouse discrepancies, thats the biggest one, explained the Store Trading Manager. A warehouse discrepancy was described as the difference in what the retailer is charged for, and what they actually receive from the warehouse or supplier (Loss Prevention Manager (1); Store Trading Manager). The Grocery Manager further

supported this by stating: [t]he main contributor is warehouse discrepancies and number two would be theft. In this instance, it was discovered that the two main contributors to

42

CHAPTER

THE

RETAILER

product shrinkage were warehouse discrepancies and internal and external theft. Warehouse discrepancies are largely a procedural based problem, as thoroughly explained by the Loss Prevention Manager (1):
Look theres a couple of thoughts on it. There has been some research done in the States, they tend to do most of the loss prevention type research. They tend to think that internal theft is probably the bigger contributor. I dont know if that would be the case, certainly external theft in [region] that I look after, the main core chunk of Sydney from eastern suburbs out to the western suburbs certainly external theft I think plays a bigger part than the actual internal theft. So youve got your internal paperwork errors and procedural errors which result in loss. Youve got internal theft and certainly external theft and theyre probably the three drivers for shrinkage. But certainly I can say within [region] external theft would probably play the predominant role. But if you look at it on a national basis procedures would probably tend to take over.

From this extract it was therefore discovered that the three main contributors to product shrinkage could be recognised in order of the severity in which they contribute as: 1. Warehouse discrepancies (errors due to procedures); 2. External theft; and, 3. Internal theft. In a recent study conducted by the National Retail Security Survey, it was discovered that internal theft caused 46 percent and shoplifting caused 32 percent (Roger, 2003). This study takes an opposing stand compared to that of the Loss Prevention Manager (1) although external theft encompasses more than shoplifting alone. Figure 4.6 illustrates the breakdown of known and unknown sources to product shrinkage.

Figure 4.6 Contributing factors to product shrinkage So now that it has been established that product shrinkage originates from a variety of sources, what types of products are among those that are misplaced or unaccounted for? Are high-end products the only contributor or are there other types of products that also contribute to product shrinkage?

43

CHAPTER

THE

RETAILER

4.3.1.2 Products that contribute to Product Shrinkage Both high-end products and a variety of other products were found to contribute to product shrinkage. These included: batteries, razor blades, liquor and products from the health and beauty range. Table 4.2 summarises the main types of products (including brand names) that were identified by all interviewees as items that constitute product shrinkage. Table 4.2 Products that contribute the most to product shrinkage
Product Category Electrical Health & Beauty Oral Care Personal Care Hair Care Liquor Pet Supplies Medical Grocery Other Product Types Batteries, DVDs, CD-RWs, multimedia, electrical goods Cosmetics (Olay), skin care (Dove), deodorant, vitamins Toothpaste (Sensodyne) Razor blades (Gilette Mach3), other toiletries Shampoo & conditioner (Pantene, LOreal, Garnier) Spirits and wines (Jim Beam, Johnny Walker) Pet medicated tablets (ExelPet) Analgesics (Panadol), other medical products Meat (fresh), olive oil, baby formula Cigarettes

To support theories upheld by the retailer, similar results were found by the Food Marketing Institute in 2003 (Figure 4.7). Every product identified as a contributor in Figure 4.5 was also identified by the retailer.

Please see print copy for Figure 4.7

Figure 4.7 Products that contribute the most to product shrinkage (Food Marketing Institute cited in Checkpoint Systems, 2003, p. 3) It was also discovered that items with a high resale value and items that are easily concealed could go missing at any point across the retail supply chain. The Night-fill Captain of one of the Sydney-based stores said:
Basically, its anything they can get their hands on. If the consumer wants something theyll take it. The size is a variable; it doesnt really matter if they can sneak out of the store theyll get it out. People are pushing trolleys of stock, mountains stock out through liquor, with observant staff catching them, so size isnt really a factor.

44

CHAPTER

THE

RETAILER

However, what are the primary factors that have a direct influence on the possibility of a product being transported to the wrong store or the unknown disappearance of a particular product? The following section recognises some of the processes, technologies and people (internal and external to the organisation) that influence the sources to product shrinkage. 4.3.1.3 Product Shrinkage: a Process, Technology or People problem? Contributing sources to product shrinkage are considered to originate from a process, technology or people problem (Figure 4.8). These three factors collectively create the foundation for product shrinkage and its regular occurrence in the retail industry.

Figure 4.8 Process, technology and people: contributing to product shrinkage When the Loss Prevention Manager (1) was asked whether product shrinkage was a process problem, technology problem or people problem, he responded: [a]ll three would contribute to it in some way. The following retail-based examples in Table 4.3 are to provide a context in which the three can be understood: Table 4.3 Retail-based examples of process, technology and people problems
Process Examples: - manual stocktakes to calculate unknown shrinkage - the way in which products are picked and shipped at the distribution centre - manual procedures for accepting deliveries at a back-dock - erroneous scans and other problems with the barcode system - thieves with knowledge and ability to defeat the EAS system - unreliable anti-theft EAS system - checkout operators not responding to the EAS alarm system - the existence of dishonest employees and thieves - applying EAS tags incorrectly i.e. double tagging, bending tags past 90 degrees

Technology

People

When the Loss Prevention Investigator was asked about his opinion on these three factors affecting product shrinkage, he replied:
I think it encompasses all of it. We certainly have some processes that need to be looked at. The way that our DC is structured, the way that they ship items from there certainly needs to be looked at and will be over a period of time. Obviously, to take out the human side of it would certainly help because unfortunately humans make mistakes and that does certainly cause some errors. The other side of it is theft which is very much a human side of it, people walking in and just stealing from us. And also poor practices in-stores also contribute where we dont follow our processes and procedures.

45

CHAPTER

THE

RETAILER

It was revealed in this case that both processes and people were a primary influence to the many sources of product shrinkage. The retailer was concerned about the processes involved at the distribution centre when organising the transportation of goods across the retail supply chain. In addition, human error, poor practices in-store and theft were recognised as being contributors to the problem of product shrinkage. The Store Services Manager also identified the issue of poor procedures when receiving goods at the backdock as a process problem. [T]here is no way that you can physically scan every item that comes in on the load. Theres no way.

Employees involved in the case study were asked when their superiors begin to ask questions about loss. As emphasised by the Store Trading Manager, based on

previous audits a product shrinkage figure is predicted for each individual store: [s]o if its over that, then they will definitely come in and investigate and usually the first thing they look at is systems and procedures in the store. If theyre not right then its

automatically the stores responsibility to get it right. It was certainly recognised that procedures, closely connected to processes are critical in minimising product shrinkage levels. These three factors may influence product shrinkage levels, but whereabouts does it occur across the retail supply chain? 4.4.1.4 Product Shrinkage across the Retail Supply Chain The retailers supply chain covers a large geographical area across Australia. The two regions examined are part of an interstate supply chain which covers both Victoria and New South Wales. Stores within each region receive goods from both company owned warehouses and third party suppliers. Company owned warehouses consist of one regional distribution centre (RDC) and five local distribution centres (DC). An RDC may supply products to hundreds of retail outlets, whereas a DC will only deliver goods to a designated region. The majority of stock is supplied from company owned distribution centres, yet interestingly there are more third party suppliers. Third party suppliers are external to the retailer and are known as direct suppliers.

The retailer engages in hundreds of transactions with suppliers daily. All stock is ordered using an automatic stock ordering system. It was estimated by the Store Manager that approximately 200 transactions are made daily between his store and its suppliers. The Loss Prevention Manager (1) stated that a continuous electronic barrage of orders is required to keep retail outlets fully stocked in order to satisfy customer demands.

46

CHAPTER

THE

RETAILER

Coordinating these orders across the entire retail supply chain and scheduling deliveries is an enormous task performed by the retailer using its warehouse and logistical services. During this process, product shrinkage occurs at various points, whether it be at the distribution centre, in-transit, or when a delivery is received by a back-dock attendant at a retail outlet. When the Loss Prevention Manager (1) was asked where most product shrinkage occurs across the retail supply chain he replied:
Look we are aware that you can have theft issues with truck drivers. Truck seals arent put on, we know stock can go missing. We have had instances where drivers have been caught. I suppose our processes are not conducive to checking, so youre relying on what the DC says that they send you, is in fact what you are receiving. So if you have a store that has 10 palettes of stock delivered from a DC, unless we pick-up at store level the fact that were missing something and its pretty hard if youve got 10 palettes of stock, nightfill come in and fill it. Unless you do a line-by-line check, how do you know whats missing? And certainly the stores put in an order for X-amount were trusting that that store will get X-amount, if they dont, a lot of that tends to go uncaptured. If you look at the case of say [Cold-Storage Logistics Company] which is one of our external suppliers, they warehouse it and distribute our cold stock, but theres massive issues with them. Its non uncommon for a load to come in several thousand dollars short. Do we pickup on that fact? No, we dont. Because it comes in, it goes into a cool room and then night-fill or then your perishable people will come through and fill, its pretty hard to pickup on the fact that youre short on a line, it might be a couple of days down the track and you might say wheres that? You then go through and make your stock adjustments so [automatic stock ordering system] will then reorder it, but by that time its too late to put in a discrepancy. Big problems with [Cold Storage Logistics Company], the sooner that comes in-house so we get some better control of it the better.

Issues raised here by the Loss Prevention Manager are critical when recognising the contributing factors of product shrinkage. Contributing factors across the retail supply chain include: 1. Internal/external theft by vehicle drivers; 2. Assuming deliveries are correct; 3. Not realising deliveries are missing stock; 4. Being too late to notify the automatic stock ordering system of a discrepancy; and 5. Problems with direct suppliers e.g. the retailers direct supplier of cold goods. These factors reveal that product shrinkage occurs at various points across the supply chain. The Liquor Manager also believes when an order made by the automatic stock ordering system is picked at the warehouse, the incorrect amount or type of product is often dispatched. Inconvenient and time consuming tasks, such as the process of having to return an incorrect order, are then necessary. Incorrect orders may require additional labour intensive tasks to be performed, however, there are consequences considered more serious that accompany product shrinkage.

47

CHAPTER

THE

RETAILER

4.4.1.5 Consequences of Product Shrinkage There are a number of consequences that are directly related to product shrinkage. The primary consequence of product shrinkage is financial loss. When asked how much stock is lost over a period of 12 months, the Loss Prevention Manager (1) replied: its millions of dollars in unknown shrinkage. Product shrinkage is a relentless force in the retail industry and the loss it causes is extremely high. When the Loss Prevention Investigator was asked how much stock is lost, he said: Some stores will lose as little as $50,000 in six months, other stores will lose half a million in six months, depending on the size of the store. I suppose if you take an average youre looking at somewhere around $350,000 in six months. In the Store Trading Managers experience, unknown product shrinkage totalled $360,000 for a period of six months.

Apart from the direct financial loss incurred other forms of loss involve additional costs (e.g. EAS systems, loss prevention staff), additional labour (e.g. security guards, manually applying EAS tags), and out of stocks (e.g. empty shelves effects sales levels and customer satisfaction). Figure 4.9 illustrates the relationship between product shrinkage and loss. It also demonstrates how it ultimately cascades down to the retailer, stakeholders (e.g. shareholders) and the retailers customers.

Figure 4.9 The cascading effect of product shrinkage According to the Grocery Manager, due to theft alone prices can rise up to 15 percent ultimately affecting customers. If products can be accurately tracked across the supply chain it is anticipated that it will have a direct effect on product shrinkage.

48

CHAPTER

THE

RETAILER

4.5

Tracking Products across the Retail Supply Chain

The retailer currently tracks products across the retail supply chain using a

combination of barcodes and manual paper work procedures. When asked how products were tracked from distribution centre to retail outlet, the Store Trading Manager replied: theres that big void in the middle where an order goes onto the load list and we can check it line-by-line if we want, but we just dont have the man power. Its not a standard thing that you check a load list line-by-line and given that here they get 30 to 35 pallets a night. As this employee suggests, it is unfeasible to count each individual carton of a large delivery using existing procedures.

The distribution centre coordinates the largest deliveries to be transported to the retail outlet. Currently, employees rely on the DC to select the desired goods and ship them accordingly. The current system has the ability to track products to a certain extent, but acknowledged by the Grocery Manager its not 100% accurate, probably because theyre expecting people at the warehouse to do it correctly. As the DC is responsible for other discrepancies, it can be assumed that other procedures carried out at the same site are also heavily flawed. Deliveries may arrive at a stores back-dock missing a number of products, so how are products monitored during transportation?

The retailer uses Global Positioning Systems (GPS) as a means to track vehicles across the supply chain. Using a pre-planned route, GPS-enabled trucks are tracked from the distribution centre to the retail outlet. The system is designed to provide the

geographical position of the truck during the transportation of goods. However, GPS does not provide information regarding the status of goods onboard. A number of voids exist across the retail supply chain where products fail to be accurately tracked. When asked if products were tracked across the supply chain, the Loss Prevention Manager (1) said: [p]roducts arent tracked. If youre talking about electronic tracking or things like that, then no. In this response, the Loss Prevention Manager (1) is referring to new RFID systems designed to track products across the supply chain.

4.6

The Retailers Perceptions of RFID

Retail employees were asked if they were aware of the latest RFID systems and

their benefits. It was found that employees involved in the study had a positive outlook on new RFID technologies yet were unaware of the technologies primary benefits. Loss prevention employees had a far better understanding of the technology than managers from other departments. As explained by the Loss Prevention Manager (1): I have a

49

CHAPTER

THE

RETAILER

basic understanding.

There are all sorts of things product tracking, inventory

management, theres a whole range of things. Furthermore, he explained:

I havent done any research in it, there would be a whole range of things. Thered be all sorts of cost benefits there I would assume in inventory management right down to even, we may even be able to know the product size and weights in terms of transport wed be able to work out to the nearest cubic centimetre how much stock we can fit on a truck. Whether we are being over charged in transport costs, for weight or pallet space or size, theyd probably be a whole range of hidden benefits there that you probably havent even thought of before.

It was interesting to discover that loss prevention managers focused on secondary benefits of the technology. Rather than its ability to provide total visibility of stock across the supply chain and ultimately a means to minimise product shrinkage, employees concentrated on some of the benefits it could bring to point of sale. For example, the Loss Prevention Manager (1) recognised that you can put X-amount of stock in a trolley with RFID that are all tagged, pass it through some antennas and you know exactly what went out of the store and if it was payed for. Most employees unknowingly focused on potential benefits that are generally not considered a main driver to adopt a new RFID system.

The Store Trading Manager claimed to have little knowledge of RFID as a technology with the ability to track products across the supply chain. However, she declared that it would definitely benefit the retailer as it would probably reduce our shrinkage by a huge amount, not to mention the time spent actually adjusting the stock on hand because there have been miss-picks and things havent gone right. In this instance, the Store Trading Manager not only suggests that RFID is likely to minimise product shrinkage, but also the manual procedures. The Store Services Manager also had an appreciation for the technologies ability to minimise manual procedures at store level. She claimed that less labour would be required when manually stamping products with the store stamp as a new RFID system would require suppliers to do it at the products point of manufacture. She also believed that if the retailer was to implement an RFID system that its imperative that suppliers also be part of the overall system as [i]t would be of no benefit otherwise. The Store Services Manager believed that if such a system was introduced, their suppliers would most likely comply: [t]he suppliers usually do come into line with any new systems that we are bringing in so I couldnt see that there would be a problem. She also highlighted the fact that RFID tagging would most

probably have an effect on the total price of a product, but she believed that this increase could be counteracted if product shrinkage was kept to a minimum.

50

CHAPTER

THE

RETAILER

An organisation willing to adopt a new RFID system must be able to see potential for a return on investment (ROI). When the Loss Prevention Manager (1) was asked whether he thought the retailer would ever be interested in investing in an RFID solution he responded: [t]heres always that cost versus benefit exercise and if the sums are right, then yes. As identified by Global Standards One, in the case study called the Australian Demonstrator Project (which claims to be Australias first case study), it was revealed that it is necessary to estimate the potential benefit that will come from deploying RFID and improving the business process using the data that the system provides. (GS1 Australia, 2006, p. 23). It is in this light, that testing an RFID system is highly

recommended prior to total rollout as it assists in building an expected ROI.

4.7

Conclusion
It was discovered that the retail organisation currently utilises two technologies as

part of a loss prevention strategy; a barcode auto-ID system and an EAS anti-theft system. Operating independently, it was revealed that both technologies possess a number of limitations which consequently present adverse challenges to the retailer. The barcode system can record damaged products and detect targeted products or areas, yet the technology plays a minor role as part of the retailers loss prevention strategy. Even though the retailer was currently testing a new EAS system throughout five liquor stores, the technology was still considered a deterrent rather than a total solution. It was also discovered that professional thieves avoid triggering the alarm using a variety of methods and staff members regularly neglect standard procedures readily relied on by the EAS system. These inadequacies expose a weakness in the retailers loss prevention strategy as a result effecting product shrinkage levels. Made up by contributing sources, the two main categories of product shrinkage identified were known and unknown, with unknown representing a larger value of the two. Contributing factors to product shrinkage were found to come from a diverse range of sources and through various activities. Warehouse discrepancies and theft were identified as the two highest sources of product shrinkage. Whether it involved a standard company procedure or an illegal activity, it was found that during most of these events provisions were lacking to effectively counteract these activities. It was verified, particularly by loss prevention staff members that all sources originated from the combination of three factors; process, technology and people. Furthermore, the loss prevention department claimed that product shrinkage across the supply chain was one of the departments main challenges, especially when transferring goods from distribution centres to retail outlets. This dilemma necessitates an alternative solution be found to minimise product shrinkage across the retail supply chain.

51

CHAPTER

RFID

VENDORS &

ASSOCIATIONS

Chapter 5 RFID Vendors and Associations

5.1 Introduction
This chapter will determine the perceptions of RFID vendors and associations for the potential of RFID to minimise product shrinkage across the retail supply chain. Today, RFID is used for automatic toll collection on motor highways, tracking medicine vials in the pharmaceutical industry and accurately sorting luggage at international airports. However, the only application of RFID in major Australian retailers is

Electronic Article Surveillance (EAS) used as an anti-theft mechanism. Beyond the basic features of EAS, newer Generation-2 (Gen-2) RFID technologies facilitate the accurate tracking of goods across the supply chain giving the retailer unsurpassed visibility of stock. Managing inventory using RFID offers a number of benefits that existing EAS and legacy barcode systems cannot achieve. Throughout this chapter, employees from eleven different organisations offer their ideas and perceptions on various issues regarding RFID and product shrinkage. Real world examples are given on the application of RFID in industry to provide a grounded understanding for which lessons can be learned for the future adoption of the technology. An important question to be answered in this chapter is; does RFID hold the potential to minimise product shrinkage across the retail supply chain?

5.2

Background of RFID Vendors and Associations

The unit of analysis for this part of the study is RFID Vendors and Associations.

A total of nine organisations formed this group, each of which was represented by an individual employee. RFID vendors included technology providers, manufacturers,

system integrators and resellers of hardware and software, and the associations group included an RFID association and an RFID standards body. Employees selected for the study covered a broad range of expertise in the field of RFID. This diversity of

knowledge intended on increasing the overall richness of data collected. Employees involved in the study primarily included staff with managerial positions. However, technical staff, sales staff and consultants also took part in the study. Information

describing each individual vendor and association is in Appendix B and interview transcripts can be found in Appendix F. The following sections summarise data gathered on RFID vendors and associations.

53

CHAPTER

RFID

VENDORS &

ASSOCIATIONS

5.3

RFID Vendors & Associations Perceptions of Product Shrinkage

Product shrinkage has previously been examined in chapters two and four.

However, it is also necessary to determine the perceptions RFID vendors and associations have on the issue of product shrinkage particularly in a retail setting. When defining product shrinkage RFID Vendor (1) explained that it varies between industries, but generally it includes; lost, stolen (theft) and damaged goods. When asked about product shrinkage a typical response included these three sources. RFID Vendor (4) emphasised that theft is the predominant contributor to product shrinkage. It was also interesting to discover that some vendors were unaware of all the sources that contribute to product shrinkage. This suggests the possibility that vendors are oblivious to the problems

encountered by retailers; organisations which could represent a large portion of their customer base.

Nonetheless, the Systems Engineer (RFID Vendor 2) was well informed on sources that contribute to product shrinkage as he had previously worked in the retail industry. He provided a detailed understanding of the contributing sources to product shrinkage:
theft, damaged goods, overdue items, past due date items. Since I got into IT, I have been doing a lot in the supply chain, so there is obviously damage within transit, misrouted or otherwise lost goods throughout the supply chain, incorrect numbers shipped, over shipped, under stocked, all that kind of stuff constitutes product shrinkage (RFID Vendor 2).

When the Managing Director (RFID Vendor 3) was asked what product shrinkage was he simply replied [a]nything that represents a loss of a physical asset. A physical asset in the retail industry generally covers consumer-based products and the reusable pallets and containers which carry them. Physical assets can be unaccounted for at any point across the supply chain. RFID Vendor (3) further explained that nobody has accurately

determined the main contributors to product shrinkage:

I dont know and I dont believe anybody knows. I tried to get figures out of the New South Wales Police on fraud, they didnt know; the New South Wales Retailers Association, they didnt know the real issue is there hasnt really been a way to measure it. And one of the things that RFID can do is actually assist you in measuring it.

The most significant part of this quote resides in the fact that there is no way to measure product shrinkage. RFID Vendor (3) may have recognised RFID as a technology which can be used to accurately measure the contributing sources of product shrinkage, yet in what ways can RFID minimise product shrinkage?

54

CHAPTER

RFID

VENDORS &

ASSOCIATIONS

5.4

Minimising Product Shrinkage using RFID

RFID technologies were considered by most RFID vendors and associations as a solution to product shrinkage in the retail industry. As proposed by RFID Vendor (2) the main drivers for the adoption of RFID in the retail industry is the technologies potential to minimise shrinkage and to improve supply chain efficiencies. Not all the benefits of RFID within a retail environment have been realised by vendors. There are a number of techniques and applications that give this technology the ability to minimise product shrinkage across the retail supply chain (Figure 5.1).

Figure 5.1 RFID as a means to minimise product shrinkage

5.4.1 Visibility
It was discovered that one of the main drivers pushing RFID in the industry was its ability to provide visibility across the entire supply chain. Visibility is described as an organisations ability to accurately track and observe the movements of products across the supply chain (Symbol Technologies, 2004; 2006). As stated by RFID Vendor (6), [t]he whole things about getting visibility in the supply chain. Gaining visibility across the supply chain allows a retailer to collect accurate information to support the decision making process (Checkpoint, 2004). Furthermore, the visibility of products throughout the supply chain process increases the likelihood that a product will reach its destination; the customer. RFID Vendor (4) offered a scenario to demonstrate this

theory: [l]ets say you build 100 items, so if RFID saves shrinkage youll have 100 items to sell. If you know where the 100 items are you can actually sell those 100 items and allows you to hold less stock. This example illustrates the basic, yet fundamental concept of visibility provided by an RFID solution. Further supporting this idea,

Garfinkel and Rosenberg (2005), also recognise that if a retailer cannot find a product, they cannot sell it. If a retailer has the ability to find and pinpoint the exact location of its products, it can potentially minimise:

55

CHAPTER

RFID

VENDORS &

ASSOCIATIONS

1. warehouse discrepancies; 2. theft; and 3. misplaced and lost products. It is important to realise that these three factors are major contributors to product shrinkage in the retail industry. The automatic identification (auto-ID) of products using RFID has the potential to accurately manage stock across the retail supply chain, effectively reducing the chances of misrouted or misplaced products. 5.4.1.1 Warehouse Discrepancies The continuous demand from customers in the retail industry requires a constant flow of goods from the point of manufacture to the retail outlet. Retailers must As

successfully coordinate timely and effective responses to customer demand.

suggested by Pisello (2006), RFID can support this process by validating the accuracy of deliveries and shipments. Inaccuracies which occur in a retail supply chain are

commonly called discrepancies. A discrepancy represents any form of an inaccuracy in a delivery. For example, a retail outlet may order 1000 products from the warehouse and only receive 980 products. Due to the large number of cartons, the back-dock attendant is not required to scan each individual box using a barcode scanner. Thus, 20 cartons are unaccounted for and subsequently, a discrepancy occurs. As suggested by the RFID consultant from the RFID Association:
[a] retailer wants to minimise mistakes. When you are at the dock and you receive your deliveries you have to check ever single item on the pallet, right? Well how about you just scan the pallet and the pallet itself will just tell you whats inside. So you dont need to undo the pallet at all.

Apart from its ability to minimise human intervention and labour costs, RFID can automatically identify products as they leave a delivery vehicle. Tagged products that pass by a number of RFID antennas in a gateway arrangement can be automatically counted (Figure 5.2). During this process, warehouse personnel can be alerted to any errors that may occur and finally verify a delivery ready for dispatch. Using RFID, a retailer has the ability to minimise warehouse discrepancies by accurately confirming a delivery vehicles load. It is anticipated that reducing errors in preparing and receiving deliveries from the distribution centre to the retail outlet will result in a reduction in overall product shrinkage levels.

56

CHAPTER

RFID

VENDORS &

ASSOCIATIONS

Please see print copy for Figure 5.2

Figure 5.2 An RFID gateway at a retail receiving area (METRO Group, 2006) 5.4.1.2 Theft The application of Gen-1 RFID, more commonly known as Electronic Article Surveillance (EAS), has been widely embraced by retailers as an anti-theft mechanism. EAS is a closed-loop system with the sole purpose to deter thieves (RFID Vendor 2). Furthermore, RFID Vendor (3) agreed that EAS is not a total solution but a deterrent. To get a total solution you actually need to track everything from the point of manufacture, you need to tag it at the point of manufacture and then integrate it throughout the entire supply chain (RFID Vendor 3). Gen-2 RFID technologies offer advantages that surpass a simple EAS anti-theft configuration.

As stated by RFID Vendor (7) using RFID to combat sources of shrinkage youve got the ability to keep track of products in and out of the store. Using RFID to actively monitor products in a retail outlet can potentially assist in preventing theft (Garfinkel and Rosenberg, 2005). In this particular application a retailer can detect abnormal behaviour, such as twenty razor blade packages being removed from the shelf at once (Forcinio, 2003). Using a notification system, employees could be alerted to watch the individual who removed the products ensuring that the products are paid for before the shopper leaves the store (Forcinio 2003). Monitoring products using RFID coupled with a notification system in a supermarket is not the only instance were RFID can provide visibility by actively tracking products. 5.4.1.3 Misplaced and Lost Products Products can also be monitored using RFID throughout the entire retail supply chain. Firstly, the definitions of misplaced and lost products within a retail setting are to be defined. Products that have been misplaced have generally been moved to a

misallocated section of a warehouse or retail outlet. However, if a product is not located within a certain timeframe, its status is said to be lost or unaccounted for. Unrecovered

57

CHAPTER

RFID

VENDORS &

ASSOCIATIONS

products are typically assumed to be lost and as a result are added towards the total of unknown product shrinkage.

A product that is believed to be out of stock or unavailable does not necessarily occur because products have been sold or stolen; products are also commonly misplaced. RFID can assist by tracking and tracing products at any point across the supply chain. According to RFID Vendor (1), a retailer using RFID has the ability to track and trace a particular product at item-level through the whole supply chain process. If a retailer can accurately monitor stock throughout the supply chain products are less likely to go missing in the first place.

5.4.2 Authentication
RFID can also offer value by minimising product shrinkage in its ability to rapidly authenticate a tagged object. A retailer can take advantage of this feature by scrutinising tagged products at any point across the supply chain. Authentication can be used to locate defective products during recalls, detect possible acts of fraud and identify counterfeit products. 5.4.2.1 Recalls Product recalls are considered to be one of the primary motivators to adopt RFID. According to RFID Vendor (1), product recalls cost millions and millions of dollars. Products in the retail industry (especially food products) need to comply with certain safety criteria. If these criteria are not met products are assumed to be defective and unfit for consumption. When a product line is recalled large quantities of stock need to be identified, gathered and disposed of. Unfortunately, not all goods identified in this

process are actually defective. In fact, extortion attempts against large corporations which target popular products in most cases do not pose a threat to the consumer. However, in this situation the manufacturer or retailer has no alternative but to dispose of the majority, if not all products that are said to be defective.

The ability to authenticate a product using RFID can minimise the overall impact of product recalls and extortion attempts. RFID is gaining much momentum in the pharmaceutical industry as a tool to manage recalls (RFID Vendor 1; IBM Corporation, 2006). Using an RFID scanning device retail employees can accurately locate a desired product and establish whether it is subject to recall. From a safety perspective, the pharmaceutical and retail industries together rely on the overall quality of their products. The pharmaceutical industry may be investing in RFID technologies to minimise the

58

CHAPTER

RFID

VENDORS &

ASSOCIATIONS

impact of product recalls, but why have we not seen Australian retailers adopt RFID to minimise this issue as well? 5.4.2.2 Fraud In the retail industry, fraud includes refunding products to an alternative store (other than the place of purchase) to receive a higher return. As described by RFID Vendor (3) retail fraud also involves the act of placing foreign barcodes on products as to ensure that they scan at a lower price. As a barcode can essentially be an adhesive label, barcodes are easy to reproduce (RFID Vendor 3) and fastened over a products original barcode. As described by RFID Vendor (3), nine times out of ten the checkout person wouldnt know. However, barcode fraud can also occur at any point across the supply chain. For instance, a third party supplier may dishonestly alter barcodes on a number of products included in a large delivery and being unaware of this a retailer could accept the delivery.

RFID can assist by authenticating a products point of origin. If a product can be identified and confirmed as previously owned by a retailer, the products value has a better chance of being retained by the retailer and not lost due to fraud. The issue of fraud is closely related to illegitimate product reproductions.

5.4.2.3 Counterfeits The authenticity of goods is a great concern in the pharmaceutical industry (RFID Vendor, 1-4; Heinrich 2005). According to Heinrich (2005, p. 176), The Food and Drug Administration (FDA) mandate for pharmaceutical manufacturers to use RFID-tagged pill bottles was driven by the desired to eliminate the estimated 2 to 7 percent (approximately [US]$30 billion) of counterfeit drugs sold each year. RFID is capable of the mass serialisation to track and trace individually tagged products. Serial numbers is a fundamental requirement for a successful anti-counterfeit solution (Forcinio, 2006). In the retail industry the application of RFID for anti-counterfeiting purposes is most likely to include clothing and other high-end products.

Electronics, designer clothing brands and other high value items can be subject to anti-counterfeit technologies. The Benetton Group initiative in the United States required clothing items to be embedded with an RFID tag to detect counterfeit products (RFID Vendor 7). In this application, clothes can be assumed counterfeit if the garment is found without a tag or the tag contains an invalid item code (Lahiri, 2006). In this particular case, RFID holds the potential to combat criminal operations. In addition, it can reduce

59

CHAPTER

RFID

VENDORS &

ASSOCIATIONS

the distribution of goods throughout the grey market and ultimately, prevent the sale of counterfeit products to consumers. The anti-counterfeiting capability of RFID can

minimise product shrinkage by eliminating the possibility of a retailer unknowingly investing in counterfeit products.

5.4.3 Automation
Fischer and Green (2004, p. 345) identify bad checks as an activity that contributes to loss experienced by retailers. Checking products using a barcode system involves manually scanning a products barcode at any point across the supply chain. A bad check occurs when a product fails to be recognised, due to human intervention or a barcode error. However, RFID offers the potential to minimise these errors.

The Electronic Product Code (EPC) standard for data storage on an RFID tag is designed for the automatic identification of products across the retail supply chain. An EPC code identifies the manufacturer, product category and the individual item (Kleist et al. 2005; Want, 2006). Automatic identification of such data is designed to reduce errors incurred by human intervention. 5.4.3.1 Human Error RFID facilitates automatic inventory auditing (Ollivier, 1995). Auditing, more commonly known in retail as stocktake is the process of determining stock levels. Stocktake generally involves the use of barcode scanners to identify products, which are then manually counted by hand. Miscalculated products are most likely linked to human errors which then add to overall product shrinkage levels (RFID Vendor 6). However, stocktaking can be completed quickly and accurately using an RFID enabled handheld scanner (Ollivier, 1995). Using the EPC convention for data storage a product can be individually identified and the total number of products recorded. According to RFID Vendor (2), RFID can streamline supply chain processes and remove the necessity for personnel to assist with tedious operations; zero human intervention operation (OHIO). A system which requires minimal physical manipulation of stock level data is just one benefit of RFID adoption within a retail environment. However, reducing errors due to human intervention is not the only benefit where RFID can minimise product shrinkage.

60

CHAPTER

RFID

VENDORS &

ASSOCIATIONS

5.4.4 Auxiliary Applications

In a retail environment products are generally spoiled if they are: damaged, broken, unsealed, exposed to incorrect temperatures or out of date. Products that have been spoiled are commonly discarded and hence, contribute to large quantities of product shrinkage. RFID can minimise product shrinkage using the following auxiliary features. 5.4.4.1 Damaged Products An interesting issue raised by the RFID Association was RFIDs ability to gather information about a product and categorise it accordingly. For example, a retailer could implement an RFID reader to record damaged stock at the opening of a waste deposit. The retailer would then be able to keep an accurate record of damaged goods. In this application RFID does not reduce damaged stock, but it does record it. As suggested by the RFID Association:
They might not be able to fix the problem, but they are going to categorise it; this is stolen, this is broken and then they could get rebates from their suppliers. If they have information about where and why the product is part of shrinkage, then maybe they can get dollars back.

If a retailer can record damage products they can claim for credit through insurance or through other formal agreements with their suppliers. This information could also be made available to manufacturers interested in a regularly damaged product. Improvements could be made to a particular product or its packaging to resist certain elements on its way to the retail outlet and onto the shelf.

In addition, as suggested by RFID Vendor (2) transporting goods using RFID simply removes the human interaction as products are scanned automatically. Minimal handling of stock by personnel results in a further reduction in the likelihood that products are accidentally dropped or mishandled. The big cost for most retailers is the amount of handling that occurs at the manufacturer through distribution centre to the retail store (RFID Vendor 7). A retailer can further reduce spoilage of products by closely monitoring temperature. 5.4.4.2 Temperature In the retail industry, it is imperative that perishable products remain within a fixed temperature range across the entire supply chain. Perishable products in-transit are vulnerable to incorrect temperature exposure. For example, frozen seafood awaiting dispatch at a distribution centre may be unintentionally left in direct sunlight for an extended period of time. In addition, large prime movers (delivery vehicles) travel great

61

CHAPTER

RFID

VENDORS &

ASSOCIATIONS

distances and take multiple routes during transportation. During this process, products are vulnerable to fluctuating temperatures.

According to RFID Vendor (2), a temperature sensor can be attached as an additional device on an RFID tag. Sensors can monitor temperature levels in real-time (Smith, 2005) or at various intervals. Tags for this purpose can be attached to a shipping container, a vehicle or an individual product. As RFID tags can function at temperatures ranging from -40C to 204C (Garfinkel and Rosenberg, 2005, p. 55), they are suitable for cold and frozen storage and logistics. It is in this particular application that RFID tags can eliminate or reduce product spoilage (RFID Association of Australia, 2006).

In the not too distant future RFID tags will offer seamless product temperature records from point of manufacture to the time of purchase (Smith, 2005). Using this form of RFID application both the retailer and the customer can be reassured of a products temperature throughout the entire supply chain process. 5.4.4.3 Expiration Date and Stock Rotation Monitoring expiration dates of a retailers complete inventory list is a challenging task. Currently, products that are found to be expired are disposed of. According to Symbol Technologies (2006), RFID can be used by a retailer to monitor product expiration. If a retailer can immediately determine when a product is due to expire, products can be strategically placed or re-priced for quick sales.

Existing technology utilised by retailers does not allow data such as expiration dates to be monitored. Advances in RFID could ensure the retailer is constantly aware of products that are approaching expiration. Employees could be notified in real-time if the product should be moved to the front of the shelf. This would drastically reduce the human intervention required in recognising items that are soon to expire.

A products expiration date is closely linked to the practice of stock rotation in retail. Stock rotation involves the routine of physically moving products from the back of the shelf to the first row on display to the customer. This basic routine plays a role in minimising product shrinkage.

62

CHAPTER

RFID

VENDORS &

ASSOCIATIONS

5.5

Conclusion
The RFID vendors and associations involved in this study acknowledged the

potential of RFID to minimise product shrinkage across the supply chain. In most cases the interviewees were aware of the issue of product shrinkage, yet they were unaware of its main contributing factors. This unfamiliarity suggests that their knowledge of their customer base (consisting of retailers) is not as extensive as expected. It was discovered that one of the main drivers pushing the adoption of RFID in the retail industry was its ability to provide visibility of stock, improve efficiencies and potentially minimise product shrinkage across the supply chain. Visibility was a key finding to the prevention of warehouse discrepancies, theft and the likelihood of products being misplaced or lost. The technologys capacity to authenticate products during recalls, acts of fraud and in identifying counterfeits was also found to be of benefit. The automation of supply chain processes recognised RFID as being a means to dramatically minimise human errors. Finally, RFIDs auxiliary features allow a retailer to minimise loss by recording products as known damaged, maintaining correct temperatures in storage and during transportation, manage the expiration dates of products and rotate stock effectively. All these characteristics were recognised by RFID vendors and associations, accompanied by supporting academic papers and trade sources, as being characteristics of RFID with a potential to minimise product shrinkage across the retail supply chain.

63

CHAPTER

DISCUSSION

Chapter 6 Discussion
6.1 Introduction
This chapter will explore the interplay between the retailers dilemma of product shrinkage and the solutions advocated by RFID vendors and associations to minimise product shrinkage. It has been discovered in this research that product shrinkage in the retail industry necessitates a corresponding solution. RFID as an emerging technology holds the potential to fulfil the needs of stakeholders in the supply chain. The recent ratification of Generation-2 (Gen-2) RFID and the Electronic Product Code (EPC) standard developed by Global Standards One (GS1) has greatly influenced the adoption of RFID in certain industries. Despite these current standards supporting the technology, there still remain a number of challenges that prevent RFID appealing to the retail industry. These challenges involve overcoming barriers and inhibitors to the adoption of RFID implementation for the tracking of goods, especially at carton-level and item-level. An important point raised by the retailers Delicatessen Manager is that [i]ts hard to keep track of how many items we have in the supermarket. If so, then why have we not seen a more effective supply chain management (SCM) solution in the Australian retail industry, such as RFID?

6.1.1 Qualitative Content Analysis

Interview transcripts were combined and then analysed using the Leximancer content analysis software. The program is designed to automatically detect concepts in interview transcripts and create an analysis report or concept map (Figure 6.1). This map illustrates the interaction between concepts and provides an overview of how concepts relate to one another. The size of a circle which encapsulates a particular concept represents the relative importance of a concept and overlapping circles characterise association or closely allied concepts.

65

CHAPTER

DISCUSSION

RFID Supply

Product Shrinkage People

Think

Working

Figure 6.1 Leximancer analysis report (concept map) The concept map for this study was used to create themes for further discussion topics (Table 6.1). A total of six concepts were discovered within the interview

transcripts, each of which forms part of this chapter. Table 6.1 Discussion themes created from the concept map
Concept RFID Product Shrinkage Discussion themes Primary theme and discussion topic including: cost, immature technology, and differing perceptions of RFID. Primary theme and discussion topic including: the retailers dilemma and differing perceptions of product shrinkage. This theme represents the lack of awareness regarding RFID as a means to minimise product shrinkage. It also represents the lack of education of the contributing factors of product shrinkage. The supply chain was a regularly occurring concept in interview transcripts. This theme represents the integration of RFID across the retail supply chain to minimise product shrinkage. This theme represents the retailer and the RFID vendors and associations. It is important to recognise the isolation of this concept from other concepts on the map. This suggests that RFID is a working technology but is far from engaging the retail industry, especially as a means to minimise product shrinkage.

Think

Supply People

Working

6.2

RFID: The Emerging Technology

Rivalry among businesses leads to the relentless pursuit of competitive

advantage. According to research conducted by (Bass, 2003, p. 2), across all industries 28 percent of organisations are planning to experiment with RFID technologies within the next two years. This interest in RFID technology suggests that it could also be used by retailers for strategic advantage.

Consider Michael Porters (2001) theory that well established organisations are in the best position to integrate new technologies with SCM by leveraging existing assets (legacy barcode systems) to further support their investments. In this light, retailers willing to minimise product shrinkage, now have the ability to do so by complementing existing legacy barcode systems and other supply chain processes with RFID.
66

CHAPTER

DISCUSSION

Today, retailers and manufacturers are using RFID technologies to manage their supply chains. U.S. based companies such as Wal-Mart, Tesco, Target, Proctor and Gamble, and Gillette have implemented RFID technologies across their supply chains (RFID Gazette, 2005). According to the RFID vendors and associations involved in this study, RFID is currently used by Chinese and Korean airports, pharmaceutical industries and casino and gambling industries. RFID is a reality in these industries by the support of Gen-2 RFID standard of tag and EPCGlobal for data storage. However, even with the proliferation of RFID across a diverse spectrum of industries, it is yet to engage the Australian retail industry.

6.2.1 Barriers to Adoption

There are a number of challenges that are currently restraining the proliferation of RFID in the retail industry as a SCM solution and as a means to minimise product shrinkage. These barriers to adoption were identified as cost, lack of awareness,

immaturity of RFID technology and differing perceptions of product shrinkage and RFID. 6.2.1.1 Cost This study revealed through supporting evidence that RFID is currently too expensive to be implemented by a retailer. The retailers existing application of EAS tags to certain products is cost driven by the unit price or product lines deemed to be hightheft targets. According to the retailers Loss Prevention Manager (1), cost prohibits the investment of newer generations of RFID at this stage. Although the technology has improved dramatically over the past decade, the cost of various RFID components remains a significant inhibitor to its adoption. It was agreed on by both the retailer and the RFID vendors and associations that cost was the most dominant barrier to the integration of RFID in a retail setting. In addition, RFID was dismissed as a possible SCM solution on most occasions solely based on this factor. As recognised by the Business Development Manager from RFID Vendor (1):
I think itll take a fairly low cost tag and cost effective reader for them to implement an RFID system the manufacturers of the technology are doing their best and investing a great amount of money into improving the technology. I think its only going to get better and its only going to get more cost effective, which means eventually it will be implemented.

RFID readers and tags were found to be costly outlays in an RFID implementation. However, RFID tags in a supply chain solution require constant replenishment. RFID readers on the other hand have an initial outlay, but in most cases require little maintenance. A large scale operation, such as integrating RFID within a retail supply

67

CHAPTER

DISCUSSION

chain, requires a large number of RFID tags. Consequently, it was discovered that tags represented the larger expense of the two. The Systems Engineer from RFID Vendor (2) claimed: [i]ts the tag cost that does sting, especially when youre comparing it to things like barcodes. The price of an RFID tag is relative to the law of economies of scale. Economies of scale refers to the decreased per unit cost as output increases (Besanko et al. 2004). In other words, when RFID tags can be produced on a larger scale with less input costs economies of scale are thus achieved. The latest silicon technology and other advancements in RFID are to influence production volumes due to the lower costs of such materials (RFID Vendor 4). As illustrated in Figure 6.2, as the price of RFID tags fall and become more affordable, the adoption of RFID will increase. As predicted by RFID Vendor (2) the magic number in the industry is 10 cents a tag and retailers are more likely to see a return on investment with an RFID solution that is consistently cost effective. Nonetheless, the technology relies on other components rather than readers and tags alone.

Please see print copy for Figure 6.2

Figure 6.2 RFID adoption model (cost vs. production volume) (Adapted from on Kleist et al. 2006, p. 39; Lahiri, 2006, p. 230) It is most likely that an RFID solution for a retail supply chain would need to integrate a middleware application. Middleware was also found to be an expensive component of an RFID system. As suggested by RFID Vendor (4): you might need to get a middleware company involved like IBM or SAP and thats where your large costs are. Many vendors were providers of hardware-based solutions and relied on a third party to integrate middleware and the communication between RFID tags and a Warehouse Management System (RFID Vendor 2). It was therefore confirmed that the overall costs involved in an RFID implementation are a barrier to its adoption. The technology may exist to build an RFID solution for a retail supply chain, yet it all comes down to developing business cases (RFID Vendor 3) and improving the general awareness of the technology in the industry.

68

CHAPTER

DISCUSSION

6.2.1.2 Lack of Awareness Another commonly occurring concept was think which represents the lack of awareness of RFID technology. It was found that the overall awareness of Gen-2 RFID within the retailer studied was generally low. Loss Prevention staff members had a reasonable understanding but failed to recognise the true potential of RFID as a retail SCM solution and an effective loss prevention mechanism. This lack of awareness requires information sources to be directed at retailers to instigate a solution.

The RFID Association involved in the study was a non-profit organisation, solely established to increase awareness of RFID through communication and forming a knowledge base. An interesting point raised by the RFID Consultant was that RFID brings different knowledge into the same room (RFID Association). This suggests that integrating RFID across the supply chain may require more than just the retailer and an RFID vendor. Perhaps other parties need to be involved such as; standards bodies, government departments, product manufacturers, logistics companies, wireless and other innovative technology providers. alternative driver for RFID. Forming business consortiums may instigate an

As quoted by RFID Vendor (1), there really has to be a business case, and I think people really need to understand that. So far, the Australian retail industry has only witnessed the Australian Demonstrator Project, chiefly conducted by Global Standards One (GS1) and the Commonwealth Scientific and Industrial Research Organisation (CSIRO) (Global Standards One, 2006). The study involved numerous participants (Table 6.2). As part of a pilot study, these participants set out to discover the benefits of RFID in a retail supply chain environment. The project formed a business case with a principal finding that internal knowledge and the use of standards is essential to a successful RFID implementation (GS1, 2006). The study also advised that it is important that retailers in search of similar solutions investigate their own business challenges (GS1, 2006). This could be made possible by forming consortiums and establishing a common goal through forming agreements or industry compliance mandates. A business challenge identified through the research in this thesis was product shrinkage; the retailers dilemma.

69

CHAPTER

DISCUSSION

Table 6.2 Australian Demonstrator Project participants (GS1, 2006)

Please see print copy for Table 6.2

6.2.1.3 Immature Technology To be become a well established and accepted technology, like barcodes, RFID needs further development. As acknowledged by RFID Vendor (4) retailers have got some pretty good systems that have matured over time and it would be difficult to see where RFID could actually improve those systems. In this instance, the vendor is referring to legacy barcode systems. RFID Vendor (1) also supported this theory:

retailers have invested an immense amount of money in moving their products from their distribution centres out to their stores and they do that quite well in this point in time. RFID has a long way to go before its proliferation industry wide.

The suppliers of RFID equipment are also limited. For example, the Managing Director of RFID Vendor (5) claimed that his company is the only manufacturer in Australia for ultra long-range active tags. Using advanced battery management

technology, similar to that of mobile phones, this type of tag has a battery life of seven to eight years (RFID Vendor 5). As a leading edge technology only recently available to the Australian market, suggests that these tags would most likely be expensive. This is yet another inhibitor to the adoption of RFID.

When asked whether RFID was hype or reality, the RFID Standards Body claimed that it is somewhere in between. In the case of Wal-Mart in the United States RFID is a reality (RFID Standards Body). However, in Australia, even though we consider RFID a reality, there are only fifteen major deployments including toll-ways on motor highways (RFID Standards Body). Conversely, RFID Vendor (5) responded:

70

CHAPTER

DISCUSSION

Its a reality, definitely a reality theres very, very few people that are actually providing solutions. There are a lot of people that are supplying tags, readers, technology and what have you. But you go and approach them and ask them how to solve a particular problem, theyll go huh? Youll have to go see an integrator to do that. Where are these integrators? So, unfortunately in that regard the industry is in its infancy. Its only some of the big players that are only interested in the multi billion dollar deals with the likes of the Department of Defence and Wal-Mart, that are really getting into this. Down at the normal level, there are very few players that provide an actual solution. Were one of the few that do.

In this light, RFID may well be a reality, yet in an Australian context it is still considered to be in its infancy. The barriers to entry expand even further when

considering user perceptions of the technology. As this thesis is concerned with product shrinkage as a means to minimise product shrinkage, it was relevant to discover the differing views of product shrinkage and RFID. 6.2.1.4 Differing Perceptions of Product Shrinkage and RFID The retail organisation found product shrinkage to be an issue that is over-looked by some employees working within retail outlets. As emphasised by the Loss Prevention Investigator, retail sales are more important or considered more important, and Store Managers tend to focus more on sales and trying to get sales. Whereas, a Loss

Prevention Department is solely focused on preventing loss through theft, fraud and poor work disciplines (Loss Prevention Investigator). Therefore, it could be advised that both Store Managers and Loss Prevention Departments work towards a common goal in an effective loss prevention strategy. Furthermore, he also claimed: I dont think they fully understand that one dollar in shrinkage, they need to sell forty dollars worth to regain that gross profit. This quote further supports how critical this issue is in the retail industry and again highlights the importance of this research.

The RFID vendors and associations had differing views of product shrinkage. Whilst some thought that it only included misplaced and damaged goods, other vendors had past experience in the retail industry and thus a broad understanding of product shrinkage. It was found that product shrinkage was considered by the majority of

vendors as a primary reason to adopt RFID. However, when RFID vendor (6) was asked about his perceptions of product shrinkage as a driver to adopt RFID, he disagreed:
No, no. Everyone quotes that the Wal-Mart experience and their issue is, they dont know where there stock is and they have out-of-stocks. So they are able to use RFID to locate stock within their warehouse and environment and get visibility. The whole things about getting visibility in the supply chain

It is interesting to notice that RFID Vendor (6) mentioned Wal-Mart not knowing where their stock is and products out-of-stock on the shelf. One of the primary objectives of this
71

CHAPTER

DISCUSSION

research discovered that misplaced items and out-of-stocks were directly connected to product shrinkage. Therefore in this instance, the RFID vendor has contradicted his original statement by saying that RFID is all about visibility across the supply chain. In addition, this study also found visibility to facilitate the minimisation of product shrinkage. However, apart from the misconceptions of RFID, additional challenges, not necessarily inhibitors to RFID adoption need to be identified.

6.2.2 The Convergence of RFID and Legacy Systems

Australian retailers have invested large amounts of time and capital into refining their existing legacy barcodes systems. What was highlighted by numerous RFID

vendors and associations involved in the study, is the inevitable convergence of RFID and barcode systems, suggesting that both technologies be integrated into the retail supply chain.

Interestingly, The Managing Director (RFID Vendor 6) mentioned that he would be very surprised if bar code systems were ever phased out completely. The future potential for barcodes to operate in conjunction with RFID as a backup system was also envisaged (RFID Vendors 3-6). The RFID Consultant from the RFID Association also stressed the importance of smart labels. A smart label is an adhesive label with a barcode and an RFID tag (Figure 6.3). This technology is designed to support cross-compatibility between barcode and RFID systems within a supply chain configuration. Dual

compatibility of smart labels has required the development of a new standard for data storage.

Please see print copy for Figure 6.3

Figure 6.3 Smart Label (METRO Group 2006) Technology standards also need to converge if RFID and barcodes are to coexist. The Standards Development Coordinator from the RFID Standards Body was asked about the convergence of UPC, EAN and EPC standards. He explained that EAN and UPC form part of the EPC standard which is known as tag data standards (RFID

72

CHAPTER

DISCUSSION

Standards Body). Uniting barcodes and RFID using smart labels and tag data standards faciliates a transition period from a combined barcode and RFID solution, to RFID only. However, RFID Vendor (6) predicted an RFID only solution for a retail supply chain to be highly unlikely. The levels at which RFID tags are to be applied to products and other assets across the retail supply chain is also significant.

6.2.3 Level of Tagging

RFID tags can be applied to objects at various levels. The three main levels include: item-level, carton-level, pallet-level and container-level (RFID Vendors 1-7; Borecki, 2005). The most appropriate level of tracking depends on the application and the industry vertical in which a solution is to be implemented (RFID Vendor 2). According to the RFID Standards Body, the most realistic application for a retailer at this stage is carton-level or pallet-level tracking (Figure 6.4). This type of tracking monitors individual cartons or groups of cartons on a pallet. Other than the inhibitor of cost previously mentioned, item-level tracking is presented with a number of problems including read ranges and the complexity of integration throughout the entire supply chain (RFID Vendor 2; RFID Standards Body). However, the Vice President of

Marketing and Business Development (RFID Vendor 4), suggested that item-level tracking is definitely an enabling technology in areas such as; access control and asset tracking but, it doesnt make sense to put them on cans of beans or on clothes where barcodes are suitable.

Please see print copy for Figure 6.4

Figure 6.4 RFID tags fitted at pallet-level (GS1, 2006)

73

CHAPTER

DISCUSSION

6.2.4 RFID Source-tagging

As mentioned in chapter four, it was discovered that the retailer drives their EAS source-tagging initiative by forming agreements with their suppliers. This initiative

currently focuses on EAS anti-theft tags that are applied at point of manufacture and play a minor role in SCM processes. A high-end product may come source-tagged, but the tags only function is to operate at store entry and exit points solely as an anti-theft mechanism. Consequently, the retailers Store Trading Manager claimed that EAS does not minimise product shrinkage to a significant level. The enhanced functionality of Gen-2 RFID technology holds the potential to improve business decision making, especially when including all players in a retail supply chain.

Preliminary EAS agreements between suppliers and retailers may create the foundations for future agreements for an RFID enabled supply chain. This topic is closely linked to the section 6.2.1.2, where awareness and the formation of consortiums play a large role in the tagging of products at the point of manufacture. It was

recommended by all RFID vendors and associations involved in this research that a successful RFID implementation requires the participation of all parties involved in a retail supply chain.

6.2.5 Integrating RFID across the entire Retail Supply Chain

The levels at which products are to be tagged for distribution across the supply chain needs to be determined for the implementation of an RFID solution. considering item-level tagging RFID Vendor (4) proposed the following:
[t]he whole benefit of barcodes wasnt established until everything had a barcode on it. So if youre going into a retailer and say Ill tag all the expensive stuff, but I wont tag all the cheap stuff, then theyre not really utilising the benefits of RFID, you really have to tag everything, because otherwise youve got to have two systems. A system for the products that are tagged and one for the products that arent tagged.

When

This quote suggests that stakeholders of a retail supply chain need to apply tags at itemlevel to utilise the full potential of RFID. Furthermore, RFID needs to be implemented across the entire supply chain to function in this manner and [t]hats where the real effort comes in assured the Systems Engineer (RFID Vendor 2). Setting up a system at a distribution centre with over thirty truck bays can be extremely complicated (RFID Vendor 2). From a hardware perspective, testing and fine-tuning RFID solutions

regularly encounters issues such as cross-over, multiple reads and other types of read

74

CHAPTER

DISCUSSION

errors (RFID Vendor 2). The task becomes hugely complicated if were talking about a full supply chain (RFID Vendor 2).

6.3

Conclusion
This chapter discussed the current issues surrounding RFID as an emerging

technology for a SCM solution and as part of a loss prevention strategy for a retailer. Primary themes discussed the barriers to RFID adoption encompassing the costs involved in a solution, lack of awareness, RFID as an immature technology and the differing perceptions of product shrinkage and RFID. As each barrier to entry was examined, reciprocal relationships were found to exist between the retailer and RFID vendors and associations involved in this study. Investments made by retailers in legacy systems, was found to influence the convergence of RFID and barcodes supported by smart labels and tag data standards. With the various levels of RFID tagging available, it was determined that both pallet-level and carton-level tracking were most appropriate for an Australian retail application. Building upon business cases like the Australian Demonstrator Project and forming consortiums was found as a primary instigator to the future deployments of RFID. Source-tagging products at the point of manufacture was also supported by both the retailer and RFID vendors and associations as a means to minimise product shrinkage at various point across the supply chain, other than point of sale. These types of

initiatives are likely to reinforce the overall success of an RFID SCM solution as part of a loss prevention strategy. Finally, it was discovered that the incorporation of retail supply chain stakeholders is critical to the overall effectiveness at which an RFID solution can function in order to minimise product shrinkage.

75

CHAPTER

CONCLUSION

Chapter 7 Conclusion
7.1 Principal Conclusions
This research was designed to answer the objectives with a main focus on minimising product shrinkage across the retail supply chain using RFID. The case study examined the retailers current use of barcodes and EAS as preventative measures in an overall loss prevention strategy. With a particular interested in EAS (Gen-1 RFID) technology used by the retailer, it was found to be a deterrent to theft rather than a total solution. It was also discovered in this study that product shrinkage was a major concern to the retailer.

Product shrinkage was found to be categorised by the retailer into known and unknown categories; where unknown represented the larger of the two. Both categories originated from a number of contributing sources. Warehouse discrepancies and theft were found to be the primary contributors to total known product shrinkage levels, whereas unknown shrinkage was discovered to comprise of any number of sources. Health and beauty products, analgesics, and razor blades were among the high-end products which regularly contribute to product shrinkage. However, in some cases the value and size of thieved products varied. Retail processes (e.g. distributing goods across supply chain), technology (e.g. barcodes and EAS) and people (e.g. employee work practices) were found to be directly connected to product shrinkage. Both models from chapter four have been combined to illustrate these factors along with the contributing sources of product shrinkage (Figure 7.1).

Figure 7.1 Contributing factors and sources of product shrinkage (combined)

77

CHAPTER

CONCLUSION

Managing the distribution of products across the retailers supply chain was found to be a challenging task. During this process products were found to go missing at various points across the supply chain due to direct suppliers (e.g. a third party cold storage and logistics company), internal and external theft, miss-picks at the warehouse, employees assuming deliveries are correct and inconsistencies in the automatic stock ordering system. To further compound this problem, the retailer manages products across the supply chain using a combination of barcodes and manual paper work procedures. It was acknowledged by the Grocery Manager that the current system is not 100% accurate and Loss Prevention Manager (1) claimed that products are not electronically tracked across the supply chain. A primary finding of this case study was that product shrinkage necessitates a corresponding solution.

The RFID vendors and associations considered RFID technology as a potential solution to the retailers dilemma. Through various applications, RFID was found to minimise product shrinkage by providing visibility across the supply chain. The Gen-2 RFID standard using EPC for data storage further supported this, by reducing warehouse discrepancies, detecting theft at various points across the supply chain, reducing the likelihood of misplaced products, authenticating products during recalls and fraud attempts, detecting counterfeits and reducing errors incurred by human intervention. Gen-2 RFID also offered a number of auxiliary capabilities such as; recording damaged products, reducing excessive handling of products, maintaining correct product temperatures, managing expiration dates and stock rotation. It was therefore discovered that RFID held the potential to be used a means to minimise product shrinkage across the retail supply chain.

As an emerging technology, RFID was found to be weighed down by barriers and inhibitors to its adoption in the retail industry. Cost was highlighted as the most dominant barrier to the implementation of RFID. As a retail supply chain would require large quantities and a constant replenishment of RFID tags, it was determined that tags were a necessary expense. However, other large expenses such as RFID readers and middleware were also identified as prohibitive factors due to cost issues. Are we going to get the costs down to make it generally accepted? That would be the challenge (RFID Vendor 7).

Incorporating a diverse range of retail stakeholders to build business consortiums was suggested to form a foundation to develop knowledge in the areas of RFID, retail and

78

CHAPTER

CONCLUSION

loss prevention. Conducting Australian-based business cases was also recognised as being essential lto improving the overall appeal of RFID to the Australian retail industry.

As well as being an immature technology, RFID was found to posses a number of limitations. These limitations included the availability of RFID in Australia, hardware quality issues and other technical limitations (e.g. read errors). In addition, retailers have fine-tuned and optimised their existing legacy barcode systems proving it difficult to justify replacement. This study discovered the convergence of RFID and barcode

systems within smart label technology and tag data standards as a solution to updating such legacy systems.

7.2

Major Implications
The case study revealed that product shrinkage is an inevitable dilemma costing

the retailer millions of dollars each year. Product shrinkage is inevitable force as it is almost impossible to control the actions of individuals or groups willing to commit criminal activities. These activities currently impose a large impact on product shrinkage levels. Activities of this nature may be unescapable, however, certain provisions can be installed to minimise such activities. Existing EAS systems may provide a deterrent against theft at store entrances and exits, but fail to have the same effect across the supply chain. EAS technologys inability to carry valuable product data is also a major

drawback of the technology. Hence, alternative opportunities were found in Gen-2 RFID standards brought forth in this study.

An RFID system for use in a retail environment may initially be expected to bring benefits to all parties involved. Conversely, when the Systems Engineer was asked who has the most to gain from an RFID implementation, he replied: [t]he fluffy answer is the customer. Realistically the retailer has the most to gain. In this light RFID may offer supply chain visibility and the potential to minimise product shrinkage, however, are retail customers really going to miss out on the benefits of RFID?

79

CHAPTER

CONCLUSION

7.3

Links to Earlier Findings

Due to extensive data collection, the researcher encountered a number of other

inhibitors to the adoption of RFID in the retail industry. The issue of customer privacy was assumed to eventually emerge if an RFID system was to transpire. As suggested by RFID Vendor (4), RFID stakeholders must be conscious of privacy issues. A system of this nature may trigger a negative reaction from the public (customers) and create a stand-off between privacy rights groups and supporters of RFID (stakeholders). Privacy issues that accompany the introduction of an RFID system in a retail environment are strongly linked to works by Albrecht and McIntyre (2005). It would be interesting to see further studies on the application of RFID in a retail setting to discover whether such a solution would strengthen or diminish a retailers existing customer base.

This study bridged the gap previously found in academic literature by investigating the potential for RFID to minimise product shrinkage across the retail supply chain. Precise applications concerning RFID as part of a SCM solution were identified throughout this study forming links to previous research. Links were found to exist between Michael and McCathie (2005a; 2005b) in works which also predicted a convergence of RFID and barcodes. Additional connections were also found within the paper by Lee, Cheng and Leung (2004), in their quantitative analysis of the indirect benefits of RFID on supply chain dynamics.

7.5

Limitations and Further Research

Limitations may restrict the overall strength of the results determined in this

research. For instance, the research involved a single in-depth case study, which covered two geographical regions of an Australian retail organisation. Further studies could include multiple retailers to explore issues in greater depth and provide more concise findings through exploring other retail environments.

It is also recommended that further research encompasses methodologies for the collection of quantifiable data to determine how RFID can measure the sources of product shrinkage. As suggested by RFID Vendor (2), RFID provides a means to measure the contributing sources to product shrinkage. Quantitative data analysis could further

complement this study by conducting benchmarking studies to dispel myths about RFID efficiencies in SCM.

80

CHAPTER

CONCLUSION

7.4

To Whom the Findings Apply

The findings presented in this thesis are relevant to all retail stakeholders, with an

emphasis on the two units of analysis involved in this study; 1. Australian retailers with a desire to minimise product shrinkage across the supply chain; and 2. RFID vendors and associations, including; technology providers, manufacturers, system integrators, resellers of hardware and software, RFID associations and standards bodies. However, other parties such as information technology firms, manufacturers of consumer products and logistics companies may also find this research of value. Research findings could be used as selling points when promoting RFID solutions to industry players.

7.6

Recommendations
Retail organisations willing to adopt RFID must consider the prior investments

they have made in EAS and legacy barcode systems. Due to this, the most realistic RFID solution is cross-compatible smart label technology. Using smart labels, a retailer has the ability to use existing barcode systems and EAS infrastructure.

RFID is currently a reality in many other industries due to the support of Gen-2 RFID, EPCGlobal and industry mandates. However, even with the proliferation of RFID across a diverse spectrum of industries, why is it yet to engage the Australian retail industry? Australian retailers may strike at the opportunity of RFID when prices have fallen or to follow in a competitors footsteps. However, building Australian-based business cases is recommended as a focal point to create an initial adoption of RFID in the retail industry. Due to the challenges facing all out implementation of an RFID SCM solution, it is also highly recommended to form an industry-wide compliance mandate. Such a mandate would address compatibility issues between stakeholders, source-tagging requirements and perhaps evenly distributing the expense of the overall system between stakeholders. Using RFID, stakeholders can experience improvements in the overall control of their products, between warehouses and distribution centres, during transportation and within retail outlets, in effect, minimising product shrinkage across the supply chain.

81

References
ADT Security, (2006) EAS System Components, [Online], Available: http://www.adt security.com.au/retail/Electronic_Article_Survillance/eas_system_components [Last Accessed: 2 April 2006] Aim Global (2004) Technologies: Electronic Article Surveillance, [Online], Available: http://www.aimglobal.org/technologies/eas/ [Last Accessed: 10 October 2006] Albrecht, K. & McIntyre, L. (2005) Spychips: How Major Corporations and Government Plan to Track Your Every Move with RFID, Nelson Current, Nashville. Atock, C. (2003) Wheres My Stuff?, Manufacturing Engineer, Vol. 82, Iss. 2, April, pp. 24-27. Australian Bureau of Statistics (ABS), (2004) Recorded crime: victims, Australia 2003, Catalogue No .4510.0, Canberra. Australian Institute of Criminology (AIC), (2004a) Australian Crime: Facts and Figures 2004, Technical and Background Paper Series, No. 11, [Online], Available: http://www.aic.gov.au/publications/facts/2004/facts_and_figures_2004.pdf [Last Accessed: 4 September 2006] Australian Institute of Criminology (AIC), (2004b) Crimes Against Business: A Review of Victimisation, Predictors and Prevention, Technical and Background Paper Series, No. 11, [Online], Available: http://www.aic.gov.au/publications/tbp/tbp011/tbp011.pdf [Last Accessed: 8 April 2006] Ayers, J.B. (2001) Handbook of Supply Chain Management, St. Lucie Press, Boca Raton. Bass, C. (2003) Enterprise Solutions Mean Always Having New Opportunities to Add Value, Outlook Point of View, [Online], Available: http://www.accenture.com/NR /rdonlyres/8E86C567-F811-4B6F-B80DAD37D12E9446/0/enterprise_solutions_usltr.pdf [Last Accessed: 8 April 2006] Besanko, D., Dranove, D., Shanley, Schaefer, S. (2004) Economics of Strategy, 3rd Edition, John Wiley, Chichester. Bhuptani, M. & Moradpour, S. (2005) RFID Field Guide: Deploying Radio Frequency Identification Systems, Pearson Education Inc., New Jersey. Borecki, J. (2005) RFID Overview: Challenges and Opportunities, [Online], Available: http://www.clm-mke.org/Presentations/Borecki%2001-06.pdf [Last Accessed: 8 October 2006] Borriello, G. (2005) RFID: Tagging the World, Communications of the ACM, Sep, Vol. 48, Iss. 9, pp. 34-37.

83

Bose, I. & Pal, R. (2005) Auto-ID: Managing Anything, Anywhere, Anytime in the Supply Chain, Communications of the ACM, Vol. 48, Iss. 8, Aug, p. 100. Burrows, J. & Speed, M. (1996) Crime Analysis: Lessons from the Retail Sector?, Security Journal, Vol. 7, pp. 53-60. Cavana, R. Y., Delahaye, B. L. and Sekaran, U. (2001) Applied Business Research: Qualitative and Quantitative Methods, John Wiley & Sons Australia, Ltd., Milton. Checkpoint Systems (2003) Retail News: Technology News for Loss Prevention and Supply Chain Management, Dec, [Online], Available: http://www.checkpointsystems. com/download.aspx?page=stsuccess&dir=d&file=rn1_5_04.pdf [Last Accessed: 10 October 2006] Checkpoint Systems (2004) Retail News: Technology News for Loss Prevention and Supply Chain Management, Sept, [Online], Available: http://www.checkpointsystems .com/download.aspx?page=stsuccess&dir=d&file=rn_9_1.pdf [Last Accessed: 10 October 2006] Cohen, J. (1994) Automatic Identification and Data Collection Systems, McGraw-Hill Book Company, London. Crawford, D. (2005) The Semantic e-Business Vision, Association for Computing Machinery, New York, Dec, Vol. 48, Iss. 12, pp. 11-13. DiLonardo, R.L. & Clarke, R.V. (1996) Reducing the Rewards of Shoplifting: An Evaluation of Ink Tags, Security Journal, Vol. 7, pp. 11-14. Edwards, J. (2004) Telecosmos: The Next Great Telecom Revolution, John Wiley & Sons, Inc., New Jersey. Felson, M. (1996) Preventing Retail Theft: An Application of Environmental Criminology, Security journal, Vol. 7, Iss. 1, pp. 7175 Fernie,J. & Sparks, L. (2004) Logistics in Retail Management; Insights into Current Practice and Trends from Leading Experts, 2nd Edition, Kogan Page, Sterling. Finkenzeller, K. (1999) RFID Handbook: Radio-Frequency Identification Fundamentals and Applications, John Wiley & Sons, West Sussex. Finkenzeller, K. (2003) RFID Handbook: Fundamentals and Applications in Contactless Smart Card and Identification, 2nd Edition, John Wiley & Sons, West Sussex. Fischer, R.J. & Green, G. (2004) Introduction to Security: Seventh Edition, ButterworthHeinemann, Burlington.

84

Forcinio, H. (2003) Prevent Losses with RFID, Managing Automation, Jan, [Online], Available: http://www.managingautomation.com/maonline/magazine/read/view/Prevent_ Losses _with_RFID_3176 [Last Accessed: 10 October 2006] Forcinio, H. (2006) Counterfeit Prevention, Pharmaceutical Technology Europe, Sep, Vol. 18, Iss. 9, p. 46-52. Garfinkel, S. & Rosenberg, B. (2005) RFID Applications, Security and Privacy, AddisonWesley, Upper Saddle River. Gerdeman, J.D. (1995) Radio Frequency Identification Application 2000: A Guide to Understanding and Using Radio Frequency Identification, Research Triangle Consultants Inc., North Carolina. Gill M., Bilby C. & Turbin V. (1999) Retail Security: Understanding What Deters Shop Thieves, Journal of Security Administration, Vol. 22, Iss. 1, pp. 2939 Global Standards One (GS1) Australia (2006) EPC Network Australian Demonstrator Project Report, [Online], Available: http://www.gs1au.org/assets/documents/info/case_ studies/case_epc_demo.pdf [Last Accessed: 18 September 2006] Graafsta, A. (2006) RFID Toys: Cool Project for Home, Office, and Entertainment, Wiley Publishing, Indianapolis. Granneman, S. (2003) RFID Chips Are Here, The Register, [Online], Available: http://www.theregister.co.uk/2003/06/27/rfid_chips_are_here/ [Last Accessed: 8 April 2006] Hecker, R. (2006) Finding the Silver Bullet its not over yet, Manufacturing and Logistics IT, [Online], Available: http://www.logisticsit.com/absolutenm/templates/ articledatacapture.aspx?articleid=1298&zoneid=14 [Last Accessed: 21 October 2006] Heinrich, C. (2005) RFID and Beyond: Growing Your Business Through Real World Awareness, Wiley Publishing Inc., Indianapolis. IBM Corporation (2006) RFID Solution for Pharmecuitical Track and Trace, [Online], Available: http://www-03.ibm.com/solutions/businesssolutions/sensors/doc/content/sol ution/1624269129.html [Last Accessed: 10 October 2006] Kahn, R. & Cannell, C. (1957) The Dynamics of Interviewing, John Wiley, New York. King, R. (2003) Emerging Trends in Loss Prevention, Loss Prevention Magazine, JanFeb, [Online], Available: http://www.checkpointsystems.com/download.aspx?page=cctv successstories&dir=d&file=Loss_Prevention [Last Accessed: 15 October 2006] Kleist, R.A., Chapman, T.A., Sakai, D.A., Jarvis, B.S. (2005) RFID Labeling: Smart Labeling Concepts and Applications for the Consumer Packaged Goods Supply Chain 2nd Edition, Printronix Inc., Irvine.

85

Kumar, K. (2001) Technology for Supporting Supply Communications of the ACM, June, Vol. 44, Iss. 6, pp. 58-61.

Chain

Management,

Lai, E. (2004) RFID Revolution is Still Just a Promise, East Bay Business Times, 3 Sep, Vol. 6, Iss. 52, p. 4. Lahiri, S., (2006) RFID Sourcebook, IBM Press, Pearson Education, Upper Saddle River. LakeWest Group, (2002) RFID: Retails New Transforming Technology, [Online], Available: http://www.lakewest.com/pdfdocs/RFID%20Retails%20New%20Transform ing%20Technology_June%202002.pdf [Last Accessed: 8 October 2006] Lee, Y.M., Feng Cheng, & Ying Tat Leung, (2004) Exploring the Impact of RFID on Supply Chain Dynamics, Proceedings of the 2004 Winter Simulation Conference, 5-8 Dec, Vol. 2, pp. 1145-1152. Leedy, P.D. & Ormond, J.E. (2005) Practical Research: Planning and Design 8th Edition, Prentice Hall, Upper Saddle River. Lefebvre, L.A., Lefebvre, E., Bendavid, Y., Wamba, S.F., Boeck, H. (2006) RFID as an Enabler of B-to-B e-Commerce and Its Impact on Business Processes: A Pilot Study of a Supply Chain in the Retail Industry, International Conference on System Sciences, Jan 47, Vol. 6, pp. 104a-104a. Leximancer, (1997) Leximancer Manual, [Online], Available: http://www.leximancer. com/documents/Leximancer2_Manual.pdf [Last Accessed: 8 October 2006] Marshall, C. and Rossman, G. B. (1995) Designing Qualitative Research, SAGE Publications, Thousand Oaks. METRO Group (2006) Press Releases, [Online], Available: http://www.futurestore.org/servlet/PB/menu/1007255_l2/index.html [Last Accessed: 20 October 2006] Michael, K. & McCathie, L. (2005a) The Pros and Cons of RFID in Supply Chain Management, International Conference on Mobile Business, 11-13 July, pp. 623-629. Michael, K. & McCathie, L. (2005b) Is it the end of barcodes in supply chain management?, Collaborative Electronic Commerce Technology and Research LatAm (35th October), University of Talca, Chile, pp. 1-19. Ollivier, M.M. (1995) RFID: a new solution technology for security problems, European Convention on Security and Detection, 16-18 May, p. 234-238. Palmer, R. C. (1995) The Bar Code Book Reading, Printing and Specification of the Bar Code Symbols, Helmers Publishing Inc., New Hampshire. Parker, E.M. (1990) An Inconvenient Problem, Security Management, 1 July, Vol. 34, Iss. 7, p. 26.

86

Pisello, T. (2006) The ROI of RFID in the Supply Chain, RFID Journal, 21 Aug, [Online], Available: http://www.rfidjournal.com/article/articleprint/2602/-1/128/ [Last Accessed: 15 September 2006] Porter, E.M. (2001) Strategy and the Internet, Harvard Business Review, Vol. 79, Iss. 3, pp. 62-79. Product Recalls Australia (2000) Frequently Asked Questions, [Online], Available: http://www.recalls.gov.au/questions.php [Last Accessed: 6 October 2006] RFID Association of Australian (2006) What is RFID used for?, [Online], Available: http://www.rfidaa.org/about-rfid [Last Accessed: 20 October 2006] Robson, C. (2002) Real World Research (Second Edition), Oxford, Blackwell. Ross, D.F. (2003) Introduction to e-Supply Chain Management: Engaging Technology to Build Market-Winning Business Partnerships, St. Lucie Press, Boca Raton Sarma, S., Brock, D., Engels, D. (2001) Radio Frequency Identification and the Electronic Product Code, IEEE Micro, Nov-Dec, Vol. 21, Iss. 6, p. 50-54. Saunders, M., Lewis, P. & Thornhill, A. (2003) Research Methods for Business Students, 3rd Edition, Prentice Hall, Upper Saddle River. Saunders, M., Lewis, P. & Thornhill, A. (2007) Research Methods for Business Students, 4rd Edition, Prentice Hall, Harlow Seider J.J. (1996) To Catch a Thief, Try This: Peddling High-Tech Solutions to Shoplifting, US News and World Report, Vol. 121, Iss. 12, p. 71. Shank, G.D. (2002) Qualitative Research: A Personal Skills Approach, Prentice Hall, Upper Saddle River. Shrady, N. (1995) Spare the Cost and Spoil the Food, Forbes, New York, 8 April, Vol. 135, Iss. 7, p. 134. Singer, T. (2004) Understanding RFID: A Practical Guide for Supply Chain Professionals, Tompkins Associates, [Online], Available: http://www.tompkinsinc.com/ publications/monograph/monographList/WP-15.pdf [Last Accessed: 14 March 2006] Smith, J.N. (2005) Specialized Logistics for a Longer Perishable Supply Chain, World Trade Magazine, [Online] Available: www.pressroom.ups.com/staticfiles/articles/456.pdf [Last Accessed: 20 October 2006] Stephenson, C. (1998) Get a Grip with Auto ID [Warehouse Management Systems], Canadian Transportation Logistics, Vol. 101, Iss. 9, p. 24.

87

Stevenson, A. & Wright, S. (2006) Intelligent Spaces: The Application of Pervasive ICT, Springer-Verlag, London. Strauss, A. & Corbin, J. (1990) Basics of Qualitative Research: Grounded Theory Procedures and Techniques, SAGE Publications, California. Symbol Technologies (2004) Business Benefits from Radio Frequency Identification (RFID), Technical Brief, Sep, pp.1-6. Symbol Technologies (2006) Understanding Gen-2: What is it, How will you Benefit and Criteria for Vendor Assessment, White Paper, Jan, pp.1-8. Texas Instruments Incorporated, (2005) TI-RFID High Frequency Products, [Online], Available: http://www.ti.com/rfid/docs/dcimages/imgProducts.shtml [Last Accessed: 8 April 2006] Thompson, N., (2003) RFID and Barcodes May Co-exist For Now, American Printer, Vol. 231, Iss. 6, p. 58. Turban, E., King, D., Lee, J., Viehland, D., (2004) Electronic Commerce, A Management Perspective, Pearson Prentice Hall, New Jersey. Venables, M. (2005) Analysis: RFID - Don't Believe the Hype, Manufacturing Engineer, Vol. 84, Iss. 5, Oct-Nov, pp. 8-9. Want, R. (2006) An Introduction to RFID Technology, Pervasive Computing, IEEE, Vol. 5, Iss. 1, Jan-March, pp. 25-33. Weinstein, S. (1998) Loss Leaders, Progressive Grocer, Vol. 77, Iss. 9, pp. 5765. Weinstein, R. (2005) RFID: A Technical Overview and its Application to Enterprise, May-June, Vol. 7, Iss. 3, p. 27-33. Yin, R. K. (1994) Case Study Research: Design and Methods (Second Edition), SAGE Publications Inc., Thousand Oaks. Zebra Technologies, (2004) The Basics of Bar Coding, Application White Paper, [Online], Available: http://www.zebra.com/whitepapers/BarcodingBasics200111.pdf [Last Accessed: 8 April 2006]

88

Appendix A Roles and Responsibilities of Retail Interviewees

ID 1

Interviewees Position & Department Loss Prevention Manager 1 Loss Prevention

Role and Responsibilities Ensuring policies and procedures are adhered to at store-level Monitoring product shrinkage within the region Loss Prevention Strategies e.g. EAS systems in retail outlets Responsible for Loss Prevention personnel Ensuring policies and procedures are adhered to at store-level Investigating internal/external theft and fraud Preparing briefs and reports Reporting matters to the Police and other authorities Testing and maintenance of EAS systems Ensuring policies and procedures are adhered to at store-level Monitoring product shrinkage within the region Loss Prevention Strategies e.g. EAS systems in retail outlets Responsible for Loss Prevention personnel Responsible for liquor staff and rosters Stock ordering and receiving stock Applying EAS tags to liquor products on the tagged items list Shelf replenishment and general maintenance of the liquor department Responsible for grocery staff and rosters Stock ordering and receiving stock Applying EAS tags to grocery products on the tagged items list Shelf replenishment and general maintenance of the grocery department Responsible for cash-flow within the entire store e.g. goods received Maintenance of shelf ticketing and specials Store service area e.g. in-store service areas and point of sale Responsible for stores cash office

Loss Prevention Investigator Loss Prevention

Loss Prevention Manager 2 Loss Prevention

Liquor Manager Liquor

Grocery Manager Grocery

Store Services Manager Store Management

Store Trading Manager Store Management Store Manager Store Management

- Responsible for departments that trade long-life products - Responsible for staff members of long-life departments - Responsible for orders and deliveries for long-life departments - Responsible for the performance of all departments within the store - e.g. grocery, liquor, perishables, delicatessen, point of sale - Reporting to upper management e.g. Regional Area Managers, Specialists - Responsible for all staff members, wages and budgets Responsible for delicatessen staff and rosters Stock ordering and receiving stock Applying EAS tags to delicatessen products on the tagged items list Shelf replenishment and general maintenance of delicatessen department Responsible for night-fill staff and rosters Filling night-fill delivery to shelf Overall shelf presentation Applying EAS tags to grocery products on the tagged items list

Delicatessen Manager Delicatessen

10

Night-fill Captain Grocery

11

Customer Implementation Executive - Responsible for sales representatives and in-store displays Customer Development - Ensuring products are available and on the shelf - Organising shelf space and the strategic placement of stock

89

Appendix B Descriptions of RFID Vendors & Associations

ID 1

Organisation RFID Vendor 1 Customers: 8000 approx.

Description - Supply, install and support barcode data capture hardware and software, label printing systems and RFID tags. - Offer consultancy services for pre sale and post sale support. - Provide barcode and RFID solutions throughout the Asia Pacific region. - One of the industry leaders in auto-ID and wireless technologies - A technology provider, manufacturer and systems integrator of RFID technologies - Consulting and support divisions for all solutions - Offer a variety of supply chain management solutions utilising RFID technologies - Manufacturer of RFID hardware - Reseller of RFID technologies and software developer for RFID solutions - Offer RFID solutions for document management and inventory tracking for chemicals. - Sell RFID hardware including readers and tags. - Offer durable reusable RFID tags - RFID technology developer and manufacturer - Offer RFID solutions designed for jewellery and document tracking - Specialise in the jewellery and casino industries - Reseller of RFID technologies - Offer RFID solutions designed for mining, pharmaceutical and healthcare industries - This vendor also offers other asset management RFID solutions - Reseller of RFID technologies - Offer RFID solutions warehouses and point of sale and other points across the supply chain - Customise RFID solutions for clients using a wide range of fixed and mobile RFID devices - Specialise in wireless technologies - Integrate RFID solutions into existing legacy systems - Upgrade existing RFID solutions - One of the industry leaders in auto-ID and wireless technologies - Technology provider, manufacturer and system integrator of RFID technologies - Offer both barcode, RFID and wireless solutions for a number of industries, including retail - Offer a variety of supply chain management solutions utilising RFID technologies - Committed to the development of RFID technology through communication supported by a membership base - Provide advise on RFID technologies - Offer certification courses for business and technical RFID competencies - Offer a forum to enhance communication between interested parties - Promote the adoption of RFID in Australia - International standards body - Create, promote and support worldwide barcode and RFID standards for data storage - Provide members with access to information and assistance - Support existing and upcoming RFID technologies

RFID Vendor 2 Customers: 5000 - 6000 approx. (internationally based)

RFID Vendor 3 Customers: 2 (Australian based)

RFID Vendor 4 Customers: 30 approx. RFID Vendor 5 Customers: unknown

RFID Vendor 6 Customers: 1000 approx.

RFID Vendor 7 Customers: 2000 approx. (Australian based)

RFID Association Members: 29

RFID Standards Body Members: 15,000 approx.

90

Appendix C Retailer Interview Questions

Interview Questions for the Retailer Opening Questions 1. What is your role in the organisation? 2. Which department do you work in? 3. What is your position in this department? 4. How long have you been working for this organisation? 5. How long have you been working in the retail industry? Product Shrinkage 6. Do you know what product shrinkage is? 7. How can you break-down product shrinkage; what constitutes product shrinkage? Probes: Lost, stolen, damaged, recalled, fraud. 8. What items constitute the most to product shrinkage in your organisation? Probes: Expensive high-end products, small, easy to hide. 9. Is it of a major concern to your organisation? 10. How are products monitored through the supply chain, in particular from distribution centre to retailer? Are products tracked at all? 11. What category of product shrinkage is the main contributor? 12. When do your superiors begin to ask questions about loss, when it reaches a certain amount or once audits have been conducted? 13. How much stock is lost over a period of 12 months? 14. Do you think product shrinkage is a process problem, a technology problem, or a people problem? 15. In what part of the supply chain does most product shrinkage occur? Probes: Retail outlet, distribution centre, in transit. 16. What are your current strategies for overcoming product shrinkage? Probes: EAS, security guards. 17. Are these strategies working? Could they be improved? 18. Is the current Electronic Article Surveillance (EAS) system a deterrent or a total solution? Supply Chain 19. How big is your supply chain in terms of geographical boundary; local, regional, national or international? 20. How many suppliers do you have? 21. How many transactions are generated daily or weekly to suppliers from [Retail organisation]? RFID Systems 22. Have you heard of Radio Frequency Identification Systems or RFID? Probe: If not, let the interviewee know that Gen-1 RFID systems are actually EAS. GEN-1 RFID Systems (EAS) 23. On what type of products is the system used? Do they contribute to high percentages of product shrinkage? 24. Are you happy with the overall performance of your RFID system? What brand are you using? 25. How does it minimise product shrinkage? 26. Does the current EAS system rely on any manual procedures? 27. Does the current system play a role in supply chain management processes? 28. Is EAS used outside the retailer? 29. Do you plan on updating the current RFID system? GEN-2 RFID Systems 30. Do you know about the latest RFID systems and their benefits? 31. In what ways do you see RFID being integrated into the business? 32. Do you think that RFID could be used to combat product shrinkage? 33. Could RFID provide a better solution? 34. Would you ever be interested in investing in such a solution? 35. What do you think are the advantages of RFID over barcodes? 36. If you introduced a new RFID system, would you mandate that your suppliers also use the technology? 37. What are the other perceived benefits that RFID can offer you, beyond minimising product shrinkage, if any?

91

Appendix D RFID Vendors & Associations Interview Questions

Interview Questions for RFID Vendors and Associations Opening Questions: 1. What is your role in the organisation? 2. Which department do you work in? 3. How long have you been working for this organisation? 4. How long have you been working in the IT industry? 5. How long have you been working with RFID technology? Product Shrinkage 6. Do you know what product shrinkage is? 7. How can you break-down product shrinkage; what constitutes product shrinkage? Probes: Lost, stolen, damaged, recalled, fraud. 8. From your knowledge, what category of shrinkage is the main contributor? 9. From your knowledge, what items constitute the most to product shrinkage in the retail industry Probes: Expensive high-end products, small, easy to hide. 10. From your knowledge, in what part of the supply chain does most product shrinkage occur? Probes: Retail outlet, distribution centre, in transit. 11. The current Electronic Article Surveillance (EAS) systems used in retail are they a deterrent or a total solution? RFID Systems and Retailers 12. How many customers do you have? 13. How many of those are retail customers? 14. Are they asking for RFID solutions? 15. What are they asking for? or what else are they asking for besides RFID systems? 16. What would you say would be main driver to adopt an RFID system in the retail industry? 17. How easily can an RFID system be deployed in one single supermarket? Probes: how long would it take? How many people need to be involved? 18. How easily can an RFID system be deployed within an entire grocery retailers supply chain and in-stores? 19. What is the starting cost for an RFID system in a small supermarket? 20. How can a retailer expect to minimise product shrinkage using an RFID system? Probe: Please provide a specific example. 21. If the technology has so much to offer, then why have we not seen any major Australian retailers adopt RFID? 22. Do current EAS systems play a role in supply chain management processes? E.g. is EAS used outside the retailer? Gen-2 RFID Systems 23. Is RFID hype or a reality? 24. Who has the most to gain from an RFID implementation; the retailer, customers, both parties? 25. In what ways do you see RFID being integrated into the business? 26. Do you think that RFID could be used to combat product shrinkage? 27. Could newer 2nd generation RFID systems provide a better solution over traditional EAS systems? 28. What do you think are the advantages of RFID over barcodes? 29. If you introduced a new RFID system for a retailer, would you request that their suppliers also use this technology? 30. Do your products adhere to any standards? Probe: e.g. EPCGlobal 31. Do you think RFID can be used with any additional technologies? 32. What are the other perceived benefits that RFID can offer your customers, beyond minimising product shrinkage, if any?

92

Appendix E Retailer Interview Transcripts

Note: Any names that could be used to identify the retail organisation used in the case study were replaced with generic names.

Interview #1 Retailer Loss Prevention Manager (1)

Interviewer: What is your role in the organisation? Loss Prevention Manager (1): Loss Prevention Manager. Interviewer: Which department do you work in? Loss Prevention Manager (1): Loss Prevention. Interviewer: How long have you been working for this organisation? Loss Prevention Manager (1): With [the Retail Organisation], a little bit over 8 years. Interviewer: How long have you been working in the retail industry? Loss Prevention Manager (1): A bit over 8 years. Interviewer: Do you know what product shrinkage is? Loss Prevention Manager (1): Yes. Interviewer: How can you break-down product shrinkage; what constitutes product shrinkage? Loss Prevention Manager (1): There are a number of factors, obviously its the difference between the amount of stock you send to a store and the variant in stock after youve had stocktake. Theres a number of different areas internal theft, external theft. Un-accounted-for wastage, whether it be due to damaged product, incorrect recording of damaged product, paperwork errors, so the products not actually missing, but paperwork and accounting errors. Theres quite a number of factors that contribute to it. Interviewer: What items constitute the most to product shrinkage in your organisation, are they high-end products are they easy to hide? Loss Prevention Manager (1): In terms of the type of product? Interviewer: Yes. Loss Prevention Manager (1): I suppose for us the main ones are the health and beauty lines. Youve got products like all the LOreal face cream and cosmetic range, Olay, Sensodyne toothpaste is another high-shrink one, razor blades, batteries from a supermarket perspective theyre probably the highest type loss items. Interviewer: Is it a major concern to your organisation?

93

Loss Prevention Manager (1): Absolutely, yes. Interviewer: How are products monitored through the supply chain in particular from distribution centre to the retailer, are products tracked at all? Loss Prevention Manager (1): Products arent tracked. If youre talking about electronic tracking or things like that, then no. I know there are product tracking systems out there, RF type tag tracking technologies out there, but its probably at a stage where its a little bit cost prohibitive. But I know it is out there and available. But I think that will ultimately come in, in the future, I think the cost prohibits, I think its a little bit cost prohibitive at this stage. Interviewer: What category of shrinkage is the main contributor? Loss Prevention Manager (1): Look theres a couple of thoughts on it. There has been some research done in the States, they tend to do most of the loss prevention type research. They tend to think that internal theft is probably the bigger contributor. I dont know if that would be the case, certainly external theft in [region] that I look after, the main core chunk of Sydney from eastern suburbs out to the western suburbs certainly external theft I think plays a bigger part than the actual internal theft. So youve got your internal paperwork errors and procedural errors which result in loss. Youve got internal theft and certainly external theft and theyre probably the three drivers for shrinkage. But certainly I can say within [region] external theft would probably play the predominant role. But if you look at it on a national basis procedures would probably tend to take over. Interviewer: When do your superiors begin to ask questions about loss; when it reaches a certain amount or after audits? Loss Prevention Manager (1): I dont know if that would be the case. [The Retail Organisation] has been fairly focused on shrinkage for the last 5 years, probably more so in the last 5 years than before. And we have set targets each year for our unknown shrinkage in order to reduce it. So its an ongoing process in order to refine the procedures and policies to reduce unknown shrinkage. So its a continual process and obviously each year we have a new figure to work to in order to reduce our unknown shrinkage to that amount. So its a continual process and the focus is on shrinkage all the time. So certainly alarm bells ring when a stores stocktake results go backwards or if we suddenly have a disaster stocktake result in a store. But in terms of the procedures to reduce it we have pre stocktake audits looking at stores prior to stocktake to make sure their disciplines and procedures are right to reduce the shrinkage. If a store does have a poor stocktake well go back in afterwards and have a post stocktake audit and audit to find out what contributed to that result and fix the problem. As well as that theres a whole range of other things we do in terms of loss prevention audits to ensure that the loss prevention disciplines are right within the store and theyre ongoing. We do night audits on our stores, as well as day audits. On the procedural side of things we have our own internal audit division which tends to focus on the paperwork and policy type issues within stores and each area group has a Store Specialist assigned to that area group, so they look after anything between 15 to 20 stores, roughly. Theyre always constantly focusing on the disciplines as well as doing what they call storage views to look at the procedures. So obviously if we have a loss somewhere its because of a procedural break-down of some description. So theres a number of things in place that were constantly looking at; the procedures and the causes of shrinkage, its an ongoing process. Interviewer: Is product shrinkage due to a process, technology or a people problem?

94

Loss Prevention Manager (1): It could be all three. All three would contribute to it in some way, you may have loads not received correctly and unaccountable at the backdock. It might be the fact that were not putting in our claims for electrical items, so the credits are not coming back from the supplier and weve written that stock off as dumped, so were not getting our credit back for damaged electrical goods. So there could procedural type issues. It could be the fact that weve had a theft and weve failed to capture that theft through recording it as known stolen. And again that comes down to procedure. Obviously the store doesnt even pickup that theyve had a theft, through no fault of their own, it may not be a high-theft line and obviously the stock gets re-filled and the theft goes unnoticed, youve had a person who has contributed to the problem, but we havent picked up on the fact. But then it may come down to procedures. Interviewer: How much stock is lost in a store over a 12 month period? Loss Prevention Manager (1): In terms of dollars, I dont know if I should be handing that information out. For [the Retail Organisation], its millions of dollars in unknown shrinkage and even in terms of what we ride-off in theft. So anything we deem high-theft lines, the majority of your health and beauty isle, batteries, DVDs, those type lines we automatically go through. If our [automatic stock ordering system] says we should have X-amount and they go through and check the system and weve only got half of what we should, automatically on the high-theft lines we would record it as known stolen. So that known stolen figure is millions of dollars as well. So theres two ways wed pick up, wed have our unknown shrinkage which is identified at stocktake and separate to that we would record our known stolen. The known stolen, obviously if we capture it at known stolen, for example if somebody came in and cleaned us out of Olay wed know weve lost $2000 today because theyve stolen all our Olay, wed write that off as known stolen. When we have stocktake that figure has already been captured and it doesnt perform part of our stocktake result. So when you look at the overall result for the company we have our unknown shrinkage in one bucket, we have our known stolen recorded in another bucket. Interviewer: In one store could you have lost a million dollars in a 12 month period? Loss Prevention Manager (1): No. But in some of our worst theft stores, if you look at Town Hall that figure could fluctuate. Just to give you an idea, we recently had a stocktake result there which the unknown shrinkage component was mid 40 odd thousand, for that store. But if you look at where that store had previously been sitting, we have had results in there over a 33 week period of stocktake that was between $400,000 and $500,000 unaccounted for. So youve then got to say well is it procedural? Is it internal theft? Is it external theft? What are the main contributors? Again, its unknown, you can plug all the holes to try and find out where the source of the problem is. But certainly I think when youre heading towards $400,000 I think a lot of that was procedural as well. Interviewer: In what part of the supply chain does most of this product shrinkage occur is it the retail outlet, distribution centre, in transit? Loss Prevention Manager (1): Look we are aware that you can have theft issues with truck drivers. Truck seals arent put on, we know stock can go missing. We have had instances where drivers have been caught. I suppose our processes are not conducive to checking, so youre relying on what the DC says that they send you, is in fact what you are receiving. So if you have a store that has 10 pallets of stock delivered from a DC, unless we pickup at store level the fact that were missing something and its pretty hard if youve got 10 pallets of stock, night-fill come in and fill it. Unless you do a line-byline check, how do you know whats missing? And certainly the stores put in an order for

95

X-amount were trusting that that store will get X-amount, if they dont, a lot of that tends to go uncaptured. If you look at the case of say [Cold-Storage Logistics Company] which is one of our external suppliers, they warehouse it and distribute our cold stock, but theres massive issues with them. Its non uncommon for a load to come in several thousand dollars short. Do we pick-up on that fact? No, we dont. Because it comes in, it goes into a cool room and then night-fill or then your perishable people will come through and fill, its pretty hard to pick-up on the fact that youre short on a line, it might be a couple of days down the track and you might say wheres that? You then go through and make your stock adjustments so [automatic stock ordering system] will then reorder it, but by that time its too late to put in a discrepancy. Big problems with [Cold-Storage Logistics Company], the sooner that comes in-house so we get some better control of it the better. Interviewer: Is the current EAS system used in stores a deterrent or a total solution? Loss Prevention Manager (1): Its a deterrent. I wouldnt say its a total solution. I suppose with any loss prevention initiative or procedure, there are thousands of bricks in the wall and EAS is one of those. Interviewer: Have you heard of Radio Frequency Identification Systems? Loss Prevention Manager (1): Yes. Interviewer: In terms of the EAS systems used, the Gen-1 system, on what type of products is the system used? Loss Prevention Manager (1): Its what we deem to be our high-theft lines. We tag at store level on the majority of our stock, [the Retail Organisation] does have a dedicated Source Tag Manager working with suppliers to try and drive the supplier to tag the product at point of manufacture. We use Checkpoint EAS equipment and they have a dedicated Source Tag Manager as well thats driving EAS source tagging from their end, RF source tagging. So we sort of attack it in a number of ways. But its what we deem to be high-theft lines and obviously what our stores are recording as known stolen as well. So you look at the high-theft lines as well as the most attractive lines, some of it is going to be cost driven just by the unit price, in terms of what we put an EAS tag on. Interviewer: Are you happy with the overall performance of the EAS system? Loss Prevention Manager (1): Yes, I think once we get away from store-based tagging and have source tagged products the system will obviously operate a lot better for us, as its harder to remove tags. But in saying that, theres ways of defeating it as well. But at the end of the day if youve got a hardcore crook that wants to come through and clean us out it doesnt matter I suppose if we EAS tag or not. A lot of the bigger thefts we have are drug driven. So if somebodys feeding a drug habit they are that desperate theyll fill a green enviro-bag with $1000 worth of Olay and theyll find someway out of the store, theyll duck-out through a manned register, an operator doesnt have time to respond, they do a runner through an entry gate. EAS wont stop that, we may be alerted to the fact that somebodys run out with a bag but EAS certainly wont stop that. Interviewer: Do you think that it minimises product shrinkage then? Loss Prevention Manager (1): Do we think it does? Yes, I think it certainly contributes towards reduction, it would be a certain percentage there that would deter people and secondly it makes us aware of the theft in the first place and then we can react to that

96

whether it be through the use of CCTV to identify an offender. What overall impact does it have on reducing product shrinkage? Hard to say. Interviewer: The current system relies on manual procedures is that right? Loss Prevention Manager (1): Yes, like I said majority of products we probably tag at store level and thats hard to maintain, its hard to keep that level of discipline up. And ultimately what we would like to see is the supplier put the tag on at time of manufacture. Interviewer: Does the current system play a role in any supply chain management processes? Loss Prevention Manager (1): My understanding is no. Interviewer: These questions are about the new RFID systems. Do you know about the latest RFID systems and their benefits? Loss Prevention Manager (1): I have a basic understanding. There are all sorts of things product tracking, inventory management, theres a whole range of things. Ive got a basic understanding of it yes. Interviewer: Do you think that an RFID system can be used to combat product shrinkage? Loss Prevention Manager (1): Absolutely, yes. Interviewer: Could it provide a better solution over your existing very basic EAS system? Loss Prevention Manager (1): Yes, it would be in a number of ways for inventory management. My understanding, for example you can put X-amount of stock in a trolley with RFID that are all tagged, pass it through some antennas and you know exactly what went out of the store and if it was payed for, or not payed for. So, absolutely. Interviewer: So would you think that your organisation would ever be interested in investing in such a solution? Loss Prevention Manager (1): Theres always that cost versus benefit exercise and if the sums are right, then yes. Interviewer: Do you think there are advantages of RFID over barcodes for managing inventory? Loss Prevention Manager (1): Yes. Interviewer: If you introduced a new RFID system would you mandate that your suppliers also use this new technology? Loss Prevention Manager (1): I dont know if I could really answer that. That would be one for higher up the chain. I suppose, where it was done would have to be done with fairness. Theres a whole range of factors there, the cost to that supplier whether you were disadvantaging them above another one, theres a whole range of things to probably consider there, so I dont know if its easy to say yes or no.

97

Interviewer: What are the other perceived benefits that RFID can offer your organisation beyond minimising product shrinkage, if any? Loss Prevention Manager (1): I havent done any research in it, there would be a whole range of things. Thered be all sorts of cost benefits there I would assume in inventory management right down to even, we may even be able to know the product size and weights in terms of transport wed be able to work out to the nearest cubic centimetre how much stock we can fit on a truck. Whether we are being over charged in transport costs, for weight or pallet space or size, theyd probably be a whole range of hidden benefits there that you probably havent even thought of before. - End of Transcript -

98

Interview #2 Loss Prevention Investigator

Interviewer: What is your role in the organisation? Loss Prevention Investigator: My role is Loss Prevention Investigator. Ive been with the company for 2 and half years. Ive been doing investigation for close to 10 years with different organisations. But the role itself encompasses making sure that policies and procedures are adhered to at store level and investigating internal and external theft and fraud. Preparing briefs and reporting matters to the Police. Interviewer: So what department is that? Loss Prevention Investigator: Loss Prevention. Interviewer: Do you know what product shrinkage is? Loss Prevention Investigator: Yes, I certainly do. Interviewer: How can you break-down product shrinkage what constitutes product shrinkage? Loss Prevention Investigator: Its pretty much broken down into a couple of categories. One being internal and one being external and theyre both theft related. Internal encompasses shrinkage as far as dumping stock, not recording correctly and following company procedures and policies, and that creates shrinkage in that area. External is theft and fraud and behaviours that have criminal activity to them. Interviewer: So internal would that include warehouse discrepancies? Loss Prevention Investigator: It certainly would include warehouse discrepancies. It really encompasses right from, particularly with [the Retail Organisation], right from the start of the process being the DCs or warehouse right through to stores, down to sales people, service assistants on the selling floor. Interviewer: What items constitute the most to product shrinkage in your organisation? Loss Prevention Investigator: Surprisingly enough its the skin-care range particularly from the health and beauty isles of the store. Batteries, razors, DVDs are very big at the moment and meat. Interviewer: And its obviously a major concern to your organisation? Loss Prevention Investigator: Definitely. Interviewer: How are products monitored through the supply chain from the distribution centre to the retailer? Loss Prevention Investigator: Obviously theres invoices sent to stores. Each store can then print load sheets and ideally each store is meant to check-off the load to make sure that obviously the correct amount of stock has arrived in the store as per the invoice. At DC its picked using picking slips to identify stock that goes to each individual store. Its all pretty much electronic too. Interviewer: What category of shrinkage is the main contributor?
99

Loss Prevention Investigator: Health and beauty. Interviewer: And thats due to theft? Loss Prevention Investigator: Definitely. We report at [the Retail Organisation] in two different ways. We report name theft, which is obviously what we identify through [automatic stock ordering system] routines and counts that are done in-stores. And then at the end of each half of the financial year we record an unknown shrinkage which is obviously the difference between our book-stock and our physical counts at stocktake times. So there are two separate figures. Interviewer: So there is known and unknown? Loss Prevention Investigator: Yes. Interviewer: When do your superiors begin to ask questions about loss? When it reaches a certain amount? Loss Prevention Investigator: All the time. There is no amount. You know obviously as percentages of sale increase more attention is shown, but any shrinkage is reviewed by, whether it be myself or the Loss Prevention Manager who looks after all of the region, or the Retail Support Manager in the regional office. Interviewer: How much stock is lost over 12 months? Loss Prevention Investigator: I couldnt tell you exactly for a region. It ranges depending on the size of the store. Some stores will lose as little as $50,000 in 6 months, other stores will lose half a million in 6 months, depending on the size of the store. I suppose if you take an average youre looking at somewhere around $350,000 in 6 months. Interviewer: So hidden shrinkage is unknown shrinkage which you discover after audits? Loss Prevention Investigator: Yes, unknown is purely picked up at stocktake time. Based on what our computers say what we should have on-hand and then a physical count of that. So then if a line says that we have 10 and we only count 5 at stocktake time, then they write 5 off as unknown shrinkage. Interviewer: So shrinkage, do you think it is a process, technology or a people problem? Loss Prevention Investigator: I think it encompasses all of it. We certainly have some processes that need to be looked at. The way that our DC is structured, the way that they ship items from there certainly needs to be looked at and will be over a period of time. Obviously, to take out the human side of it would certainly help because unfortunately humans make mistakes and that does certainly cause some errors. The other side of it is theft which is very much a human side of it, people walking in and just stealing from us. And also poor practices in-stores also contribute where we dont follow our processes and procedures. Interviewer: In what part of the supply chain does most product shrinkage occur? Loss Prevention Investigator: Its definitely the outlet. The percentage or the amount that we identify from a DC is fairly small compared to what each store loses. Interviewer: What are your current strategies for overcoming product shrinkage?

100

Loss Prevention Investigator: Certainly were trying to adhere to best practices. So obviously integrating and upgrading our DC system to become more computerised and work without the human side of it a little bit more. As far as in-store goes weve certainly got EAS tagging, weve certainly put in place with stores patrols to walk down high-theft line areas. We ask stores to identify times of the day when they seem to be hit and see if we can roster people in to those high-theft isles. From a loss prevention point of view, we also identify known offenders within our organisation. Whether that be within our own region, or across New South Wales. We send out offender bulletins to make stores more aware of it. We try and minimise high-theft lines on our capping. With the [automatic stock ordering system] routine its more about identifying areas of concern a lot quicker and we also have counts that we use weekly to identify the hightheft shrinkages. Interviewer: Are these strategies working? Loss Prevention Investigator: If theyre put into place properly, yes. Unfortunately were dealing with, in a loss prevention field, where in retail sales are more important or considered more important, and Store Managers tend to focus more on sales and trying to get sales. Whereas I dont think they fully understand that a $1 in shrinkage, they need to sell $40 worth to regain that gross profit. Interviewer: Could these strategies be improved? Loss Prevention Investigator: Look I dont think anyone has got a perfect strategy. It doesnt matter what company you work for. Certainly, strategies can be improved. Its about whether companies are prepared to put in the money to come up with the best systems possible. We have CCTV systems here to identify known offenders and problem areas but we dont cover every area of the store. Ideally for that type of system youd want to cover every area of the store. Interviewer: The current EAS system would you say its a deterrent or a total solution? Loss Prevention Investigator: Its definitely a deterrent. There are too many holes in it to enable people to walk out with merchandise without being identified for it to be a total solution. Some of the practices of professional thieves and even people that associate with certain people within a community know how to beat EAS systems. The EAS tagging that we have can be beaten, three or four main ways and good crooks or people that associate with people that target our stores would know those ways of doing it. Interviewer: Ive heard of using aluminium foil lined boxes? Loss Prevention Investigator: Yes certainly using aluminium foil boxes is one way. I carry a test tag with me at the moment and I carry it in my top pocket. But as soon as I put my cigarettes in front of it the tag doesnt activate, because it has an aluminium or tin foil inside the cigarette packet which creates problems. Putting tags or the merchandise very close underneath your arm near your body, sometimes will have some effect on it. Store practices have an effect. Double tagging, bending tags past 90 degrees, putting tags behind metal, those sorts of things all detract from the system. Interviewer: How big is your supply chain in terms of geographical boundary? Loss Prevention Investigator: Its huge. As [the Retail Organisation] we have what we call RDCs and then main DCs. RDCs are the Regional Distribution Centres and were opening them up more and more frequently. We have, in New South Wales or in Sydney probably 3 main DCs at Yennora, Minchinbury and Moorebank. And then we have

101

RDCs which are scattered through the regional part of New South Wales. Every state is the same, they would have at least 1, if not 2 main DCs and then regional ones from there. Interviewer: How many suppliers do you have? Loss Prevention Investigator: I couldnt tell you, it would be thousands. Interviewer: How many transactions are generated daily or weekly to suppliers from your organisation? Loss Prevention Investigator: Its again, I couldnt give you a definite figure on that. Thats not my field of expertise, but to supply every store in New South Wales and there is somewhere around 270 of them and keep them in stock, its just a continuous electronic barrage of orders. Because everything is done off what they call [automatic stock ordering system], so every time we count merchandise with the RF gun it will generate an order for that store. Interviewer: Have you heard of Radio Frequency Identification Systems or RFID? Loss Prevention Investigator: Yes I have. Interviewer: In terms of EAS systems, which are called a Gen-1 system. On what type of products is the system used? Do these products all contribute to high amounts of product shrinkage? Loss Prevention Investigator: Yes, we actually have a high-theft list that we send to stores. The list comprises of 2 types of items, one that is source tagged by the supplier and the other is what we require to be tagged. Items that we require to be tagged are batteries, razors, Pantene, Head and Shoulders shampoos and conditioners, Olay, LOreal, Garnier, all skincare products. We require worming tablets, ExcelPet worming tablets, Kodak paper, some types of multimedia things with disks and rewritable tapes and CDs. We also require liquor, pretty much all of your spirits require to be tagged and any bottles of wine over $30. Interviewer: Are you happy with the overall performance of the EAS system? Loss Prevention Investigator: Look as a deterrent, yes. As I said before its not the be-all and end-all. Theres certainly some new stuff coming out. At moment we are trialling a different type of EAS tag in our liquor departments. We are having some brilliant success on the top 50 lines that the company selected. Interviewer: What brand are you using? Loss Prevention Investigator: We use Checkpoint. Interviewer: How does it minimise product shrinkage, just as a deterrent? Loss Prevention Investigator: Certainly with the new tags that we are using in liquor they are more a deterrent than the softer tags that you just apply to a bottle, they are easily enough pealed off. Whereas the new tags fit around the neck of the bottle and theyre reusable, so you havent got a continual cost of replenishing supplies of tags, you can just keep reusing these tags and theyre having a huge effect on shrinkage on those top 50 lines. Interviewer: Does the current system rely on manual procedures?

102

Loss Prevention Investigator: Yes, both the soft tag and the hard tag that we use rely on staff actually doing what theyre required to do, which is actually placing the soft tag on the bottle, or appropriately applying the harder tag around the neck of the bottle. In the grocery side of it, it requires staff to be made available and aware that items or lines are required to be tagged. Interviewer: Does the current system play a role in supply chain management processes outside the store? Loss Prevention Investigator: Yes, we have suppliers on our books, source-tagging suppliers, Eveready, Duracell, Pantene and theres more of them, but theyre the main ones. They actually tag before the product arrives in our stores. And thats always being expanded on. We have a Loss Prevention Manager who liaises with major suppliers of our high-theft items and gets them onto that source-tagging list, so that it takes some of the pressure off the stores. Interviewer: So you are planning on updating the system at the moment in liquor? Loss Prevention Investigator: Certainly in liquor. From the grocery side of it, most probably not at this stage. The grocery lines are a lot harder to deal with because of the size and the varied sizes and types of containers used and that kind of thing. Whereas liquor its a bottle, it has a neck on it, so we can use the harder type tags. Interviewer: In terms of new Generation 2 and 3 RFID systems, do you know about the latest RFID systems and their benefits? Loss Prevention Investigator: No. Im familiar with the Generation-1 which is the EAS tagging but Im not overly familiar with the new stuff. The Generation-2 and 3 stuff could be the harder tags that we are using on our liquor. They work off the same frequencies as a soft tag, but theyre reusable so there inherent benefits to the business. A single unit costs a lot more, but of course youre not replacing it all the time, theres obviously cost benefits. My understanding is its a fairly new product to the market, because were in the process of trialling it. Interviewer: Would you be able to mandate that most of your suppliers use RFID tags in the future, like Pantene? Loss Prevention Investigator: We cant mandate because there obviously is a cost to the suppliers, but we can certainly get them onboard, obviously through negotiation through the buying and marketing side of things. Because for us, in some cases, we get what they call, costs credits which are negotiated into contracts that kind of thing. So that we can then have some sway over in some certain products. As an example Nicabate, if we have Nicabate stolen from our stores we get a 50% credit on every item thats sold. So obviously if they can identify a way of putting a tag into an item and reducing the shrinkage of that particular item therere cost benefits to them are actually good as well. So its a mutual benefit. Interviewer: This answer may be obvious, but what do you think the advantages are of EAS over barcodes, in terms of control of stock? Loss Prevention Investigator: Look, it certainly is again a deterrent to our thieves, its not the be-all and end-all, but certainly is a deterrent. Barcoding really has no impact. All it does is identify that we have lost something by scanning it at the end of the day. Whereas the EAS tag they may not identify that were losing it, but they certainly deter most probably 90% of people that will steal from a business. Because not everyone that

103

steals is a professional, you have an opportunist and you have the everyday regular person who just doesnt have the money to buy certain items, so EAS tagging has that deterrent value. - End of Transcript -

104

Interview #3 Loss Prevention Manager (2)

Interviewer: What is your role in the organisation? Loss Prevention Manager (2): Regional Loss Prevention Manager. Interviewer: Which department do you work in? Loss Prevention Manager (2): Loss Prevention. Interviewer: How long have you been working for this organisation? Loss Prevention Manager (2): 10 months. Interviewer: How long have you been working in the retail industry? Loss Prevention Manager (2): 22 years. Interviewer: Do you know what product shrinkage is? Loss Prevention Manager (2): Yes. Interviewer: How can you break-down product shrinkage what constitutes product shrinkage? Loss Prevention Manager (2): Stolen and damaged products. Interviewer: What items constitute the most to product shrinkage in your organisation, high-end products, product characteristics, $10 and over, small & easy to hide? Loss Prevention Manager (2): High-end products, especially health and beauty lines. Interviewer: Is it of a major concern to your organisation? Loss Prevention Manager (2): Its a huge problem, especially from distribution centre to retail outlet. Couriers and truck drivers sometimes think its acceptable to take a box or a product as they are delivering the goods. Its a big problem. Interviewer: Is it a process problem, a technology problem or a people problem? Loss Prevention Manager (2): I think its both a process and a people problem. For example, staff at the checkouts have been known to accept returns without a receipt. Interviewer: What are your current strategies for overcoming product shrinkage? Loss Prevention Manager (2): We have technology like EAS with some products that are now source tagged. We have digital CCTV, loss prevention investigators, and security personnel. Interviewer: Do you consider the current EAS system to be deterrent or a total solution? Loss Prevention Manager (2): I would say that it acts as a deterrent. Interviewer: Have you heard of Radio Frequency Identification Systems or RFID?
105

Loss Prevention Manager (2): Yes, I have. Interviewer: Are you happy with the overall performance of your RFID system? Loss Prevention Manager (2): Im a bit sceptical on RFID, as shoplifters can find ways around it. Interviewer: Is EAS used outside the retailer? Loss Prevention Manager (2): Yes, some products are now source tagged. Interviewer: What brand are you using? Loss Prevention Manager (2): Checkpoint Metro. Interviewer: Are you happy with the overall performance of your EAS system? Loss Prevention Manager (2): Not really. During some of the tests I have seen been carried out, between the two brands Sensomatic and Checkpoint, I thought Sensomatic performed better. But unfortunately we have invested in the Checkpoint system. Interviewer: Do you plan on updating the current RFID system? Loss Prevention Manager (2): We are running trials at the moment on new tags in our liquor departments in 5 stores. They have been extremely successful, as they have minimised product shrinkage across our range of spirits by 62%, which is a great result. Interviewer: Have you heard of the latest RFID systems and their benefits? Loss Prevention Manager (2): No, I havent. - End of Transcript -

106

Interview #4 Liquor Manager

Interviewer: What is your role in the organisation? Liquor Manager: Im a Department Manager for a liquor store. I take care of ordering, rosters and general housekeeping of the whole store. Interviewer: Which department do you work in? Liquor Manager: Liquor Department. Interviewer: How long have you been working for this organisation? Liquor Manager: Ive been working for [the Retail Organisation] for about 9 years and in liquor for 4 years. Interviewer: How long have you been working in the retail industry? Liquor Manager: Retail 9 years. Interviewer: Do you know what product shrinkage is? Liquor Manager: Product shrinkage is the loss of products through either theft, damaged, just plain lost. Interviewer: What items constitute the most to product shrinkage in your organisation? Like high-end products, are they small, easy to hide? Liquor Manager: Generally, the easier to hide kind of stuff. Youve got lines, just to name a few, youve got your Jim Beam and Johnny Walker. When Im talking about shrinkage Im talking about theft, stuff that can be sold to other people, like if a $50 scotch was stolen and you didnt know what name is was, or you had a bottle of Jim Beam, the Jim Beams going to be more likely to sell even though its costs less. Someones obviously going be able to off-load it a bit easier. Interviewer: In terms of liquor whats the most stolen? Liquor Manager: Jim Beams ranked our number one. Johnny Walker number two. And from then on, whatever products we dont tag, yeah. Interviewer: Is it of a major concern to your organisation? Liquor Manager: Yes, definitely. We always are trying to look at ways of improving the loss or shrinkage of stock. Interviewer: How are products monitored through the supply chain, in particular from distribution centre to the retailer? Liquor Manager: Yes, orders are put in, we receive the load, we have a checklist thats our first way of finding out if any stock is lost. From there its put onto the shelves and the next day we look at the store and scan-up the store and again check for any other lost stock. Interviewer: So are products tracked from distribution centre to retailer as such?

107

Liquor Manager: Yes, because theres a list that we know that weve got, that weve put in an order for. Sometimes you may think, we havent received this but I ordered it, but sometimes it would simply be unsupplied and then we know not to bother looking further into it, thats really the only way theyre tracked. Also through the truck that deliver them, theyre also secured with tags (seals) that are ripped off by the back-dock person, and are matched up, so thats another form of tracking it. Interviewer: What category of shrinkage is the main contributor? Liquor Manager: Definitely, theft. Interviewer: When do your superiors begin to ask questions about loss? When it reaches a certain amount or after audits are conducted? Liquor Manager: They can be prompted by stocktake, but generally I bring to the attention thats somethings going on and I let them know, I try and investigate it myself until I need someone else who can point me in the right direction or the right people to speak to. Interviewer: How much stock is lost over a period of 12 months in the store you work in? Liquor Manager: I can probably tell you a week, youll probably get $800 a week. So 800 times 52. Interviewer: What about hidden shrinkage, shrinkage that goes unnoticed? You get $800 that you know of, but what about what you dont know of? Liquor Manager: Probably add another $50 per week probably, youll only figure out this kind of stuff when stocktakes are done and those hidden things are found. Interviewer: Would you call this a process problem, technology problem, or a people problem? Liquor Manager: Probably just a people problem, sometimes human error, just trying to be more thorough. Sometimes when we check the shelves were not going to ask questions about a shelf that is full so theres not reason to investigate thinking that there could be a loss there when really you can only fit 12 on but the capacity is 12, inside the computer it could say that there are 13 bottles. So therefore thats how you could easily lose track of 1 bottle. Interviewer: In what part of the supply chain does most product shrinkage occur? The Retail outlet, distribution centre, in transit? Liquor Manager: The retail outlet probably plays the biggest role, from the store. But also we lose a lot of stock because the pickers that pick our stock pick the wrong thing. Interviewer: So warehouse discrepancies? Liquor Manager: Warehouse discrepancies. They usually do give us a product, but its usually a wrong product so theres a process of having to send that item back and get the right product in. Interviewer: What your organisations strategies for overcoming product shrinkage? For instance, security guards, an EAS system.

108

Liquor Manager: Definitely the security guards, the EAS tagging system and just closely monitoring high-theft lines. Even stuff as facing-up your high-theft isles which means pulling the bottles forward just so you know that a bottles been taken you can see on the shelf that somethings missing and if you havent sold it to anyone that someone in the shop has got it or its gone walkabout. Checking-off load lists, making sure the plastic that is wrapped around our loads has not been tampered with. And with staff, not keeping bags behind the counter or mobile phones on them. Interviewer: Are they these strategies working do you think? Liquor Manager: Yes, they are working to a certain extent. But there are thieves out there that do use packages that they can put bottles in that get past the EAS tagging system. Interviewer: Really? Liquor Manager: Yeah, they use, its like a parcel, pretending its a birthday present and inside its lined with foil and that stops it from working. Interviewer: Could they be improved, these strategies? Liquor Manager: Probably just be more thorough. With our case were using a new neck-tag EAS system. Were finding that we need, more tags. When we first had them we had a certain list to do it on and we were putting it on the bottles, but then we found that the bottles without the tags were getting stolen or lost. Interviewer: Is the current EAS system a deterrent or a total solution? Liquor Manager: A deterrent. Many times I have seen people walk into a store and be overwhelmed by the EAS tagging or the neck-tags, have a look and from just working in there so long I can tell theyve come to take a bottle. They have seen all the tags and walked straight out of the store. So it has deterred them. But then again I have seen people take bottles with the tags, still on and still try and walk out. Interviewer: Sometimes they can hold the bottle high and hold the bottle over the gates? You could do that couldnt you? Liquor Manager: Yes, you could do that, or even some people they just walk straight out with it, they dont care if its going to make a noise. Interviewer: How big is your supply chain in terms of geographical boundary? Is it local, regional, national, international? Liquor Manager: Regional, definitely. Interviewer: How many suppliers do you have? Liquor Manager: We get everything from a warehouse, but the reps that come in, were talking probably about 8, those 8 represent a large number of companies that have been swallowed, by these probably 8 bigger companies. Interviewer: Have you heard of Radio Frequency Identification Systems or RFID? Liquor Manager: Not that Im aware of.

109

Interviewer: Its pretty much the more technical name of EAS. The EAS system you are using is a Generation-one. So Im just going to ask you some questions about the EAS. So on what type of products is the EAS system used? The high-end products? Liquor Manager: Yes, yes, theyre used on spirits. Were told to use them on the top 100, my store I use them on probably the top 150, just because Ive got those extra amount of tags. Also I put them on wine products, weve been told to put them on just spirits, but Ive noticed a lot of wine go missing, so I put them on wine. Interviewer: Is that wine from the cabinet? Liquor Manager: No, wine on display. So anything $25 and up. Interviewer: Are you happy with the overall performance of your RFID or EAS system? Liquor Manager: Our gates leading out of our shop into the centre are too far apart, so there is a gap in the middle that can be exploited if you walk down the middle. Interviewer: Is that because you cant get trolleys through if there is another one in the middle, another gate? Liquor Manager: Im not to sure what the reason was for that. What probably could have been better was one down the middle and you would have got two trolleys through. But I think it was because of the amount of traffic that we do get into the store. Interviewer: So they werent properly installed really? Liquor Manager: No the measurements werent done correctly. Interviewer: Do you know what brand you are using? Is it Metro? Liquor Manager: I think its called Metro, Im pretty sure. Interviewer: Checkpoint Metro? Liquor Manager: Yes. Interviewer: How does it minimise product shrinkage? Like you said before it beeps. Liquor Manager: First of all the new neck-tags are a bit of a deterrent, they look a little bit overwhelming and of course, the gates that you see before you walk in and sometime we use stickers where we can, so people will see these. And I think it goes through a bit of word-of-mouth as well, I think, people are always asking what the tags are and we point out that its for security. Interviewer: What else does the current system rely on, like manual procedures like putting on the tags and what else do staff have to do to get the system to work? Liquor Manager: Each morning the gates are checked to make sure that they will send an alarm when an item passes through. Whenever were in doubt we do just grab a bottle that does have a tag and walk it through, just to see if theyre working. We find that sometimes the gates wont work until you try and brush the tag past it a few times and then itll work. Sometimes you have to keep brushing past it and from then on the rest of the day will be fine.

110

Interviewer: And putting the tags on? Liquor Manager: Yes putting the tags on, putting them on correctly, putting them on tightly. Sometimes they can be easily taken off. Interviewer: Does the current system play a role in supply chain management processes? Are all the tags put on in-store? Liquor Manager: Yes. Interviewer: None come pre-tagged? Liquor Manager: No, but there have been talks about that happening. We have had one supplier, [name withheld], they actually changed the size of the neck of the bottle so that the tag could be fitted on. Interviewer: Manufacturers are willing to cooperate with this system? Liquor Manager: Yes, definitely. Interviewer: Have you heard any word, or do you plan on updating the current RFID system? Liquor Manager: No, because it has gone through a recent update I dont see anything else happening besides receiving more tags. We are on a trial basis with those tags, were one of the trial stores and it looks to be working. So I think we will be expanding to more bottles with these tags. Interviewer: Have you heard of the new 2nd Generation RFID systems? Liquor Manager: No. - End of Transcript -

111

Interview #5 Grocery Manager

Interviewer: Which department do you work in? Grocery Manager: Grocery Department. Interviewer: What is your position in this department? Grocery Manager: Grocery Manager, looking after groceries and general merchandise. Interviewer: How long have you been working for this organisation? Grocery Manager: 5 years. Interviewer: How long have you been working in the retail industry? Grocery Manager: 5 years. Interviewer: Do you know what product shrinkage is? Grocery Manager: Product shrinkage is damaged stock, theft, warehouse discrepancies, paper work errors; not checking stock correctly off invoices, recalled stock and withdrawn stock. Interviewer: How can you break-down product shrinkage; what constitutes product shrinkage? Grocery Manager: Razor blades, facial cream, batteries, Panadol, Pantene shampoo, pet medicated tablets. Interviewer: Is it of a major concern to your organisation? Grocery Manager: Very large concern, it costs the company millions each year. 50% of the theft is internal staff theft, which is a problem. Interviewer: How are products monitored through the supply chain? Grocery Manager: Random audits are carried out at the warehouse. Once the stock is loaded on the truck, the truck is door is tagged and checked-off when it reaches the shop. High theft lines are recorded separately, cigarettes, razor blades are kept in green tubs Interviewer: So the products are tracked? Grocery Manager: Yes, they are tracked? Interviewer: Is this an accurate way of tracking products? Grocery Manager: I guess it does random stuff, so its not 100% accurate, probably because theyre expecting people at the warehouse to do it correctly. Interviewer: If you had to say how accurate is was by a percentage, how accurate would it be? Grocery Manager: 65%.
112

Interviewer: How can you break-down product shrinkage? What constitutes product shrinkage? Lost, stolen, damaged, recalled, fraud Grocery Manager: The main contributor is warehouse discrepancies and number two would be theft. Interviewer: When do your superiors begin to ask questions about loss? When it reaches a certain amount, or after audits? Grocery Manager: When the budget for loss is breached and also when the shrinkage is higher than the reduced to clear, mainly in the perishables and fresh food departments. Interviewer: In terms of this threshold, when you have broken this barrier, what is the barrier usually? Grocery Manager: Its usually around $1000 a week. Once you have reached that, a report gets printed out and you get asked why or told to cut it back using more EAS tags and that sort of thing. Interviewer: How much stock is lost over a period of 12 months in the store you work in? Grocery Manager: Im not exactly sure at the moment. But I think the perishables department $50,000 a year, so I would say the grocery department would be about $100,000 a year. Interviewer: What about hidden shrinkage; shrinkage that has occurred but has gone unnoticed? Grocery Manager: Unknown shrinkage is usually about 20% of all shrinkage, so its pretty common mainly caused by people not recording damaged stock and throwing it straight out and also theft that goes undetected. Interviewer: Is it a process problem, a technology problem, or a people problem? Grocery Manager: I think its a people problem definitely, more people not following procedure. Interviewer: In what part of the supply chain does most product shrinkage occur? Retail outlet, distribution centre, in transit, loading dock. Grocery Manager: Warehouse discrepancies would be number one, from the warehouse not picking it correctly and number two would be the Retail outlet. Interviewer: What are your current strategies for overcoming product shrinkage? Grocery Manager: Recording stock daily, claiming missing stock from the warehouse via credits gets a lot of money back to the department, EAS tags on high-theft lines, training for back-dock on invoice checking and general training for staff. Interviewer: Are these strategies working? Grocery Manager: They could be improved, but they are working at the moment and they are improving.

113

Interviewer: Is the current Electronic Article Surveillance (EAS) system a deterrent or a total solution? Grocery Manager: I think its definitely not a total solution, more a deterrent to potential thieves. Interviewer: Does barcoding play any role in minimising product shrinkage? Grocery Manager: No, not really. I think maybe some customers, but professional thieves are going to see past that. But minor thieves may be deterred. Interviewer: How big is your supply chain in terms of geographical boundary? Is it local, regional, national, international? Grocery Manager: It supplies over 1000 stores nationally. Roughly three grocery warehouses per region and theres 10 regions in the [the Retail Organisation] across the nation. Theres approximately 42,000 lines. Interviewer: How many suppliers do you have? Grocery Manager: Approximately, there are 42,000 lines and suppliers there could be thousands. Interviewer: Have you heard of Radio Frequency Identification Systems or RFID? Grocery Manager: I have heard of it yes. Interviewer: On what type of products is the system used? Grocery Manager: Its mainly used on high-theft lines, health and beauty lines. Interviewer: Do they contribute to high percentages of product shrinkage these items? Grocery Manager: Yes Interviewer: Are you happy with the overall performance of your RFID system? Grocery Manager: Im pretty happy with it at the moment, its the best it can be. Interviewer: What brand are you using? Grocery Manager: Not too sure. Interviewer: How does it minimise product shrinkage? Grocery Manager: Mainly a deterrent to thieves rather than anything else, also for the non-professional thieves, it stops them trying to get through the register when the beeper goes off or also people who have forgotten to pay for something by accident. Interviewer: How often does it actually work on a thief? Grocery Manager: Not very regularly, depending on what area it is in. Just an average area just once or twice a week, not a constant thing.

114

Interviewer: What else does the current system rely on? Do manual procedures accompany current RFID systems? Grocery Manager: There is training, there is training videos. All new employees when they are inducted go through a training video. Interviewer: Anything else? Grocery Manager: There is a training manual. Interviewer: When I say manual, I mean like people who are involved in doing things to get the EAS system working. Do they have to stick EAS tags on products? Grocery Manager: Yes. Interviewer: Is there any other manual procedures? Grocery Manager: Not really. There is a list of all the lines that they must go on, also the tickets that have the little security sign on it, so you know which ones to put them on. Interviewer: Does the current system play a role in supply chain management processes? Is EAS used outside the retailer? Grocery Manager: Some suppliers are using it; Pantene is starting to use it. I think more and more are starting to. Pantene, some actually come in now with the EAS barcode on it. Interviewer: A regularly stolen product? Grocery Manager: Yes, a major theft line. Interviewer: Do you plan on updating the current RFID system, have you heard of any word of this happening? Grocery Manager: No, I havent heard of any updating. Interviewer: If this were to happen, what functionality would you like to see? What would you think would be suitable? Even a small upgrade, not a major upgrade on EAS, what would be on thing you would like to improve? Grocery Manager: Probably, they dont have fences on the Entry gates, at some stores. Possibly they could have them on that. Interviewer: Do you know about the latest RFID systems and their benefits? Grocery Manager: No, not really. Interviewer: Do you think that RFID could be used to combat product shrinkage? Grocery Manager: I think so, it would be a great system if it got up and running. Interviewer: Do you think that your organisation would ever be interested in investing in a such a solution in the not too distant future.

115

Grocery Manager: I would think so. [The Retail Organisation] is usually looking for that kind of thing. Interviewer: What do you think are the advantages of RFID over barcodes? Grocery Manager: Labour costs would be an advantage and it would be more accurate and reduce the cost of training, at the chance that people arent going to check things off correctly. Interviewer: If your organisation introduced this new system, would you mandate your suppliers to use the technology as well? Grocery Manager: I think they would. It would probably be a huge process. But I think that at the moment with the current tags, they are trying to get the tags from the supplier. Interviewer: What are the other perceived benefits that RFID can offer you beyond minimising product shrinkage? Grocery Manager: Just costs basically, labour costs and training. Interviewer: Would customers benefit from this system? Grocery Manager: Would it carry on out of the check-outs? Interviewer: No, it would stop at point of sale. Would prices be affected? Grocery Manager: Probably would. Prices can be up to 15% higher just because of theft. So if it stops theft, the prices could be down which is good for the customer. Interviewer: Having better tracking on products, would that mean you would have more products on the shelves. Grocery Manager: Probably have more accurate stock levels for customer needs. Interviewer: Having a better chance of having stock on shelf? Grocery Manager: I think so. Reduce cost on the back-dock area and more hours into the shop putting stock on show. - End of Transcript -

116

Interview #6 Store Services Manager

Interviewer: What is your role in the organisation? Store Services Manager: Im Store Services Manager. Which means Im responsible for invoicing, the cash-flow of the whole store, whether that be goods-in or goods-out, money payed at the registers, all that kind of thing. Ive got four main departments that I look after: the back dock, where they receive goods, I have the systems which where they ticket the store with all the tickets, the front service area where the customer service takes place, and then the cash office. Interviewer: How long have you been working for this organisation? Store Services Manager: Collectively about 12 years. Interviewer: How long have you been working in the retail industry? Store Services Manager: About 18-20 years nearly. Interviewer: Do you know what product shrinkage is? Store Services Manager: Yes Interviewer: How can you break-down product shrinkage? Store Services Manager: Into known, as in theft whether it be customer or in-store, or at the warehouse. Unknown, where we dont know or we cant work out where the products have gone. Interviewer: So its generally broken down into two and then it goes from there? Store Services Manager: Yes. Interviewer: What items constitute the most to product shrinkage in your organisation? High-end products? Store Services Manager: Yes, high-end products. We have what we call a key software tagging list in our store that we keep a list of all the main items that get stolen. So things like Pantene, Sensodyne toothpaste, batteries, razors, any medical products, dog worming tablets and all that type of thing. So basically your high-end products. We do get some electrical goods stolen as well, but because they are bulkier, its harder. Interviewer: Is it of a major concern to your organisation? Store Services Manager: Yes it is. We lose about on average in this store roughly $12,000 a week, in known, like theft. Interviewer: What category of shrinkage is the main contributor? Store Services Manager: Theft. Interviewer: When do your superiors begin to ask questions about loss? When it reaches a certain amount?

117

Store Services Manager: Yeah, if anything over about $10,000 I get questions from higher up the [The Retail Organisations] chain. We lose approximately almost $20,000 a week total. About $12,000 in theft and about $8,000 in shrinkage, whether that be out of date, or damaged products that we cant resell. Interviewer: What about hidden shrinkage; shrinkage that has occurred but has gone unnoticed? Store Services Manager: On the loads, so say when you get a large load, of something like 3,000 items on a load which is about 35 pallets, somewhere around that. Yeah sometimes things can be mixed up there and because we dont scan every single item as it comes in on the load we accept it as a whole and its not until it goes to the stock floor and we find if somethings missing then we can track it that way and we claim it from the warehouse if we know about it. Interviewer: Is it a process, technology or a people problem? Store Services Manager: Its a process I would say because there is no way that you can physically scan every item that comes in on the load. Theres no way. Interviewer: In what part of the supply chain does most product shrinkage occur? Retail outlet, distribution centre, in transit, loading dock? Store Services Manager: Things like liquor, cigarettes, razor blades are all security monitored because they were having a high shrinkage problem with those. And when we were outsourcing to [Cold-Storage Logistics Company] warehouses for our cold goods we were having a huge shrinkage problem as well. Interviewer: Has that changed now, or Store Services Manager: Its changed, its a lot easier. Interviewer: What are your current strategies for overcoming product shrinkage? Store Services Manager: At the moment we have to scan any products that are damaged, any products that are out of code or out of date. Anything thats stolen, we scan as well, so we might have to scan the actual ticket rather than the product because we can see the shelf is empty and we knew we received X-amount of it the day before. But it should be all recorded electronically. Interviewer: So you have security guards and things like that? Store Services Manager: Yeah we do, at night time we have security guards in here at the store. But we also have undercover lost prevention officers during the day that come randomly so that there is no set pattern. When we have security items like liquor, cigarettes and razor blades coming in, they have to be signed-for at the back dock and then they have to be taken to the security area whether it be the smoke shop or another security cage straight-away, they cant be unattended. Interviewer: And you have an EAS system? Store Services Manager: Yes, EAS. Interviewer: Are these strategies working?

118

Store Services Manager: Yes it is minimising, its not a total 100% fool-proof system. EAS, the electronic article surveillance is not a 100% system, its there to be a deterrent rather than 100%. Interviewer: Is the current EAS system a deterrent or a total solution? Store Services Manager: Its a deterrent. Interviewer: With barcodes, does that play a role in any way of minimising product shrinkage? Store Services Manager: It does, because it makes it easier to record the product, because the barcodes linked to the item number or reference number, so its all easy to track electronically. Interviewer: How big is your supply chain in terms of geographical boundary? Is it local, regional, national, international? Store Services Manager: We have a Sydney distribution centre here now so they have gone sort of, I suppose, state-wide would be the best way to say, but there are three in the state so that everyone down south has Albury, Wodonga. We have ours and then theres Wyong. Then I assume theres one up close to the border of Brisbane, or Brisbane might even supply those top-end of the state. Interviewer: How many suppliers do you have approximately? Store Services Manager: Thousands. Interviewer: How many transactions are generated daily or weekly to suppliers from your organisation? Store Services Manager: We get a grocery load every single day, we get a perishable load every single day. A variety load about 4 days a week, produce loads every day, the deli get loads most days, meat department 6 days a week. Depending on the warehouses, they usually only get one load a day per department but your suppliers depends on what orders are generated, so it can vary. Monday to Friday, usually the biggest days, Saturday still quite big, but Sunday you only get a few warehouses pretty much. Interviewer: Have you heard of Radio Frequency Identification Systems or RFID? Store Services Manager: Yes. Interviewer: Generation-one is the EAS system used here. On what type of products is the system used? Store Services Manager: EAS is used with anything that is high-theft, high-risk, we have a set of keys software that we get sent to us by our loss prevention people. We also have the new trial system in liquor, with those new neck-tags, they are electronic and I think they work off a radio frequency as well and they snap on and can only be taken off by a decoupling device, they cant be taken off by hand. It does deter, its on the top 50 theft lines, so those lines have had something like up to 18% shrinkage on their shrinkage, its gone down so much. Interviewer: And you are using these tags at the moment?

119

Store Services Manager: Yes, we are one of the trial stores. Interviewer: Are you happy with the overall performance of the EAS system? Store Services Manager: Within reason, I mean its there as a deterrent, its not 100% because it also has to be with the operators. Every time there is an alarm going through the antennas they have to react to it which a lot of the time they dont. If your fifteen years old, youre not going to stop some big burly guy running through with something are you? Interviewer: What brand are you using? Store Services Manager: Its Checkpoint Metro. Interviewer: How does it minimise product shrinkage? Store Services Manager: It has an active radio frequency in the tag and it sounds when its within one metre of the antennas. It gets deactivated when its scanned across the register, its deactivated in the actual scanner. So if it doesnt get deactivated properly it will sound if you put it next to the antenna. So, its more of a deterrent. Interviewer: What else does the current system rely on, like manual procedures? Store Services Manager: We still stamp batteries and things like that with the [Retailers] stamps, because if you put it on the EAS tag and they rip the tag off your still not going to know where that product is so if the police recover it, if its still got a physical ink stamp on it, they know who to return the product to. Interviewer: Does the current system play a role in supply chain management processes outside the retailer? Store Services Manager: Yes, some of the brands like Pantene and Go-Pet, are all internal, personal use items such as condoms and things like that are all tagged, source tagged by the actual company. Interviewer: Do you know of any updates to the system? Are you planning on updating? Store Services Manager: Not that Im aware of. Interviewer: In regards to the generation 2 systems, the ones that track from the manufacturer. Do you know about the latest RFID systems and their benefits? Store Services Manager: Yes, theres the delivery company UPS, their parcels tell them they were lost because they were tracking them. So yes, thats on the basis that I know, that its on a radio frequency and they can see where its moving at any one time. Interviewer: Do you see these new types of systems being integrated into this business? Store Services Manager: Eventually I think it will, especially if they continue with electronics, because if we are getting those top-end products which are like $500 each such as a T.V, your going to be wanting to know where they are going and what they are doing, until they leave the store or get to someones house or whatever. But I can see that a lot of people would see it as an invasion of privacy too.

120

Interviewer: Yeah, thats definitely one of the main issues that has come up with them. Do you think that RFID can be used to combat product shrinkage? Store Services Manager: Yeah I think they will probably be more effective. Interviewer: Could RFID provide a better solution, you sort of just answered that, but do think your organisation would ever be interested in investing in an RFID solution? Store Services Manager: Its probably not a bad option for them, because some of these products they really need to. For example, we have been hit the last two weeks. Every Friday the last two weeks, we have been hit in this store for Oil of Olay products, $1000 each time. Interviewer: Really? Store Services Manager: Yes, the last two Fridays. So Ive contacted loss prevention, so that means we have to get a person in here to be undercover and all that sort of stuff. So, it would minimise those sorts, we wouldnt need as many people, wed be using electronic systems. Interviewer: What do you think the advantages are of RFID over barcodes? Store Services Manager: I dont know, because our barcodes are usually like Interviewer: Its like apples and oranges really Store Services Manager: Yeah it is. The barcodes are used to, not to track the product, but they are in a sense electronically, but it makes it easier to go through registers, so as you say apples and oranges. Interviewer: If you introduced a new RFID system would you mandate that your suppliers use this technology? Store Services Manager: Yes, because it would be of no benefit otherwise. The suppliers usually do come into line with any new systems that we are bringing in so I couldnt see that there would be a problem. Interviewer: What are the other perceived benefits that RFID can offer you, beyond minimising product shrinkage? Store Services Manager: It would be less man power too, you wouldnt have to need people stamping things and all that, its done for you. Yes, it would probably mean an increase in price of the product, but overall, it keeps your shrinkage down. So that means your cost prices are still down because with a shrinkage problem our prices have to go up to combat that. Interviewer: Do you think customers would benefit from it? Store Services Manager: Definitely. Interviewer: Maybe there being more change of having stock on the shelf? Store Services Manager: Yes, and also when they go through the checkout they can just go through with a trolley and pack their own bags. But then they might not like that, at the moment if you get a little 15 year old that knows how to pack because they have been

121

taught but still not quite as logical as maybe some of the 50 year old women that know how to pack, do you know what I mean? Interviewer: Thankyou very much [Store Services Manager]. Store Services Manager: Thats ok, hope that helped. - End of Transcript -

122

Interview #7 Store Trading Manager

Interviewer: What is your role in the organisation? Store Trading Manager: I have a management role in the organisation; [Retail Organisation]. Im a Store Trading Manager, which is equivalent to an Assistant Store Manager. Interviewer: Which department do you work in? Store Trading Manager: Store Management is the department. Interviewer: How long have you been working for this organisation? Store Trading Manager: Together Ive worked for [Retail Organisation] for twelve and half years. Ive had a three year break in-between when I worked for [another general merchandise retailer]. Interviewer: How long have you been working in the retail industry? Store Trading Manager: Retail total about 14 years. Interviewer: Do you know what product shrinkage is? Store Trading Manager: Yes. Interviewer: How can you break-down product shrinkage; what constitutes product shrinkage? Store Trading Manager: Product shrinkage, or the definition of it is, is the loss inbetween what the book-stock says you should have and what you do actually have on hand. Two lots of shrinkage known shrinkage and unknown shrinkage. Unknown shrinkage is what I just told you before, the difference between the book-stock and what you do have on hand you usually find out when you do stocktake. Known shrinkage is things like theft and damaged stock all contributes to shrinkage. Interviewer: What items constitute the most to product shrinkage in your organisation? Are they high-end products or small products? Store Trading Manager: It really varies. I tend to think that a lot of the shrinkage in the store comes from the warehouse. Through loads not being checked, through just differences in what we have actually been charged for and what we are actually receiving. I think thats probably the biggest proportion. When youre talking in terms of theft its things like Panadol, vitamins, expensive shampoos, razor blades, a lot of expensive face creams, a lot of the toiletry items and then you just have the novelty items like 600mL Cokes, theyre like a lesser item that they dont focus on too much. Interviewer: Is it of a major concern to your organisation? Store Trading Manager: Definitely. together? How do you mean? Theft or shrinkage all

Interviewer: Pretty much shrinkage as a whole.

123

Store Trading Manager: Definitely, definitely. I have been in a store, in 6 months time lost, had an unknown shrinkage, so thats not even including the theft that it recorded and the theft that we adjusted at book-stock. When we work out something has been stolen we adjust the book-stock, so we have known theft and then theres unknown shrinkage. So the unknown shrinkage alone for a 6 month period was $360,000 worth of stock. Thats huge. Caringbah wasnt so bad, but Caringbah has had some very big losses in the past. Interviewer: How are products monitored through the supply chain from the distribution centre to retailer? Store Trading Manager: I know that the supply chain is all electronic. I know that the supply chain is broken up into areas, so what I know now its all electronic, you dont have people picking the products anymore. You have the product in a spot, its collected by big mechanical arms, taken, and it goes down a shoot and loads it onto the ends of the pallet. But theyre all done by picking slips. I couldnt tell you what happens when stock comes into the warehouse, but definitely everything comes in with a label on it when it comes into the store its all printed out on a load sheet for us and we can actually print the load list up, but its not monitored item for item. The only monitoring weve got here is through our [automatic stock ordering system] routine in the morning. Interviewer: So products are not really tracked from distribution centre to the store? Store Trading Manager: No, theres that big void in the middle where an order goes onto the load-list and we can check it line-by-line if we want, but we just dont have the man power. Its not a standard thing that you check a load list line-by-line and given that here they get 30 to 35 pallets a night. Interviewer: What category of shrinkage is the main contributor, is it theft or warehouse discrepancies? Store Trading Manager: Through experience I would say warehouse discrepancies, thats the biggest one. Interviewer: When do your superiors begin to ask questions about loss? Store Trading Manager: They come in and look at loss when you get a bad result in stocktake, in the 6 monthly stocktake. Thats just for long-life. In fresh foods a couple of departments do weekly stocktakes and they track their stock by hand and their dumps and mark-downs and everything, so if that doesnt come out, its monitored on a weekly level and we would question that. Some of the departments do monthly stocktakes, theyre a lot easier to keep on track of, so if there stock on hand jumped or suddenly dropped from stocktake to stocktake theres questions asked then, or if their GPs really low theres questions to ask then. And then 6 monthly stocktake which is all long-life departments depending on your results that you get in that, that people will come in and ask questions. You get a shrinkage audit, a pre-stocktake shrinkage audit where they come in and they check all your processes and the procedures of monitoring shrinkage and minimising shrinkage is scored on that and the company, based on how you score in your shrinkage audit and the results that you have in place, like so much theft you scan on, they actually, and what area the store is in, they predict a shrinkage figure for you. So if its over that, then they will definitely come in and investigate and usually the first thing they look at is systems and procedures in the store. If theyre not right then its automatically the stores responsibility to get it right, so it does come down to the store.

124

Interviewer: How much stock is lost over a period of 12 months in the store you work in, approximately? Store Trading Manager: A store that Ive been in has been quite good. Over 12 months at Caringbah there was a total of $100,000. But the store that I just came from over a 6 month period they lost $336,000 and that was in just a 6 month period, thats just huge. Interviewer: And thats from the retail outlet? Store Trading Manager: Yes, thats unknown shrinkage. Thats not even including the theft that theyve scanned off and the discrepancies that theyve claimed. Interviewer: Is it a process problem, a technology problem or a people problem, both unknown and known shrinkage having large amounts of that? Store Trading Manager: In an ideal world wed have loss prevention officers, ununiformed loss prevention officers in the store everyday. We would have people rostered specifically to load-check before they unloaded, but it comes down to a cost point of view. Whether its worth paying someone to do that shift or potentially lose it in shrinkage. Interviewer: So out of the three, a process problem, technology or people problem? It doesnt have to be one specifically. Store Trading Manager: I would say process and people. Interviewer: In what part of the supply chain does most product shrinkage occur? Store Trading Manager: The distribution centre to the retail outlet. Interviewer: What are your current strategies for overcoming product shrinkage? Store Trading Manager: Well from the store I just came from based on their really bad shrinkage result over the previous 6 months, we had to put a few things in place very, very quickly. So the first thing that we looked at was the [automatic stock ordering system] routine in the morning where they werent just scanning out of stocks. Are you familiar with [automatic stock ordering system] routine? Interviewer: No, not really? Store Trading Manager: Ok, they go around with the RF gun. The night before when night-fill comes in and they fill the load and theres overstocks, the overstocks are scanned-in onto a report. So, in an ideal world there should never be any overstocks unless theyre an actual green line. A green line is something you sell more than a box of a day. So you fill the shelf and then you are going to need to fill the shelf again that day. You shouldnt have overstocks that sit there for days on end and thats what [automatic stock ordering system] is suppose to do for you. It should minimise the inventory levels. Your shelves should only run down to a minimum point, when they get to that minimum point, new stock arrives. So in the morning, the [automatic stock ordering system] people come through they scan all the holes that are in the store where we havent had stock to fill it. Theyll check and see if its an unsupplied line and it will actually tell you in the RF gun that youre expecting one line but you werent charged for it, so nothing was received. When they find holes and it says that there is actually stock in the store, they send it to a non-local report. And then they print out the non-local report and it actually has the dates when that stock arrived, so if youre checking it that day and you find that

125

there was stuff that should have come in the load last night and you have been charged for it, then its a discrepancy. Unless its on the overstock report and they have accidentally forgot to fill it thats what the overstock report there for as well. Interviewer: So the [automatic stock ordering system] you are talking about helps reduce product shrinkage. But how do you protect your products in-store? Store Trading Manager: [automatic stock ordering system] routine is how you would find out the accuracy of what the warehouse is sending in to you. So you can actually put in a process discrepancy and get money back for what you havent been sent. But its not perfect. You will only find things that are actual out of stocks, so if something has 6 on the shelf, even if you were suppose to get a box the night before and you didnt, you wouldnt know because you probably wouldnt scan an item that still had 6 items on the shelf. But protecting the stock that we have in the store; EAS tags, we have a specific list that we have got to stick to. A lot of the stock actually comes in pre-tagged now. So weve got two lists, weve got one where we actually have to tag it in-store and store stamp it to say that it came from Caringbah. And then youve got to make sure that you dont tag the things that come in pre-tagged because if you do you are more than likely cancelling the effectiveness of the tags. Interviewer: What comes in pre-tagged besides Pantene? Store Trading Manager: Only some Pantene comes in pre-tagged, its not perfect either, its only some of them. A couple of the razor blades, like the Mach3 blades they come in pre-tagged. I think a lot of the new razor blades that are introduced now come in pretagged. Some film, camera film comes in pre-tagged and the cameras. Interviewer: Do they come pre-tagged from distribution centre or from the supplier? Store Trading Manager: From the supplier. And the Olay products they come in pretagged as well. So what I ended off having to do there was, at Revesby actually, the store I just came from. Even though theyre pre-tagged they ended off having to take the product out of the boxes and keep the empty boxes on the shelf and keep the actual product at the service desk. Its just so bad there. Interviewer: And security guards do you have those? Store Trading Manager: Security guards at night. But it varies from store to store. I know at Riverwood when I use to work there we use to get a guard at 6:00 at night every night of the week. But here I think they only start at 7:30, 8:30 and they only do a short day. We have got loss prevention officers, the non-uniformed ones, they do a sweep of the store. Theyre very effective. Unfortunately they quite often catch staff as opposed to customers. Interviewer: Are these strategies working, could they be improved? I suppose you are getting a lot of product shrinkage. Store Trading Manager: Yes, we still get a lot of theft. I dont believe there is a complete effectiveness there. The tags can be ripped off and a lot of cases they are or they just take things out of the boxes and leave the boxes on the shelves. The loss prevention officers are good, I think on average there only here maybe twice over a three times a week, or unless youve asked them to come in for a specific purpose. Theres

126

ways around it, its not an ideal system. Plus, also getting the operators to react to the EAS gates, thats another thing too. Interviewer: Is the current EAS system a deterrent or a total solution? Store Trading Manager: Deterrent, yes. Interviewer: How big is your supply chain in terms of geographical boundary? Is it local, regional, national, international? Store Trading Manager: Weve got one at Minchinbury, weve got one at Yennora, weve got one that we source from Melbourne. If you want to include Melbourne; national. But then it really is regional, Melbourne is the only one we get outside this actual region. Because I know there are some in Wyong, but we dont get supplied from them its only really Sydney bound distribution centres that supply to us and then Melbourne. Interviewer: How many suppliers do you have? Store Trading Manager: I couldnt even take a guess at that. Interviewer: How many transactions are generated daily or weekly to suppliers from your organisation? Store Trading Manager: Us paying their invoices. On a store level we would get probably, on our biggest day we would get 40 50 direct suppliers come in, that supply direct to us to our dock from their production site to our store, thats a direct supplier. Plus, then we have the warehouses on top of that. So we have about four warehouses that come in mostly on a daily basis and then the 50 direct deliveries a day. Interviewer: Have you heard of Radio Frequency Identification Systems? Store Trading Manager: I hadnt until you spoke about it just then. Interviewer: On what type of products is the system used? Store Trading Manager: High-theft. On a national level they are the things that are stolen the most. So, all the information is compiled and based through loss of stock on the shelves and also through things like returning without receipts and everything. Interviewer: Are you happy with the overall performance of the EAS system? Store Trading Manager: Look as a deterrent yes, it does do something. It definitely makes it harder for people who are going to come in to steal things. But in the end if someones going to steal something theyre going to get around it. If theyre going to come in and theyve made up their mind theyre going to do it, then they would do it regardless whether we have an EAS tag on it. Most stores Ive been to the gates are not monitored properly as they should be. All staff go through training for it, but its not really enforced by their supervisors. The store that I was just at if a gate would go off theyd say its ok its just the shampoo I put in there. But deactivate it for the customer. But theyve payed for it. But thats not the point. How can you tell if its the shampoo you just scanned through or a packet of batteries thats sitting in their purse. So, I dont think the cultures there for it for the staff on the front-end. Interviewer: Do you think it minimises product shrinkage?

127

Store Trading Manager: It does, Id say that it does. But not to a significant level. Interviewer: What does the current EAS system rely on, what manual procedures? Staff having to play a role in it. Store Trading Manager: Part of the night-fill procedure is that theyve got to tag the things that are on the list, plus anything else that the store chooses to tag. Actually, one thing I didnt think about when I left here a couple of weeks ago. Have you seen the new tags they have in liquor? Theyre a very good deterrent actually. Theyve worked a hell a lot better than what the stickers have for liquor. Interviewer: Because you cant take them off, they are a new type of EAS are they? Store Trading Manager: Yes, theyre just the same thing, they are an EAS tag. Interviewer: Does the current system play a role in supply chain management processes? Store Trading Manager: No. Interviewer: Is EAS used outside the retailer? Store Trading Manager: Yes, the ones that come straight from the suppliers the things that come source-tagged, theyre tagged by the supplier not tagged by the warehouse at all. Interviewer: Do you plan on updating or have you heard of any updates to be made to the current EAS system? Store Trading Manager: No. The only one is in liquor. Its very new that one, its only been here for 15 to 20 weeks and we are a trial store for that. So thats an update to the system that has actually worked very well for us in liquor. Its a shame we cant tag everything in liquor. Interviewer: Its a shame that you cant tag everything you own. Store Trading Manager: Yes, I know. Interviewer: Have you heard about the latest RFID systems, like the Generation-2 RFID systems? Store Trading Manager: No. So is the Generation-2 actually put on at the warehouse or is that put on at the supplier? Interviewer: From the supplier, the manufacturer. Store Trading Manager: Definitely from a store point of view if they implemented something like that it would definitely benefit the store. Because, as I said before I believe that the shrinkage that is from the warehouse to the store, that loss in stock there is the biggest part. If what you were talking about before is effective if would probably reduce our shrinkage by a huge amount, not to mention the time spent actually adjusting the stock on hand because there have been miss-picks and things havent gone right. - End of Transcript -

128

Interview #8 Store Manager

Interviewer: What is your role in the organisation? Store Manager: Im a Store Manager. Interviewer: How long have you been working for this organisation? Store Manager: 13 years. Interviewer: How long have you been working in the retail industry? Store Manager: 13 years. Interviewer: Do you know what product shrinkage is? Store Manager: Yes. Interviewer: How can you break-down product shrinkage? Store Manager: Stolen, damaged, theft really. Interviewer: What items constitute the most to product shrinkage in your organisation? High-end products, product characteristics, $10 and over, small & easy to hide, EAS tags easy to pull off Store Manager: Normally just small, mostly it is expensive, mainly just small items. Interviewer: Is it of a major concern to your organisation? Store Manager: Yes Interviewer: How are products monitored through the supply chain in particular from distribution centre to retailer? Store Manager: Theres a checklist generated when the pallets are checked. Trucks are then sealed. Paper work has a seal on it and its delivered to the store, if the seal number both match, if they dont match we dont receive the load, it means that someone has tampered with it. Interviewer: What category of shrinkage is the main contributor? Store Manager: Number one would be theft. Interviewer: When do your superiors begin to ask questions about loss; when it reaches a certain amount or after audits? Store Manager: After stocktake it shows the shrinkage. Interviewer: And is that every 6 months? Store Manager: Yes, every 6 months. Interviewer: How much stock is lost over a period of 12 months in a store you work in?

129

Store Manager: One department may loose up to $40,000. Interviewer: Is that a large store? Store Manager: Thats a small store. $240,000. Interviewer: Over 12 months? Store Manager: Yes. Interviewer: And thats one department only? Store Manager: Thats one department. Interviewer: And a whole store, the maximum youve heard for a store losing in 12 months? Store Manager: $680,000 Interviewer: What about hidden shrinkage, is it included in this figure? Store Manager: Yes, everythings included. Interviewer: Known shrinkage and unknown shrinkage, whats generally larger out of the two? Store Manager: Unknown shrinkage. Interviewer: In what part of the supply chain does most product shrinkage occur? Retail outlet, distribution centre, in transit, loading dock? Store Manager: It would have to be in the store. Interviewer: What are your current strategies for overcoming product shrinkage? Store Manager: Theres tagging, weve got that. A lot of suppliers now are actually source-tagging, so theyre actually within the product not on the packets theyre actually made into the actual plastic bottle. Interviewer: I didnt know that, what kinds of products are they? Store Manager: Pantene. Large Pantenes are starting to do it. Thats basically what we can do to stop it, apart from actually seeing them do it. Interviewer: Security guards have you got those? Store Manager: Weve got a security guard every night. Interviewer: Are these strategies working? Store Manager: I think mainly the security guards are working. The EAS tagging they can just rip-off and disappear. The store has got cameras, but if youre a regular you know where the cameras are, so the main deterrent is a security guard now. Large stores can loose up to $220,000 to

130

Interviewer: Is the current Electronic Article Surveillance (EAS) system a deterrent or a total solution? Store Manager: Its just a deterrent. Interviewer: How big is your supply chain in terms of geographical boundary? Is it local, regional, national, international? Store Manager: International. Interviewer: In terms of this store, the supply chain from the distribution centre, is that regional thing? Store Manager: The stores supplied from Minchinbury and Melbourne. Interviewer: How many suppliers do you have approximately? Store Manager: Theres a list. Theres got to be about 100 to 200 suppliers, theyre direct suppliers into a large store. But in a small store you are looking at just a hand-full, 30, 40 thats about it. Interviewer: Thats not from the direct [Retailer] warehouse? Store Manager: No, its direct suppliers. Interviewer: How many transactions are generated daily or weekly to suppliers from your organisation, approximately? Store Manager: Looking at about, 200. Interviewer: Have you heard of Radio Frequency Identification Systems or RFID? Store Manager: EAS, yes. Interviewer: On what type of products is the system used? Store Manager: High-theft, batteries, razors, Olay products, liquor, thats about it. Interviewer: Are you happy with the overall performance of your RFID system? Store Manager: Yes. Interviewer: What brand are you using? Store Manager: Metro. Interviewer: How does it minimise product shrinkage? Store Manager: Its just a deterrent, thats all it is Interviewer: What else does the current system rely on? What kind of manual procedures accompany RFID systems? Store Manager: Weve got to tag the majority of it, but it is coming in source-tagged now so it limits our role.

131

Interviewer: Is that expensive? Store Manager: You have to actually pay for the tags, and youve got to pay for someone to do it. Interviewer: Do you know how much the tags are? Store Manager: Theyre about $100 a roll. Interviewer: How many is in a roll? Store Manager: 1000 Interviewer: Does the current system play a role in supply chain management processes? Store Manager: No Interviewer: It is used outside the retailer, but thats only on selected items? Store Manager: Yes. Interviewer: Have you heard of or do you plan on updating the current RFID system? Store Manager: Ive heard nothing about it. Interviewer: If you could update it, what kind of functionality would you be looking for? Is it accurate, does it always go off? Store Manager: The thing Id probably change is make the tags smaller because if you use it on batteries you have got to have it on a certain distance away from the actual battery or they wont work. Make them a bit more flexible, you can only bend them a little bit. If you bend them too far, it actually breaks the contact inside and deactivates them. Interviewer: Would your organisation be interested in new RFID systems and mandating that all suppliers have their products tagged? Store Manager: Yes. - End of Transcript -

132

Interview #9 Delicatessen Manager

Interviewer: What is your role in the organisation? Delicatessen Manager: Im the Deli Manager at Riverwood, Riverwood Store. Interviewer: Which department do you work in? Delicatessen Manager: Im the Deli Manager, in the Deli. Interviewer: How long have you been working for this organisation? Delicatessen Manager: I have been working for the company for about 7 years and Ive been a Manager for about two and half. Interviewer: How long have you been working in the retail industry? Delicatessen Manager: 7 years. Interviewer: Do you know what product shrinkage is? Delicatessen Manager: Yes, I do. Interviewer: How can you break-down product shrinkage; what constitutes product shrinkage? Delicatessen Manager: Theres theft, internal theft, there is just wastage, damaged stock. Interviewer: So when you say wastage, expired? Delicatessen Manager: Yeah, out of date stuff. Yeah wastage means people chuck things on the floor, thats damaged stock. People rip things out of a product and you have to chuck it out. Interviewer: What items constitute the most to product shrinkage in your organisation? Delicatessen Manager: Organisation or department? Interviewer: Just your organisation. Delicatessen Manager: I would say probably theft is probably the highest. Other than that its all the damaged stock that could be classed as theft, but its normally classed as damaged stock. Interviewer: What items contribute most? high-end products. Delicatessen Manager: Batteries, razors Interviewer: Generally small? Delicatessen Manager: Generally small. Theres the odd occurrence Ive heard of larger ones like olive oil. Interviewer: Is it of a major concern to your organisation?
133

Delicatessen Manager: Yes, very major. Interviewer: How are products monitored through the supply chain from distribution centre to retailer? Are they tracked at all? Delicatessen Manager: To the store is hard because theres not much involved security wise theres only a part when they come in special boxes and we have to make sure we get those high-theft boxes off the truck and into a security cage. Then they get tagged and everything is scanned. Interviewer: So theyre not really monitored? Delicatessen Manager: No. Interviewer: What category of shrinkage is the main contributor? You said theft didnt you? Delicatessen Manager: Yes. Interviewer: When do your superiors begin to ask questions about loss; when it reaches a certain amount or after audits? Delicatessen Manager: No, not normally. Im not too sure when they ask questions. Interviewer: Have you been questioned? Delicatessen Manager: No, I havent been questioned anything about that. We dont normally recognise it that much. Its hard to keep track of how many items we have in the supermarket, its hard to keep track of anything. But until theres an empty shelf that we are kind of like: hang on, that was full not long ago. Thats when we go, somethings gone wrong. Interviewer: How much stock is lost over a period of 12 months in the store you work in? Delicatessen Manager: A lot [laughs]. I dont really know the figures. Its quite a bit. Interviewer: What about hidden shrinkage; shrinkage that has occurred but has gone unnoticed, like unknown shrinkage? Delicatessen Manager: Yes, there is shrinkage. Interviewer: Is it a process problem, a technology problem, or a people problem? Delicatessen Manager: More a people problem, yeah a people problem mostly. Interviewer: In what part of the supply chain does most product shrinkage occur? Delicatessen Manager: Retail outlet Interviewer: What are your current strategies for overcoming product shrinkage? Delicatessen Manager: In the store it would be tags, EAS tags and some of the stamps as well, we have to actually stamp every battery.

134

Interviewer: Stamped with? Delicatessen Manager: It has a store number on it and where is comes from. So therefore, if they bring it back and they cant return it another store. We have got security guards twenty-four/seven, especially at Riverwood, so theyre protecting everything, they try to protect. We have rules and regulations, but most of the time they are followed and some of the time theyre not. People arent allowed past the back-dock area, but of course they do, they are just small things. Interviewer: Are these strategies working? Delicatessen Manager: Not really, because theres always one way to go around. Interviewer: Could they be improved? Delicatessen Manager: Yes, hugely. Interviewer: Is the current Electronic Article Surveillance (EAS) system a deterrent or a total solution? Delicatessen Manager: In what way a total solution? Interviewer: Do you think it actually works? Delicatessen Manager: No Interviewer: So its therefore more a deterrent? Delicatessen Manager: Yes, the weird thing is when people walk into the store it buzzes and they are scared even when theyve walked in. Hang on, youve walked in, you havent actually walked out with anything. And they still get scared, so its just a deterrent. Interviewer: How big is your supply chain in terms of geographical boundary? Is it local, regional, national, international? Delicatessen Manager: Regional. But for the international stuff, we dont import anything, the suppliers import, so therefore we buy from the suppliers in Australia, so thats actually regional. We dont deal with international stuff. Interviewer: How many suppliers do you have? Delicatessen Manager: Heaps. Because it depends what you mean by suppliers, because have a warehouse, which is all the suppliers put together, we just call it a warehouse. But then weve got directs, which we directly deal with the company. Thats like what I deal with mostly, so therefore, just me alone, I have over, 20-30 just for the deli and thats just a tiny, little department compared to the rest of the store, which would be quite a bit. Because the warehouse normally deals with all the suppliers to them and thats why we do it from a warehouse to make it easier. Interviewer: How many transactions are generated daily or weekly to suppliers from your organisation?

135

Delicatessen Manager: Heaps, just say in one day lets say, for invoices that come, say over 30 a day. Because theres little directs, that I was talking about, and then theres the warehouse, if you just class the warehouse as one, its quite a bit. Interviewer: Have you heard of Radio Frequency Identification Systems or RFID? Delicatessen Manager: Yes. Interviewer: On what type of products is the system used? Delicatessen Manager: Batteries, razors, shampoos, definitely shampoos. I heard of one store putting it on olive oil, as I was saying the big tins, the 5 litre ones, expensive ones. Interviewer: Do they contribute to high percentages of product shrinkage these items? Delicatessen Manager: Yes Interviewer: Are you happy with the overall performance of your RFID system? Delicatessen Manager: Not really, no. Interviewer: What brand are you using? Delicatessen Manager: Not too sure. Interviewer: How does it minimise product shrinkage if it does work at all? Delicatessen Manager: It just there to deter customers when they walk through and it starts beeping-off, it just scares them off. Interviewer: So would you say it minimises product shrinkage this system? Delicatessen Manager: Not much, I dont think it works that well. But its something. Interviewer: What else does the current system rely on, any manual procedures? Delicatessen Manager: Yes, you have to stick every single sticker on every single item. Its ridiculous, and therefore thats why we stamp it as well, we stamp over the EAS tag with our stamp onto the batteries. Interviewer: Does the current system play a role in supply chain management processes? Is EAS used outside the retailer? Delicatessen Manager: No. Interviewer: Do you plan on updating the current RFID system? Delicatessen Manager: No, I havent heard Interviewer: Having explained briefly to you about the new RFID systems, could it provide a better solution? Delicatessen Manager: Yeah I think so. For one, it cuts down the staff member that has to stick every single sticker onto it, so it comes in with a sticker on it, it would be a lot easier cut out that job. Which would therefore, that would help.

136

Interviewer: Would you think that your organisation would ever be interested in investing in a solution like that? Delicatessen Manager: Yes, it probably would. Interviewer: If you introduced that system, do you think youd mandate your suppliers to use the technology as well? To have to supply all their products with these tags? Do you think [the Retail Organisation] has the power to do something like that? Delicatessen Manager: Yes, [the Retail Organisation] definitely has the power to do that. If they think its that important to stop theft that is happening. I think they can enforce whatever they like. Interviewer: It also can keep track of products across the supply chain, so they go to the right store. You know exactly where it is: Is it in the distribution centre? Is it in the warehouse? Delicatessen Manager: They do tend to have a lot of miss-picks and they just dont supply anything. Interviewer: What are the other perceived benefits that RFID can offer you, beyond minimising product shrinkage? Delicatessen Manager: If you think of it at the basics, it will be for out-of-stocks. You know whats come into the store, if it knows through the back-dock just through these systems. - End of Transcript -

137

Interview #10 Night-fill Captain

Interviewer: What is your role in the organisation? Night-fill Captain: My role in the organisation at the moment is running the night-fill team. Interviewer: What is your position in this department? Night-fill Captain: Night-fill Captain at the moment, its usually 2IC in Groceries, 2nd in-charge. Interviewer: Which department do you work in? Night-fill Captain: Grocery Interviewer: How long have you been working for this organisation? Night-fill Captain: I have been working for [the Retail Organisation] now for 16 years. Interviewer: How long have you been working in the retail industry? Night-fill Captain: Same, 16 years, straight out of high school, straight into retail. Interviewer: Do you know what product shrinkage is? Night-fill Captain: Yes, I do. Interviewer: How can you break-down product shrinkage; what constitutes product shrinkage? Night-fill Captain: Basically anything that is a loss to the business either through damage, theft, stock lost in transit, things consumed; which is also theft basic things. Interviewer: What items constitute the most to product shrinkage in your organisation? Night-fill Captain: Basically, its anything they can get their hands on. If the consumer wants something theyll take it. The size is a variable; it doesnt really matter if they can sneak out of the store theyll get it out. People are pushing trolleys of stock, mountains of stock out through liquor, with observant staff catching them, so size isnt really a factor. Small things usually get done by kids, spare-of-the-moment thing. Interviewer: And, these are professionals these people pushing trolleys out Night-fill Captain: Yeah, well, they hit a number of shops. They can walk out of the store with a massive trolley and sometimes theyre successful. I caught one guy one time had a banana box, filled-up with Panadol, I couldnt believe it, he was carrying it on his shoulder and walked out the door with it. So, you know its just up to the observation of the staff to catch these people. Interviewer: So its almost like a myth that people go for high-end products, theyll actually go for anything.

138

Night-fill Captain: Yeah, there are some kleptomaniacs, most of them. But, a lot of the theft I think is a spare of the moment thing; they say: oh, I can get that, easy put it in their pocket. It is the professionals that go for the higher. Interviewer: Is it of a major concern to your organisation? Night-fill Captain: Oh yeah, for sure. Interviewer: How are products monitored through the supply chain in particular from distribution centre to retailer? Night-fill Captain: Everything is slowly getting computerised. Everything is invoiced and in the computer system. As far as my knowledge is concerned, that is as far as I know so far on that. Interviewer: So, loads are tracked, but theyre not tracked individually? So products arent tracked? Night-fill Captain: No, it wouldnt take much for a couple of boxes to fall off the back of a truck. But of course, trucks have got the security codes on the back of the roller door, so when you open it up, they use to have tags, but now they have a computer system, which is alright. The back-dock attendant, checks the numbers and if it corresponds with the code on the receipt. Interviewer: What category of shrinkage is the main contributor? Night-fill Captain: I think theft is the highest. Yes, theft would be the highest and its mostly through staff actually, more so than customers. Interviewer: When do your superiors begin to ask questions about loss; when it reaches a certain amount or after audits? Night-fill Captain: We have department manager meetings at 10am and one of the first things we go through is the sales and we go down through the break-up of the gains and losses of each department. So everyday the boss wants to know the amounts of theft and everyday is a concern. Everyday is a concern, no matter how much. So everyday he is asking questions about it, and everyday its reported to head office. Interviewer: How much stock is lost over a period of 12 months in the store you work in? Night-fill Captain: I dont know the exact figures, but I know its very high. Interviewer: What about hidden shrinkage; shrinkage that has occurred but has gone unnoticed, like unknown shrinkage? Night-fill Captain: Yes, that would basically be discrepancies and that kind of stuff, theyd be a lot of that too. That would be put down to computer error or mishandling. Interviewer: Is it a process problem, a technology problem, or a people problem? Night-fill Captain: Primarily, I think it would be a people problem. Because, sometimes when you are taking the loads off the truck you can get an extra pallet and thats not beyond the people of our store saying this pallets suppose to be for another store, but

139

well keep it, hush, hush. So that store isnt going to know what happened. Thats a big pallet of stock, its happened a few times to my knowledge. Interviewer: In what part of the supply chain does most product shrinkage occur? Night-fill Captain: Retail outlet Interviewer: What are your current strategies for overcoming product shrinkage? Night-fill Captain: Weve got the security tags on most high-end products. Where they send the gate beeping down the front when people walk out. Security cameras around the store, I dont really know what else theyre implementing. People awareness. Interviewer: So training customers and staff? Night-fill Captain: Staff have a tendency to eat, not necessarily paid for. Interviewer: Are these strategies working? Night-fill Captain: Theres always going to be issues. No matter what strategies has been implemented, theres always going to be someone who can think of a way to get around it and things happen, like I said before theres all people issues as well, so theres a variable. Interviewer: Is the current Electronic Article Surveillance (EAS) system a deterrent or a total solution? Night-fill Captain: Its not a total solution. Its only a half-hearted deterrent, I think. Interviewer: With barcodes, does that play a role in any way of minimising product shrinkage? Night-fill Captain: It makes you aware of it [product shrinkage]. It doesnt actually deter or prevent it in any way. It gives you more knowledge of whats going on and where the targeted areas might be. Like make-up and all that kind of stuff, theres always a consistency of things missing here. Interviewer: How big is your supply chain in terms of geographical boundary? Is it local, regional, national, international? Night-fill Captain: This store in particular goes as far as Melbourne. So, Im not really too sure, but I know we get inter-state stuff. Its pretty big. Interviewer: How many suppliers do you have? Night-fill Captain: A lot, itd be in the thousands. Each individual item comes from someone. So theres a lot of suppliers and I couldnt give you an exact figure there. Interviewer: How many transactions are generated daily or weekly to suppliers from your organisation? Night-fill Captain: Once again, Im not too cluey on that. But Id say a lot. Interviewer: Have you heard of Radio Frequency Identification Systems or RFID?

140

Night-fill Captain: Not until you brought it up to me. Interviewer: On what type of products is the system used? Night-fill Captain: Mostly the more expensive stuff is being tagged at the moment. Like razor blades, baby formulas, batteries and that kind of thing. Interviewer: Are you happy with the overall performance of your RFID system? Night-fill Captain: Its not really working, like I said people can find a way around it. It doesnt take much to peel-off a sticker. Even when the sticker is hidden on the inside of the box, people will take things out of the box and theyll do what they can to get around it. Because, people are aware that EAS is out there, people know about it, so they can work around it. Interviewer: Do you know what brand you are using here? Night-fill Captain: No Interviewer: How does it minimise product shrinkage? Night-fill Captain: To a degree. To the, just the quick, on-the-spot I might pinch this, oh no, it has a tag on it, I better not. So maybe its just a deterrent to the moderate kind of criminal. Interviewer: What else does the current system rely on, what type of manual procedures? Night-fill Captain: Bag checking. Putting stickers on things. Interviewer: Does the current system play a role in supply chain management processes? Night-fill Captain: No, not that Im aware of. It could. Night-fill Captain: EAS isnt used outside the retailer? Night-fill Captain: Im not sure. Interviewer: Does your organisation plan on updating the current RFID system? Night-fill Captain: I assume they would be. Theyre always pretty current with new technology. Like you were saying, how Germany were implementing it. Im sure retailers all over the world would be watching that and implementing it in their own businesses as well. Interviewer: Do you see the latest RFID systems being integrated into this business? Night-fill Captain: For sure. If it works for sure. Interviewer: What are the other perceived benefits that RFID can offer you, beyond minimising product shrinkage, if any? Night-fill Captain: Obviously its going to increase your sales. Itd be better across the board, I would think. Also with actual handling of stock and stock on the shelf, it would make life easier. If things werent shrinking so much, due to theft, we wouldnt have to pack so much of it.

141

Interviewer: Do you think customers would benefit from it? Night-fill Captain: Yes, in the long-run. If theft occurs enough the price is going to have to go up. Interviewer: What about the availability of stock on the shelf, if you can monitor it? Night-fill Captain: Yes, if you can monitor it closely, to know on hand where it is exactly since its left the warehouse, then for sure. You can look it up and tell a customer itll be here in 5 or 10 minutes. So yes, definitely. - End of Transcript -

142

Interview #11 Customer Implementation Executive

Interviewer: What is your role in the organisation? Customer Implementation Executive: Customer Implementation Executive. Interviewer: Which department do you work in? Customer Implementation Executive: Customer Development. Interviewer: What is your position in this department? Customer Implementation Executive: Its within the field side of the customer development, so its field implementation. We look after about 225 field members, or reps. Interviewer: How long have you been working for this organisation? Customer Implementation Executive: Two years. Interviewer: How long have you been working in the retail industry? Customer Implementation Executive: About 7 all up. Interviewer: Do you know what product shrinkage is? Customer Implementation Executive: Yes. Interviewer: How can you break-down product shrinkage? Customer Implementation Executive: In relation to our company, its mostly in relation to stolen or damaged goods. It can be definitely be involved in fraud where we saw Mars have the big problem where someone had an extortion against Mars Bars and they had to pull all their products off the shelf. Interviewer: So this was a successful extortion attempt? Customer Implementation Executive: For the extortionist, yes definitely. Interviewer: What items constitute the most to product shrinkage in your organisation? Customer Implementation Executive: Deodorant, theyre a high-value item, dollar value and theyre fairly easy to steal. And most of our skin care range like the Dove products because some of them can be quite small and again at a high dollar value theyre the easiest ones to steal, as opposed to a laundry liquid which is a bit hard to put in your pocket. Interviewer: Is it of a major concern to your organisation? Customer Implementation Executive: Yes, from the aspect from our smaller retailers such as IGA where theyre individually store owned, because sometimes they might not actually want to carry items which are high-risk to be stolen, so they wont want to carry all small Dove products, because they, at the end of the day have to pay for shrinkage on

143

it, so theyre better off not carrying it. In larger companies like [large retailers], not so much of a concern from our end. Interviewer: How are products monitored through the supply chain from supplier to retailer? Customer Implementation Executive: All our products are packed in inners and outers. So an inner of deodorant would contain 6 cans which is the standard throughout all our deodorants. And then the 6 themselves are placed into an outer, depending what product there may be 12 inners per outer, so theyre not packed loosely, theyre quite easy to monitor because of instead of monitoring 144 units youd monitor one outer. Interviewer: What category of shrinkage is the main contributor? Customer Implementation Executive: Definitely the stolen and the damaged. We also sometimes have a bit of problems with rotation of stock. Not so much from our end, but when it goes into the retailer its hard to get the retailers themselves to rotate the stock. We can send out reps to do it for us, but depending on resources that may not always be a priority. Interviewer: In what part of the supply chain does most product shrinkage occur? Customer Implementation Executive: Definitely in the retail outlet. I cant really comment too much on what happens in our distribution centre itself. But we have a fairly good idea what we send to the [the Retail Organisations] distribution centre for example, and then what they send out from their stores we can get involved in that, its more from a consumers perspective in the retail outlet. Interviewer: What are your current strategies for overcoming product shrinkage? Customer Implementation Executive: At the moment it just on barcoding. So we can monitor stock quantities via barcoding but we dont have any alert system when you walk through the register on any of our products to our knowledge. Interviewer: Are these strategies working? Customer Implementation Executive: As far as monitoring stock levels, yes they do. We can see how many a store has received and then via stocktake how many have been lost due to shrinkage, but as far as deterring theft, no I dont think they help. Interviewer: The current EAS systems which are used in retail would you say they are a deterrent or a total solution? Customer Implementation Executive: Definitely just a deterrent. Interviewer: How big is your supply chain in terms of geographical boundary? Is it local, regional, national, international? Customer Implementation Executive: Its massive. Its definitely on an international scale. Some of our products are produced overseas and brought into Australia, though we do produce most of the stuff here ourselves, which is distributed nationally from local warehouses. So we have all over Australia, Victoria produces most of our dry foods whereas New South Wales distributes most of our deodorants all over Australia.

144

Interviewer: How many transactions are generated daily or weekly between your organisation and your customers? Customer Implementation Executive: I would at a guess say it would be thousands. We call over 6000 outlets in Australia with daily orders that are being placed by all. [The Retail Organisation] have only a number of distribution centres in each state, so they tend to order through the distribution centre, we send our stock to the distribution centre and then they organise to the store, so we dont get involved in the store-to-store orders. But yeah, thousands and thousands of units daily. Interviewer: Have you heard of Radio Frequency Identification? Customer Implementation Executive: Yeah Ive heard of it before. Interviewer: On what type of products is the system used? Customer Implementation Executive: Not currently to my knowledge being used on any of our products. Interviewer: In terms of new Gen-2 RFID systems. Do you know about the latest RFID systems and their benefits? Customer Implementation Executive: Ive got a rough idea. I know one of our competitors uses it on their razor blades, which Ive just noticed personally, seems to keep them on the shelf because theyll beep if someone takes them out of the store. Thats all I can tell you on that one. Interviewer: Could the new RFID systems provide a better solution than the EAS tags? Customer Implementation Executive: Yes, I think it could because it could give you a total view from production to being sold to the consumer, while at the moment its very narrowly focused. You can look at the retailer and say they were sent X-amount of products and X-amount have walked through the door, but you cant look at that from an overall perspective. So if you can manage it form start to finish, youre going to be able to strategise a lot easier. Interviewer: Do you think that RFID could be used to combat product shrinkage? Customer Implementation Executive: Yes, definitely 100%. Interviewer: Do you see your organisation being interested in investing in such a solution? Customer Implementation Executive: I do, but in our case I think it would more benefit our customers being your [large Australian retail organisations] and obviously it would be at an enormous cost for us to implement such an activity. So I would have an expectation that [large Australian retail organisations] would come to the party in that end and cooperate in a solution, it wouldnt be solely up to the supplier, there would be an initiative generated by them. But yes, I think definitely it would assist in the overall solution and save money for all parties involved. Interviewer: Do you think there are advantages of RFID over barcodes? Customer Implementation Executive: Yes, definitely. For the previous answer where you can manage your strategy from start to finish.

145

Interviewer: If your organisation introduced this new system, would you mandate your suppliers to use the technology as well? Customer Implementation Executive: Bit of tough one, because most of our stuff is produced ourselves, we manufacture it from raw materials. So if we implemented it across our own business it would be internally managed. Some of your things are manufactured overseas, but I believe its more the product, like if you look at a soap, the soap itself may be manufactured overseas but packaged in Australia. So the RFID could be integrated in the packaging within Australia. Interviewer: Have you looked into any standards for these systems? Customer Implementation Executive: No, not as yet. Interviewer: In what ways do you see RFID being integrated into business? Would RFID take the place of any manual practices? Customer Implementation Executive: Yes, definitely. If you look at what we mentioned earlier with the product rotation where we wouldnt have to send our reps into rotate the stock, we could save on a lot of hours there. If we could minimise damage to products, where people take the cap off and smell the deodorant and put it back on the shelf. Once you spray that deodorant its considered to be a damaged product. If we can provide total solutions to that we are going to save, people having to take that damaged product off the shelf, or writing out a credit. Yes, I can see a lot of hours being saved there. - End of Transcript -

146

Appendix F RFID Vendors & Associations Interview Transcripts

Note: Any names that could be used to identify an individual RFID vendor or association were replaced with generic names.

Interview #12 RFID Vendor 1 Business Development Manager

Interviewer: What is your role in the organisation? RFID Vendor 1: Business Development Manager Interviewer: How long have you been working for this organisation? RFID Vendor 1: 9 months. Interviewer: How long have you been working in the IT industry? RFID Vendor 1: 15 years Interviewer: And working with RFID? RFID Vendor 1: No, not particularly, working with the mobile computing industry, movement of products from point A to point B. Interviewer: Do you know what product shrinkage is? RFID Vendor 1: Yes, I do. Interviewer: From your knowledge, what category of shrinkage is the main contributor? RFID Vendor 1: Depending on the industry, probably lost and stolen, as well as damaged. Interviewer: What types of products contribute most to product shrinkage? Are they high-end products, small products that can be easily hidden? RFID Vendor 1: Generally, the high-end products in particular say for a retail environment, razor blades, batteries, things like that are small, someone can slip into their pocket and are of high-value. Interviewer: From your knowledge, in what part of the supply chain does most product shrinkage occur in retail? RFID Vendor 1: At store level. Interviewer: The current EAS systems which are used in retail would you say they are a deterrent or a total solution?

147

RFID Vendor 1: I think its a bit of both. A lot of people who are in the game of putting things in their pockets tend to avoid the EAS systems by aluminium foil over the tags. Its always going to be around, but monitoring your stock obviously, theres a lot to it. Interviewer: How many customers do you have approximately? RFID Vendor 1: Probably about 8000. Some of those are large customers, others are very small who might buy a barcode printer or some labels off us. Interviewer: How many of those are retail customers? RFID Vendor 1: End-user retail, not that many. We do a lot work within the distribution centres for retail organisations. Interviewer: Are they asking for RFID solutions? RFID Vendor 1: Everyone is asking for RFID solutions, yet they dont understand the technology, whats involved, theres been a lot of hype, everyones looking at it, they want to be the first to implement it. As long as the business benefit is there, theyll jump at it. Interviewer: What kind of things are they asking for? RFID Vendor 1: Generally, the cost of a tag or in particular label which is something to consider, but because of the hype in the industry over the last 5 years, its sort of fallen in to a bit of a hole. People are saying I already know that, Ive been to seminar, it doesnt work that well, so its caused, I think a few problems for the vendors, no doubt. Interviewer: What would be the main driver to adopt an RFID system in retail? RFID Vendor 1: Maybe product shrinkage, but the movement of products from point A to point B. In Australia, I think the retailers have invested an immense amount of money in moving their products from their distribution centres out to their stores and they do that quite well in this point in time. I think itll take a fairly low cost tag and cost-effective reader for them to implement an RFID system. Interviewer: How easily can an RFID system be deployed in one single supermarket? RFID Vendor 1: Tagging every product in there? Interviewer: Yes. RFID Vendor 1: Youd have to sit down and have a really good think about it. We are a long, long way from tagging every product in the store, putting it into a basket, putting it in your shopping trolley and walking through a portal of some sort. I sat through test, where we were only looking at the Wal-Mart initiative, depending on where we place, or what type of label and antennae configuration we put on a carton, we get different read results on a pallet. So, if we take a Coke bottle and put an RFID label on one side and have the reader and the antennae sitting on the other side, move that box around we get a different reading every single time. So, I think, at store level, its probably even worse, but for certain products, yes. Interviewer: What are the stating costs for an RFID system?

148

RFID Vendor 1: The readers generally cost somewhere in the vicinity of about $5000. The antennas and all the ancillary devices and components cost another $2000, plus your tag costs. To build a portal youre looking at roughly $10,000, thereabouts and thats with some input/output sensors, roughly about that. Interviewer: So can a retailer expect to minimise product shrinkage using RFID? RFID Vendor 1: I think eventually, I dont think the technology is there at this point in time to actually easily and cost effectively put it in place to minimise product shrinkage. Interviewer: If the technology has so much to offer, then why have we not seen any major Australian retailers adopt RFID? RFID Vendor 1: Because it costs a lot of money. Its a fair question, its true it costs a lot of money. I went into an organisation who does commercial relocation. They wanted to move products from their office to a new location, theyve got roughly 20,000 or 30,000 bins and tools or assets that they use to move offices and provide relocation services. It would have cost them roughly about $150,000 to implement an RFID system to track and make sure they dont loose any of their assets in the relocation services that they provide, yet they could have done it for $22,000 by slapping a barcode on the actual asset and hand-held scanning it. So there really has to be a business case, and I think people really need to understand that. And you see that today with most of the vendors who provide the technology they wont ad-hoc provide services and pricing unless theyre engaged in the business process of the organisation thats looking at adopting RFID services. Interviewer: Do current EAS systems play a role in supply chain management processes? RFID Vendor 1: No, not in the supply chain process. Thats my understanding, its more for product shrinkage. I think, RFID will actually play a role in supply chain processes because you will be able to, assuming that its an ideal world and an ideal product, you will be able to track and trace a particular product at item-level through the whole supply chain process. That was the goal of RFID originally, where we could drink a can of Coke, hop on to the Net and find out exactly where it comes from, what batch it was part of, what product date and all these other details, obviously on the Internet. But obviously, thats a gigantic amount of data which will make people like Oracle very happy. Interviewer: And product recalls? RFID Vendor 1: Product recalls is definitely, I think, its probably one of the biggest pushes in RFID and we are seeing that a lot in the pharmaceutical industry. And the SSCC label that most retailers use right now does provide some form of protection in a product recall, but RFID would improve that dramatically. Interviewer: Is RFID hype of reality? RFID Vendor 1: Its a bit of both. For certain situations and certain scenarios its definitely a reality. On the proviso one youve got, today, if youve got a high-value asset and youve prepared to spend a percentage of that asset on a very good tag you will be able to implement RFID quite effectively. Interviewer: Who has the most to gain from RFID implementation, the retailer, customers or both?

149

RFID Vendor 1: Both I think. If you hadnt barcoded everything, in an ideal world again, put an RFID solution, youd improve youd costs dramatically from a service providers perspective. And if you took something, you eat something or you took a drug that was obviously that there was a problem associated with it, then youd be very happy as a consumer that you could find out where is was actually manufactured, what batch it was part of and so forth. Interviewer: The amount of money I have heard that is lost is just unbelievable? RFID Vendor 1: Look, product recalls cost millions and millions of dollars. Consumers end of paying, in respect to what anyone says. The shareholders will probably be the happiest, a lot of the public larger organisations and I think the consumers going to end off paying for it anyway. Interviewer: In what ways do you see RFID being integrated into business? RFID Vendor 1: With the supply chain arena and the movement of goods. RFID has been around for a long time, if you look at the tags that weve got, the forms of technology have been around for along time, its just improving the technology to meet specific business requirements within different areas of industry. Interviewer: Could 2nd Generation RFID systems provide a better solution over traditional EAS systems? RFID Vendor 1: I think so, I think the manufacturers of the technology are doing their best and investing a great amount of money into improving the technology. I think its only going to get better and its only going to get more cost effective, which means eventually it will be implemented. And I think the initiative of the Department of Defence in the U.S. and the mandate of Wal-Mart are pushing things along. Interviewer: Do your products adhere to any standards? RFID Vendor 1: Yes, they are all EPCGlobal. Interviewer: Do you think RFID can be used with any additional technologies? RFID Vendor 1: They have, I mean RFID is an extension of a barcode. Barcode at the moment contains X amount of characters, obviously 8 to 13 depending on the product type and an RFID tag will allow us to put more information on the same sort of label. So if you want it to contain X amount of data, you can. I think its complementary in the fact that a lot of people are using barcodes and a barcode reader, the manufacturers have taken this into consideration and theyve put RFID readers that can be connected to the barcode readers that theyre got at the moment, and that makes sense, so basically a snapon tool. Interviewer: What are the other perceived benefits that RFID can offer your customers, beyond minimising product shrinkage? RFID Vendor 1: Basically, its understanding your business and a hierarchy within an organisation will be able to report on the movements of their products and understand their business and how it moves. Its also a self assessment, you will be looking at things that you didnt consider and in a large organisation youll have access to that data now very, very quickly and you can make decisions that effect the business immediately. - End of Transcript -

150

Interview #13 RFID Vendor 2 Systems Engineer

Interviewer: What is your role in the organisation? RFID Vendor 2: Im a Systems Engineer with [name of Vendor], which basically means I do technical support within the sales cycle, so pre-sales tech support. Ill get a solution to the point where its been designed and signed off with the customer, then Ill have that solution off to our technical support team. Interviewer: How long have you been working for this organisation? RFID Vendor 2: 4 years. Interviewer: How long have you been working in the IT industry? RFID Vendor 2: 5 years. Interviewer: How long have you been working with RFID technology? RFID Vendor 2: Just over 2 years now. Interviewer: Do you know what product shrinkage is? RFID Vendor 2: Absolutely. Interviewer: How can you break-down product shrinkage? RFID Vendor 2: My prime experience of product shrinkage has been from a retail perspective before I got into IT, I was in the retail industry. So, shrinkage through theft, damaged goods, overdue items, past due date items. Since I got into IT, I have been doing a lot in the supply chain, so there is obviously damage within transit, misrouted or otherwise lost goods throughout the supply chain, incorrect numbers shipped, over shipped, under stocked, all that kind of stuff constitutes product shrinkage. Interviewer: From your knowledge, what category of shrinkage is the main contributor? RFID Vendor 2: In the actual retail side of things it would actually be loss through theft, throughout the supply chain, there are lots of others, but the main one from the retail side of things is loss through theft. Interviewer: From your knowledge, what items constitute the most to product shrinkage in the retail industry? RFID Vendor 2: Usually its things like razor blades, high value, but easily concealed. Interviewer: From your knowledge, in what part of the supply chain does most product shrinkage occur in retail? RFID Vendor 2: A lot of shrinkage does occur at the retail side of things, but there is probably significantly more, maybe not in terms of dollar value but certainly in terms of volume along the supply chain route, from point of manufacture to distribution and down to the retailer.

151

Interviewer: The current Electronic Article Surveillance (EAS) systems which are used in retail would you say that they are a deterrent or a total solution? RFID Vendor 2: Theyre more of a deterrent. Just a yest-form of RFID, but its a closed-loop system, so rather than being part of a supply chain system, its sole purpose is to deter thieves or to bust thieves. Interviewer: How many customers do you have? RFID Vendor 2: Within Australia, I honestly dont know. Several thousand, possibly up to 5 or 6 thousand, possibly more. Interviewer: How many of those are retail customers? RFID Vendor 2: Within Australia we do a lot of work with [large retailer], [large retailer], as well at tier-2, tier-3 retail. In the U.S. we deal with a lot of a certain large U.S. retailer, who were not suppose to talk about. In the U.K. [large retailer] and [large retailer] we do a lot of work with those guys as well, so retails been one of our main holdfasts throughout the company Interviewer: Are they asking for RFID solutions? RFID Vendor 2: A certain large retailer in the U.S. certainly is. Locally a lot of people are doing a lot of pilots and dipping their feet in it. I dont think locally or in the European Union well start to see much in demand at the retail side of things, until we see some real cadence down from whats going on with the Wal-Mart initiative in the U.S. I think there are two things that could happen with RFID in Australia the way I see it on the retail side of things. One of them is that Woolworths or Coles will come out and say, similar to Wal-Mart, we have to put RFID tags on your pallet, otherwise its not going to cross our dock. Or the other thing is enough Asian manufacturers are going to be putting on RFID tags at the point of manufacture. That it makes sense for retailers down here to put up the infrastructure to read those tags. So with this obviously, Im talking about the EPC standard of tag. Interviewer: What would you say would be the main driver to adopt an RFID system in the retail industry? RFID Vendor 2: Efficiencies and supply chain. The big thrust of RFID within retail and within the supply chain is it gives you better visibility and more up to the second visibility of where your stock is, so yeah, definitely that back-end side. Interviewer: How easily can an RFID system be deployed in one single supermarket? RFID Vendor 2: At a high-level, very, very easily, when it comes down to an integration with a back-end system and integration beyond that back-end system into a supply chain, it becomes a lot more complicated. If were just talking about putting up a check-point system, putting up a couple of antennas and tagging some items, very, very simple. But its the integration of that physical hardware into a total solution that it becomes a lot more complicated. Interviewer: How easily can an RFID system be deployed within an entire grocery retailers supply chain and in their stores? RFID Vendor 2: Thats where the effort comes in. If we just look at the simple hardware, [name of Vendor] is a hardware manufacturer, so we partner with someone like

152

a BEA, or SAP, Oracle for them to do the middleware or the actual communication between the tag and whatever WMS or business system is running in the background. But just from a hardware perspective if were looking at a distribution centre, where weve got multiple docks, up to 30 docks, or 30 bays where a truck can pull in to get loaded up, it does become a lot more complicated, because weve got a lot more fine tuning that we need to do in terms of just managing. Ok, Ive got dock door 1 and 2, if Ive got a tag going through dock door 1, I want to make sure that it doesnt get seen in dock door 2, and bleed, cross-over, multiple reads, things like that. It is hugely complicated, if were talking about a full supply chain. Interviewer: What is the starting cost for an RFID system in a small supermarket? RFID Vendor 2: So if were just talking about putting up a reader, probably, one reader and a couple of antennas, probably no more than 10 grand. Once you start bringing tags in to the equation, the magic number in the industry is 10 cents a tag, we are still way off that. [Asian capital city] airport is certainly our largest customer in terms of RFID. Interviewer: Tagging luggage? RFID Vendor 2: Tagging luggage, Yes. And their purchasing hundreds of thousands of tags at around about 15 20 cents a tag. Its the tag cost that does sting, especially when youre comparing it to things like barcodes. Interviewer: Can a retailer expect to minimise product shrinkage using an RFID system? RFID Vendor 2: Probably not at the store end. If we are looking at a retailer as in the entire retail supply chain, like Woolworths, definitely we can streamline things between the DC and the store. But, I dont know if it will be a shrinkage minimisation thing or a just more a process efficiency thing. RFID will certainly help eliminate over-stocks and under-stocks of products, which can have an affect to shrinkage, but I dont think it will have a direct affect on shrinkage, more an indirect thing. Interviewer: If the technology has so much to offer, then why have we not seen any major Australian retailers adopt RFID? RFID Vendor 2: Cost. Its the initial start up costs that is really the thing that has been slow to get people moving on it and the fact that we have had a lot more of an interesting time getting the EPC standard ratified and through regulatory. Everything that [name of Vendor] does is EPC focused. We bought a company, two years ago called [company name withheld #1], who was one of the big two in the EPC game at the time. The other one company being [company name withheld #2] and theyre still around. So between, [name of Vendor] and [company name withheld #2] theyre the big two now, in terms of RFID. There are some other places; Intermec does it, Thing Magic. But certainly in the EPC game, we like to think that were right at the forefront and thats the only space we play in. Now because EPCs a global standard, the standards capable of going over a whole wide slice of the RF spectrum. In Australia, were not quite up there with Japan, but were certainly light years ahead of the U.S. in terms of spectrum allocation. So in the U.S. buy a reader, plug it in, turn it on, no problems. In Australia, that spectrum overlaps a lot with the Vodafone telephone spectrum. So were still at a point where to set up an RFID site we need to license that side through the industry body GS1 and the ACMA. So its still a little bit fiddly and that process is only been sorted out in the last 12 months. Interviewer: Yes, Ive seen the GS1 business case study.

153

RFID Vendor 2: Yes, so theyre been doing the demonstrator network for quite a while. Interviewer: In terms of Gen-1 RFID systems, would you say that EAS is classified as a Gen-1 system? RFID Vendor 2: Look theres quite a lot of RFID that could be classified as Gen-1. When we talk about Gen-1 internal to [Vendor name], we talk about the first wave of EPC technology, being the first tag and reader technology that was ratified as EPC by [company name withheld #1 & #2]. Obviously, prior to that theres been 50 years plus of RFID systems, going back to World War II. Certainly you could call EAS a Gen-1 system, in the same way that an access pass is, sort of, a Gen-1 RFID system. Its a closed-loop system, data comes in off a tag, gets read by a read point and thats where it begins and ends. Interviewer: Do current EAS systems play a role in supply chain management processes? RFID Vendor 2: EAS in supply chain havent seen it. Interviewer: In terms of Gen-2 RFID systems, is RFID hype or a reality? RFID Vendor 2: Its a reality, absolutely. Interestingly enough, its more of a reality in industry like airports because theyve already seen real PCO advantage and real ROI from the systems theyve implemented. In terms of retail, I think it will have one of those more long term approaches. But yes, its definitely a real thing, Hong Kong airport, McCann airport, Seoul airport, theyre already starting to see real return on investment and real cost savings through using an RFID system. Interviewer: Who has the most to gain from RFID implementation; the retailer, customers or both? RFID Vendor 2: The fluffy answer is the customer. Realistically the retailer has the most to gain. At the end of the day, implementing an RFID system adds cost to the supply chain. Because a barcode, we run off barcode systems now, and a barcodes costs pretty much the ink that we use to print it. An RFID tag will cost, 10 cents, 15 cents, 20 cents, ideally 10 cents per case or per item potentially and that will bump up the cost throughout the supply chain. Obviously, the retailer can recoup that cost going through the supply chain, whether or not it will get to that cost saving enough that it cascades down to the customer, I think thats a few years off. Interviewer: In what ways do you see RFID being integrated into business? RFID Vendor 2: Within a retail supply chain, cross-docking. So well start at the point of manufacture. Point of manufacture is the obvious one. Tag an item so a manufacturer has greater visibility of work in progress and inventory. So if were doing item-level tagging, theres a company in the U.S. who we work with called [company name withheld] Pharmaceuticals and its a great case of it. They will tag their drug vials or drug bottles at point of manufacture, so they know at any given point in time, theyll have readers throughout their manufacture process saying that this vial is at this stage of the manufacture process. Or it is part of this consolidated box, or that box is part of this consolidated pallet in our warehouse. Going from there to a distribution centre, crossdocking the distribution centre, so receipting of goods and goods out-bound, theres a huge, huge, benefit from RFID there, simply because it removes the human interaction on the system as the pallet full of RFID objects goes through, we read the pallet tag, at pallet breakdown we read the carton tag and obviously at item breakdown we read the item tag

154

and a lot of that can happen without human intervention. And then going down to the retailer, I dont see it happening at the shelf edge, although theres been talk of doing it with people like Tower Records or HMV in the U.K. were talking about it. I think thats a long while off, I think it will stay as a behind the scene sort of thing for a while yet, certainly in the retail environment. Interviewer: Theyre all generic products I suppose that they sell at HMV, theyre all the same, theyre all CDs, theres no size variation or substance variation. RFID Vendor 2: The other reason I think its going to stay at the back-end too, is that customers are afraid of it. The big case is, almost two years now, is United Colours of Benetton when the EPC standard was first ratified, Benetton said this is great, were going to embed an RFID tag in all of our clothing and set up infrastructure in all of our stores so that when you walk back in we know that youre a size 14 large, you like orange, you have these attributes, that we can tailor our selling to you. And consumers just went absolutely ballistic about it in the U.S., they didnt want a bar of it. So, there is still that sort of I dont want big brother keeping an eye on my actions factor. Interviewer: Do you think that RFID could combat product shrinkage? RFID Vendor 2: Look, RFID as a technology already is with the whole checkpoint thing or with semi-active tags. EPC RFID, probably not, although there will be a cadence throughout the supply chain where it does have a positive effect on shrinkage. Interviewer: Could newer 2nd Generation RFID systems provide a better solution over traditional EAS systems? RFID Vendor 2: Look, once we get to the point of item-level tagging and I think were a long way off item-level tagging of every item in a supermarket, yeah absolutely, it will certainly streamline things, even to the point of making checkout easier. Once we get to the point of tagging the world, once we have ubiquity of RFID tags, in the same way we have ubiquity of barcodes, yeah absolutely, it will speed up checkout, it will integrate to that front-end of the store, where we will know that someone is walking out the door with a case of Coke they havent paid for, or a box of makeup they havent paid for or whatever. Getting to that point of ubiquitous item-level tags, were a good long while off just yet, because it does add to the cost of the item. Interviewer: This may be obvious, but what are the advantages of RFID over barcodes? RFID Vendor 2: Its actually an interesting question, because there are pros and cons either way. The big pro for barcoding is it doesnt cost you anything. RFID steps in and we can do things like, the acronym use to be OHIO, Zero Human Intervention Operation. So we can streamline processes and remove necessity for a guy to stand there and scan a barcode. We can do, not necessarily line-of-sight scanning. We can do multiple scans at once, we can consolidate things down. Effectively in its current form in a lot of systems RFID is being used as a non line-of-sight barcode effectively. The data in it just being a licence plate boarded through a supply chain system. But when you get down to the point of item-level tagging it becomes very, very handy, especially when were doing things like product recalls. Interviewer: If you introduced a new RFID system for a retailer would you request that their suppliers also use this new technology? RFID Vendor 2: Absolutely, with the technology that we have today it makes absolutely no sense for a retailer to implement a closed loop system. Fair enough with the

155

checkpoint stuff. The checkpoint RFID system continues to add value through the whole shrinkage thing and will do until such time as every manufacture is putting EPC tag on their items. If were talking about the supply chain side of things, it makes no sense whatsoever for a retailer to say Ok Im going to put some tags on my dock and some readers on my dock, its going to be a closed loop system, Im not going to give my suppliers Interviewer: Its similar to the EAS? RFID Vendor 2: Exactly. Interviewer: Do your products adhere to any standards? You said EPCGlobal. RFID Vendor 2: So were at Gen-2 of EPCGlobal now. Interviewer: Do you think RFID can be used with any additional technologies? RFID Vendor 2: Yeah, absolutely. There are a lot of guys in the U.S. doing some interesting stuff by consolidating RFID tags with slightly more complicated systems. Even locally, there was a guy locally looking at taking a container tag, so your 30 foot shipping containers, taking an RFID tag, embedding that in a secure lock so we know if the container has been tampered with and also embedding into that lock GPS systems, or temperature system or additional system such that at any given time we can query that tag and drill out a little bit more data. Interviewer: What are the other perceived benefits that RFID can offer your customers, beyond minimising product shrinkage? You touched on some before. RFID Vendor 2: The obvious one being supply chain efficiency. Because we, as a manufacturer of the hardware have such a diverse client base, in retail and supply chain the big one is, obviously shrinkage and supply chain efficiencies, streamlining that whole back-end process. When were dealing with transport and logistics, companies like Chep and pallet tracking its an asset visibility thing, so theyll have 50, 60, 70 thousand pallets in a warehouse or out in a field at any one time. Given conventional accounting standards, its becoming necessary for them to know at any given time where all these pallets are. So for them its very much a visibility thing. For the airports, its a cost saving things. Not necessarily; do I know that this bag is going to the right place? More a case of, I know this bag is suppose to go over here and getting it there quicker. So there are a lot of different benefits depending on the industry vertical. - End of Transcript -

156

Interview #14 RFID Vendor 3 Managing Director

Interviewer: What is your role in the organisation? RFID Vendor 3: Managing Director. Interviewer: How long have you been working for this organisation? RFID Vendor 3: Since about January 2006. We kicked off January this year, basically Im re-selling software from Singapore, its all developed there and I saw a niche in the market here, had to find an investor and I did with the [company name withheld] and thats its factory here and the one over on the other side there. You might ask why them? And theyre basically, one part of the business, in paper rolls distribution for ATMs, receipt printers all of those sort of things and they also do a lot of security document work, so vouchers that sort of thing, cheques anything which is using antifraud technology basically. So really we just launched the business at RFID world, at the show. Interviewer: How long have you been working in the IT industry? RFID Vendor 3: About 10 years. Interviewer: And with RFID technology? RFID Vendor 3: No, I basically started out developing print management databases with [company name withheld] and moved into RFID only recently. Interviewer: How long have you been working with RFID technology? RFID Vendor 3: Well researching it about 18 months. Interviewer: Do you know what product shrinkage is? RFID Vendor 3: Yes, I do. Interviewer: How would you break-down product shrinkage; what constitutes product shrinkage? RFID Vendor 3: Anything that represents a loss of a physical asset. Interviewer: From your knowledge, what category of product shrinkage is the main contributor? RFID Vendor 3: I dont know and I dont believe anybody knows. I tried to get figures out of the New South Wales Police on fraud, they didnt know; the New South Wales Retailers Association, they didnt know. Everybodys very helpful and I got quite good contact in both areas because I was up until last year the President of [company name withheld] which is now defunct pretty well. Its an electronic document system association with the headquarters in the States. So I got to meet a lot of Police through that because we got to look at a lot of document fraud as part of the programmes which we put on. We put on conferences once or twice a year. So coming back to your original question, nobody knows. I think its really as simple as that. And the real issue is there

157

hasnt really been a way to measure it. And one of the things that RFID can do is actually assist you in measuring it. Interviewer: From your knowledge, what items constitute the most to product shrinkage in the retail industry? RFID Vendor 3: I think trucks disappearing is a big one and I say that because I actually analysed a couple of companys who have had those problems. Youd be surprised what gets lost, trucks just go missing. And very often it is the result of their own business systems. When I say they go missing, you might get double deliveries at one place and of course the person just signs them off and they put them in the warehouse and of course none of the paper work matches up nobody knows where the stuff is, but its there somewhere. Interviewer: The current EAS systems which are used in retail would you say they are a deterrent or a total solution? RFID Vendor 3: Theyre immediately a deterrent. Theyre not a total solution. To get a total solution you actually need to track everything from the point of manufacture, you need to tag it at the point of manufacture effectively if you can and then integrate it throughout the entire supply chain. Interviewer: In terms of your business. How many customers do you have? RFID Vendor 3: Two at the moment, but weve got a few prospects. We are actually targeting document management as one of our areas, and records management, because we believe there are significant savings that can be delivered to companies if they track their documents properly. Interviewer: Using RFID? RFID Vendor 3: Using RFID. Mostly documents that are placed into storage. For instance, depending what state youre in and what legislation you come under youve got to retain documents for a period of time. If you look at legal firms for instance most of them dont have decent document management systems. What they tend to do is say that the matter is closed once they get paid for it, whereas the matter is actually closed once the judgements made. So theyre keeping documents in storage for 90 days, 120 days in some cases. Ive got a little calculator that works out what is costs them depending on what theyre paying and its hundreds of thousands of dollars for major firms. That only really applies to the legal industry, but it also applies to accountants and government departments and anywhere there is record retention legislation in place. Interviewer: So these two customers, are any of those retail customers? RFID Vendor 3: No, theyre not. Well ones the [name withheld] Academy the other is the [name withheld]. Interviewer: Do they sell products at all? RFID Vendor 3: They sell knowledge. Interviewer: Are they asking for RFID solutions? RFID Vendor 3: Basically they bought starter kits. People are looking at RFID. I think one of the issues is that theres been a lot of press about it, particularly coming out of the

158

States and the savings that can be made. Most of the people that I talk to are waiting for somebody to mandate as the Department of Defence and Wal-Mart have done in the U.S. I also think that once I think itll happen. But I also think that when it will happen there arent going to be very high margins in the business because there is going to be downward pressure on tag prices and youll get a lot of people scrambling for the same contracts. So were actually pitching into a niche market. Interviewer: So theyre asking for starter kits. Are they asking for anything else besides RFID systems? RFID Vendor 3: No, I don think RFID systems are well understood. I think people understand barcode systems, but I dont think people understand what RFID can actually deliver. And what it does deliver is empirical evidence, of traceability of whatever, so that you can actually be sure of your numbers. Interviewer: What would you say would be main driver to adopt an RFID system in the retail? RFID Vendor 3: The main driver is return on investment. Profit is the driver of all business. Interviewer: And the benefits of RFID besides ROI? RFID Vendor 3: Well youve got transparency. It makes things easier to manage. I was looking at a brief period; a guy got bitten by a spider, this is about 2 years ago I think. He had to go to Bankstown Hospital, Liverpool Hospital and basically by the time when he got to a place where they had the right serum that wasnt out of date. He lived. But the point was they were moving the patient instead of moving the serum. If you tag all the serum you know where it is, you can move from Hornsby Hospital to Bankstown, within a couple of hours. Interviewer: So RFID for use in the pharmaceutical industry? RFID Vendor 3: Well yes, pharmaceuticals is a very good example. In particular with healthcare and where youve got a limited amount of resources and you need to ship those resources quickly to the point of need. If you know where everything is then you can do that. This also applies to retail as well. Out of stocks are a big issue for them. I guess the point Im making here is that you can manage your procurement more efficiently. So if you look at perfume for instance which basically doesnt cost much to make. If you look at it as a business its actually driven by marketing and yet it sells for a lot of money. Now if you find that youre selling well in one part of the city and youre not in the other part and youve got chain stores youre going to move the perfumes to where it is selling, its sort of marketing rule 101. Interviewer: How easily can an RFID system be deployed in a single supermarket? RFID Vendor 3: As I said before you actually have to start it, whether you are tagging at the product level or the item level youve then got to have a system that all of your suppliers will comply. So to roll-out a system like that, and this is one of the reasons why it hasnt been done here, and it has been done in the States is because its mandated. And nobody is going to do it here until that happens. However, if you look at the mergers that are going on at the moment, people are thinking about buying out Coles it may well happen. And my view is its only a matter of time. Interviewer: To deploy a system as the moment is quite expensive.

159

RFID Vendor 3: Well in there, he puts it between two hundred and half a million basically. To get a return on investment on that, youve got to do some tricky numbers. Interviewer: People I have spoken to say some organisations have lost up to $360,000 in a single store in 6 months, due to product shrinkage, theft, warehouse discrepancies and things like that. RFID Vendor 3: Yes, thats right you should see what the banks lose on fraud. Interviewer: Especially with the Internet. RFID Vendor 3: Well just identity theft. Well you know the banks dont actually do anything about it. They just pass on the cost to the customers. Interviewer: Can a retailer expect to minimise product shrinkage using an RFID system? RFID Vendor 3: Certainly. Interviewer: And if so, what would be a specific example how product shrinkage can be reduced? RFID Vendor 3: Well as you said before if anything walks out the door you know. I mean its blindingly obvious really. Interviewer: If the technology has so much to offer, then why have we not seen any major Australian retailers adopt RFID? RFID Vendor 3: Well weve sort of covered that I think. It is an enormous logistical exercise and that is one of the big issues. And the National Demonstrator Project (GS1), do you know that? Well thats really the beginning Interviewer: Thats the first Australian Case Study? RFID Vendor 3: Yes, it is. Yes thats right. And that will extend out, people need to see proof they need hard evidence or hard facts if you like that its going to be beneficial. And then theyve got to struggle with the implementation of it. Interviewer: The manual procedures that are involved with EAS at the moment in retail they are putting the tags on by hand. But some products, like Pantene and some batteries do come from supplier tagged, but most are put on in-store. So do new RFID systems encompass many manual procedures, or would they all be automatic? RFID Vendor 3: No, youd automate it. The first thing is you need to tag coming from the manufacturer or the packager, packager probably. But thats certainly the best way to do it. Interviewer: In terms of the latest RFID systems is RFID hype or reality? RFID Vendor 3: Its real. Interviewer: Who has the most to gain from an RFID implementation, the retailer, the customers or maybe both?

160

RFID Vendor 3: It depends on the structure of the company whether its a public company or a private company. Generally, if its a private company the company benefits. If its a public company the public benefit. But what it does is it just ensures system integrity. Once youve assured your systems integrity your business should run like clockwork. They never do. If you look back 15 years ago before barcodes were introduced and see how barcodes changed everything. Barcodes can be used in conjunction with RFID just to build redundancy into the systems. Interviewer: In what ways do you see RFID being integrated into a retail business? RFID Vendor 3: Well they have already got smart shelves. One of the hardest overheads is people and people doing work that is better done by machines. So I guess you automate where you can and let people get on with things that people are good at. Interviewer: Could newer 2nd Generation RFID systems provide a better solution over traditional EAS systems? RFID Vendor 3: Certainly. With EAS youre actually tracking people rather than the product or the item. Because the person has got to move it out the door. Whereas, you can go as far as smart shelf systems and smart trolleys. I think what will happen is that as RFID becomes part of retail, and you can also deliver that data to the Web, that itll just open up a lot of areas in particular in terms of customer loyalty and that sort of thing. One of the systems weve got, basically its a CRM system and you can build loyalty programs into it, and I think theyll grow. They are very popular in the States but I dont know if they took off here that well. But knowing the amount of card manufacturers out there and the amount of cards that they are putting out for loyalty programs that will expand. Also say youre in a fast-food outlet, basically you want to get in and out quickly. If youve got your card youre getting a discount, you go up, I want that, that and that, it immediately goes back and prints out in the kitchen and its 3 burgers and chips. And then its delivered up front, youve saved maybe a minute, 2 minutes. Thats the difference between 3 or 4 customers over peak lunch time. Interviewer: I know we have touched on this, you said visibility, but what are the advantages of RFID over barcodes. RFID Vendor 3: Well you cant program barcodes and barcodes are dead easy to reproduce. There is a fair bit of barcode fraud that goes on, once you know a shops barcode, all you need to do is go in and take your own and put it over theirs and walk out with it and nine times out of ten the checkout person wouldnt know. Interviewer: Do your products adhere to any standards, like EPCGlobal? RFID Vendor 3: Well yes they do. The tags we use are ISO standard tags, but there are a lot of different ones. We actually buy them in from Singapore, they source them from either Japan or Europe, although China is getting pretty big in the market but they have been less reliable in terms of their read-rates. And the software itself, its based on .NET framework. The standards that are used, RFID its all got to talk and the hardware components are standard manufactured. Interviewer: The actual tags the way the data is stored on the tag is there a standard for that? RFID Vendor 3: Well not really. Youve got the EPC guidelines, but guidelines are guidelines. And there are ISO standards that apply to tags. As I said, the ones that we use are the ISO standard tags.

161

Interviewer: Do you think RFID can be used with any additional technologies? suppose a PDA as you said is separate technology in itself, like a wireless technology.

RFID Vendor 3: Well yes its just a wireless communication. Its about mobility effectively and how mobility and data transfer impact on business. And the speed; getting information to decision makers or into systems that are going to make decisions that are going to trigger actions further upstream thats the key. Its being in one sense, time sensitive to information thats being delivered to you to make decisions about. Interviewer: So GPS? RFID Vendor 3: Certainly, yes. Integrating with GPS in telemetry systems. I mean the barriers are just cost, the technology is there to build all of this, it all comes down to developing business cases. Interviewer: Just like GS1? RFID Vendor 3: Thats right yes and thats all they are really doing there is developing a business case and proving the technology. And in a lot of instances theyre replacing the technology that revolutionised the technology in barcoding with something which has greater integrity. Interviewer: What are the other perceived benefits that RFID can offer beyond minimising product shrinkage? RFID Vendor 3: Ill say Sarbane Oxley for a start. Do you know Sarbane Oxley? Interviewer: No. RFID Vendor 3: Ok, this was the Enron collapse with Arthur Anderson the accounting firm and they shredded all of these documents and effectively this led to what we call the, I think, The Saratoga Principles which then impacted on regulations in the U.S. to do with document management and document retention. Now thats become a very big issue with collapsing companies all over the place that will go on for years to come. That records were not maintained properly therefore you couldnt point the finger at anyone, nobodys to blame. But the level of audit now has increased on peoples document management. So RFID I believe in the long-term is going to have a big impact in the area of document management. And also in terms of publications, books for instance, books with barcodes are now RFID tagged in libraries. The best case Ive seen with that one is Monakow Library in Auckland, which is just south of Auckland. Where they faced the situation where they only had a few staff and they needed to give the whole library a makeover basically. They needed to make it attractive to the local community and the community itself is an interesting one because the average age is something like 24. So its sort of a new city which has grown outside Auckland and I know about this because the IT Manager there was speaking at RFID World. What they did with RFID was terrific. They were just automated check-in, check-out stations. They were finding that people were reading more and it made the library a more pleasant place, more like a recreation centre than anything else. Certainly not what I imagined the library to be as a kid; something stuff and fairly boring. So I think in terms of not supply chain, but in terms of publications of any kind I think theyll be an impact of RFID. Just in document management and in distribution. Interviewer: Within retail with the visibility, as you were talking about before, stock just sits out the back collecting dust and they just dont know what they have got.

162

RFID Vendor 3: Well thats right. What I was talking about earlier in terms of velocity. If you know that something is selling well and youve got your data properly synchronised from your 30 stores around the country, you will know from the patterns of sale, effectively your analytics that youre actually going to invest in buying another 2 million of those items and get them into the shops and theyll sell. So RFID enables you to find out what you dont know. I think that is its greatest value. - End of Transcript -

163

Interview #15 RFID Vendor 4 Vice President of Marketing and Business Development
Interviewer: What is your role in the organisation? RFID Vendor 4: Im the Vice President of Marketing and Business Development and Im in charge of International standards and also other activities. Interviewer: How long have you been working for this organisation? RFID Vendor 4: 14 years. Interviewer: How long have you been working in the IT industry? RFID Vendor 4: 14 years. Interviewer: How long have you been working with RFID technology? RFID Vendor 4: 14 years, prior to that I was in banking and finance. Interviewer: Do you know what product shrinkage is? RFID Vendor 4: Yes, I do. Its stealing. Interviewer: Can it be broken down into anything besides theft? RFID Vendor 4: Well theft is the predominant contributor to product shrinkage. It could also be purely just lost stock, stock thats not visible, stock that has expired and stock that gets moved places it shouldnt actually be moved to, but honest mistakes. But the majority of stock shrinkage is considered to be unauthorised use and taking of stock. Interviewer: From your knowledge, what items constitute the most to product shrinkage, are they high-end products, small, easy to hide? RFID Vendor 4: Its a combination of both. If you look at the pharmaceuticals industry its the drugs such as Viagra that have high street value. Its also consumer goods such as mobile phones. In the Casino industry its obviously gaming tokens and chips. And yes, normally of course its high-value items, the size doesnt matter. Interviewer: From your knowledge, in what part of the supply chain does most product shrinkage occur in retail; the retail outlet, distribution centre, in transit? RFID Vendor 4: Look I think from the experience weve had there is no one area free of shrinkage. In certain instances in the manufacturing level it might be easier to control the goods because they dont become finished goods until the end of process and so you can put procedures in place to stop shrinkage, in particular of things like mobile phones and drugs. However, when it gets to the distribution centre the minute its suppose to be transported, whether it be by truck, plane, forklift, whatever thats when it starts going missing. Interviewer: The current EAS systems (EAS) which are used in retail would you say they are a deterrent or a total solution?

164

RFID Vendor 4: Theyre a deterrent really. If you know anything about the technology, EAS is a very simple magnetic coupling method of detecting. You can disable it if you know how. If you walk smack between the middle of the antennas it wont work, its not completely orientation sensitive, so if you happen to put it on an angle it wont work, so there are ways and means of defeating it and if youve got enough time youll find where the tag is in the goods and youll get rid of it. Interviewer: Ive heard about them lining boxes with aluminium foil as well. RFID Vendor 4: That shouldnt it should work. But look if youve got your heart set on it, its s bit like a motor car, if youve got your heart set on stealing it, youll steal it. Interviewer: How many customers do you have? RFID Vendor 4: Customers about 30. Interviewer: How many of those are retail customers approximately? RFID Vendor 4: None actually. Theyre either in the gaming industries, the medical industry or pharmaceutical. We dont actually deal with the end-user, we deal with the manufacturer or the systems integrator. Interviewer: And they are asking for RFID solutions? RFID Vendor 4: Yes, they are. Interviewer: What are they asking for, what kind of RFID systems? RFID Vendor 4: If you look at our website youll see that we actually develop RFID technology read and write that operates at 13.565MHz and complies with ISO 18,000 Part 3 Mode 2. The technology is optimised for high-speed conveyer feed applications or where you have many hundreds of tags stacked, overlapped or touching. So typically the applications we get involved with are for gaming casinos, document management, medical implants, pharmaceuticals and jewellery, anything where you have lots of tags touching. So in most cases the applications that were dealing with for the customer is to give their assets greater visibility within the system, so they can track them easier and deal with them better. Interviewer: What would you say would be the main driver to adopt an RFID system in the retail industry? RFID Vendor 4: The ability to use fewer resources in a more effective method rather than having them stand there with a barcodes scanner trying to scan individual items and taking hours to do it. Plus, if your stocks at a higher visibility you can have reduced levels of stock because you know where it is. So its wages and stock. Interviewer: How easily can an RFID system be deployed within an entire grocery retailers supply chain and in their stores? RFID Vendor 4: Look the implementations not difficult. Getting the right equipment is part of the solution. Probably the biggest difficulty is where you have to have multiple centres. So if youre dealing with a closed system like a Casino, you only have to deal with one company, one infrastructure, one computer system, one everything. The minute you start getting into the supply chain you have manufacturer and their systems, distributor and their systems, wholesaler and their systems and retailer and their systems

165

and at some point there should be some form of compatibility so you can actually see the same goods going from one end to the other. Interviewer: And the starting cost for an RFID system in a small supermarket, what sort of figures are you looking at? RFID Vendor 4: Well I think a supermarket is the wrong analogy because youre never ever going to tag a supermarket, its just not worth it. Even if tags cost a cent or 2 cents, why do you want to know how many cans of beans youve got left? You can understand that from when you bring in the carton. You bring the last carton out, the tag on the carton before it gets crushed goes through a reader, so you know that theres 12 bottles or cans of tomatoes, you need to know if theyre on the shelf or they have been stolen. If theyre on the shelf it doesnt matter if there are 9 or 12. Its probably more appropriate in a retail outlet that sells maybe clothing or shoes or something that is of a bit more value then a supermarket. Lets assume that it turns over $20,000,000 a year, so its a reasonable sized operation. Youre probably looking at $200,000 to $300,000 worth of readers and youre probably looking at maybe 1,000,000 tags, thats 50 cents each, thats $500,000 thats your annual spend. Plus, then thats just your hardware you then need someone to integrate. Then, all of a sudden youre going to get all this new information arent you? Stuffs going to start telling you what its doing. So you might need to get a middleware company involved like IBM or SAP and thats where your large costs are. Interviewer: So its not really feasible to have item-level tracking in a supermarket, more maybe carton-level tracking? RFID Vendor 4: Carton-level makes a lot more economic sense. You try and tell a retailer that hes going to put a tag on a can of beans where hes only making 6%, hes going to say Im not interested. So carton-level is probably much better. Remember supermarkets, particularly on dry goods not fresh food, fresh food supermarkets have only been in that business for about 10 years, Im talking about Woolworths and Coles. In dry goods theyve been doing it for 60 to 70 years. So theyve got some pretty good systems that have matured over time and it would be difficult to see where RFID could actually improve those systems. Because you dont necessarily need read and write and if you know that youve got 10 cartons in the back, then youve got 10 cartons. Interviewer: Can a retailer expect to minimise product shrinkage using an RFID system? RFID Vendor 4: Certainly. Not necessarily from customers stealing them, but everybody else stealing it from them. And they still say that 30% of your employees will steal from you and theyll steal 30% of your product. Interviewer: If the technology has so much to offer, then why have we not seen any major Australian retailers adopt RFID? RFID Vendor 4: I dont know how much you know about retail, but retail is hard, it is hard work and the margins are low. When I say margins, your Billabong pants, there might be a 200% margin on those products and thats all we see as the user. But from the retailers point of view hes got higher overheads and high rent, high wages, high everything, so at the end of the day hes probably making 20%. Up until the beginning of probably last year, cost was always a big issue because the technology, whilst it has been around since the Second World War, the cost of the tags were $3 or $4. Readers were many thousands of dollars. But now with new silicon technologies that are available the price of the chips and tags have been brought down to 20, 30, 40, 50 cents, depending on the application and the size, which in a lot of cases is relevant. The whole benefit of barcodes wasnt established

166

until everything had a barcode on it. So if youre going into a retailer and say Ill tag all the expensive stuff, but I wont tag all the cheap stuff, then theyre not really utilising the benefits of RFID, you really have to tag everything, because otherwise youve got to have two systems. A system for the products that are tagged and one for the products that arent tagged. Interviewer: Is RFID hype or a reality? RFID Vendor 4: No, its very much a reality and particularly being in the business and having sold stuff to customers where theyre saving 20% to 30% on their wages bill. Im not sure that RFID for the general supply chain will ever be accepted, like barcodes have, because barcodes is still a good technology, we dont have to get rid of it. I mean we still build cars with 4 wheels and an engine and weve been doing that since the beginning of the 20th Century. So we havent found a new way of building cars, so were stuck with what works. Weve made improvements and if we used analogies, RFID is an enabling technology and there will be RFID solutions in areas where it makes sense to put RFID. Such as, in the areas where were in, such as access control, such as in asset tracking, it doesnt make sense to put them on cans of beans or on clothes where barcodes are suitable Interviewer: Do your products adhere to any standards like EPCGlobal, you said ISO standards before. RFID Vendor 4: Yes, our technology is an ISO standard. Its ISO 18000 Part 3 Mode 2. Part 3 for 13.565MHz and Mode 2, two modes in that. Also, EPC is not a standards body, EPC is data, a 96bit number to be honest. But EPC are trying to push through a number of standards and were actually in the middle of working with EPC in the U.S. on item-level tagging, and at the moment theres two proposals, ones from good old Aussie and the others from the States. Interviewer: Who has the most to gain from RFID implementation the retailer, the customers, both maybe? RFID Vendor 4: For the retailer its probably an enabling technology to let you expand further and not lose control of your stock. For instance, youve got a shop and youve got 500 items in it, then generally you probably know where they are, or somebody would know where they are. If youve got 10,000 then it becomes more difficult, if youve got half a million spread over 10 stores, it becomes impossible unless youve got some proper system in place you just dont have any idea whats going on. And stock is money and unless you can keep moving it, then your working capital is going to be chewed up. If you have everything tagged you know where it is, you know where it should be, you know how to get it from one place to another. Lets say youre dealing in diamonds, somebody walks into Tiffanys and says they want a 5 carat diamond. If you can take 10 seconds or 10 minutes to find one diamond out of 10,000 which you can do with an RFID system, rather than a day using manual labour then youve just payed for the system. The customer gets the benefit because if the goods are visible to the retailer then its easier to sell them. Interviewer: If you introduced a new RFID system for a retailer would you request that their suppliers also use this technology? RFID Vendor 4: Well thats what Wal-Marts done and its done a great boost to the industry. If youve got enough clout then yes, because as Ive said, unless you introduce it across the whole of your business then the benefits are limited. Now if youre buying stock and youre having to tag it at the retailer to fulfil your RFID implementation then

167

thats an extra cost to you. If the stuff already comes in tagged and you put it through your reader and bring it in to your stock lines then it saves you time and money. So it would be a matter of, you may wish to insist of it, one to make your life easy and secondly whats happened in the past is you know there are different frequencies of RFID. Some work at 125KHz some 13.565 some 900MHz. What you dont want to happen is you implement a 13.565MHz system and your supplier uses a 900MHz system, you both have got to spend up all the money. Interviewer: So you need that compatibility? RFID Vendor 4: Yes. Interviewer: So what other technologies can you see RFID being used with, or at the moment its being used with? RFID Vendor 4: Well you can use it in conjunction with barcodes. You can use it in conjunction with Biometrics. You can use it with EAS. Basically any existing technologies out there that are used for automatic identification, that they can be applied to. Also, any other scanner technology. Interviewer: What other perceived benefits can RFID offer your customers besides minimising product shrinkage? You said before visibility of inventory. RFID Vendor 4: Well visibility of inventory saves you money, so its a cost, it saves you spending money, apart from shrinkage. Lets say you build 100 items, so if RFID saves shrinkage youll have 100 items to sell. If you know where the 100 items are you can actually sell those 100 items and allows you to hold less stock and get them manufactured quicker. So theres a cash flow benefit. Theres visibility and theres also information trends, if your stock can talk to you then you know whos buying it. Youve got to be conscious of privacy issues but thats a bit of nonsense anyway. But if you know that 55% of your goods are being sold to the demographics in the south-west of Sydney then you might want to open a shop in the south-west. Interviewer: Is minimising product shrinkage a major concern to your customers? RFID Vendor 4: Half and half. Half product shrinkage, the other half are more interested in tracking and tracing. They want to know where the stuff is. In the diamond industry for example, they dont steal from the diamond industry, people dont steal diamonds from diamond manufacturers because theyre all uncut they just dont do that. But they do lose them. - End of Transcript -

168

Interview #16 RFID Vendor 5 Managing Director

Interviewer: What is your role in the organisation? RFID Vendor 5: Im the Managing Director. Interviewer: How long have you been working for this organisation? RFID Vendor 5: 6 years. Interviewer: How long have you been working in the IT industry? RFID Vendor 5: 40 years. Interviewer: How long have you been working with RFID technology? RFID Vendor 5: The last 15 years. Interviewer: Do you know what product shrinkage is? RFID Vendor 5: Well Yes. Interviewer: How can you break-down product shrinkage; what constitutes product shrinkage from your knowledge? RFID Vendor 5: Well I dont know where youre headed there. Product shrinkage is the difference between what you manufacture and what you have actually sold. Any difference is product shrinkage, whether it be through theft, whether is be through spoilage, whether it be through loss. For whatever reason, theres a lot of reasons why you could have product shrinkage. Interviewer: From your knowledge, what items constitute the most to product shrinkage in the retail industry? RFID Vendor 5: Well again, youd need to break this down into a lot of different areas. Again a lot of the those things that I said before, theft has definitely got to rate in there and thats all matter of theft, whether it be fraud, whether it be by the public or internal theft. And it depends what point of view youre looking at it from, if youre looking at it from the retailers point of view or whether youre looking at it from the manufacturers point of view. Interviewer: What are benefits of RFID over barcodes? RFID Vendor 5: Whats happening today is that barcodes have limitations. The barcodes have to be visually scanned. When I say visually, its more or less infrared, it is light and it has to be in line-of-sight and it has to be orientated correctly. Although it was a revolution all those years ago, theyd like to take it a step further now, theyd like it so that just a basket went through a portal and anything in that basket was instantly read. Now you cant do that with barcodes, but you can do it with RFID. Now theyre heading towards, they dont even need the checkout person at all, its all automated. Now all of these things have nothing to do with a security function. The motive for introducing RFID at the manufacturing level for consumer goods; that is goods that are going to be

169

retailed through department store supermarkets, is purely for efficiency and cost savings. If there are side benefits for security and shall we say loss reduction from a theft point of view, then thats a bonus, but thats not the prime motivator. Interviewer: But then Ive come across product shrinkage as being recalls, return fraud and warehouse discrepancies, and hopefully RFID will be able to help with that. RFID Vendor 5: It will certainly assist in that. We do a lot of work, for example, in the production field. Human error you will always have, you will always have problems with human error, youll have machine error of course. For example, airlines a very simple example, catering in a busy airport hundreds of thousands of meals have to be prepared each day and all have to be delivered to the correct planes. Quite often those meals are not delivered to the correct planes, theyre delivered to the wrong planes. RFID obviously can assist greatly in that area. As the food trolley is wheeled onto the plane its read and, they go hang on a minute? Beep-beep-beep, its on the wrong plane, or this tray in this trolley is incorrect, or whatever. Interviewer: So an RFID system to be deployed within a retail environment such as Woolworths would be quite a large project, would you say? RFID Vendor 5: The project would only be large from the point of view, youve got to remember say for Woolworths all their products will already have the RFID tag embedded in them. Interviewer: From manufacturer? RFID Vendor 5: At manufacture. So all their problem is now is theyve got to read them. Now all the systems that they have already got in place for barcodes will be able to be used for RFID. The only thing that will need to change is the actual reading head or reader itself. Thats all that will need to change. Ok, down the track theyll find that theyll be able to do a lot more with RFID than what they can do with barcodes. Then they might start adding new systems and doing more with it, but initially they dont need to and again this is one of the big attractions of the technology. You have to be careful as well when you say RFID is a blanket phrase which locks in a whole host of different technologies. For example, the access swipe card you use for access control into buildings is also considered RFID, that technology clearly is useless for RFID in an inventory control environment and so on, so one has to be quite careful. Also, the RFID thats been driven by Wal-Mart the United States Department of Defence and all those people that are now saying by the year 2007 or 2008, Im not quite sure youll need to check that, that its going to be mandatory that any supplier to those organisations, thats Wal-Mart and the Department of Defence which covers I dont know how many billions of dollars annual turnover but its a lot, there may even be trillions. And they will have to be RFID enabled. The problem is, what youre going to have to consider is that RFID is very short range RFID, its a label. That RFID label is totally unsuitable for logistics. So in other words if you wanted to track a container around the world that kind of RFID would be useless. Interviewer: Do you think that RFID could be used with other additional technologies like GPS? RFID Vendor 5: Theyre already using GPS and we actually supply out RFID, for example, there are thousands of trucks around the world, they know exactly where the truck is through GPS. Fleet management systems have really sophisticated today, especially for the large operators, they almost know what the drivers been having for lunch and they certainly know how long its been on the field, they know the tyre

170

pressures of the vehicles, they know how much fuel hes got onboard, they know precisely where hes been and when. Theres a lot of things they dont know, they dont know what hes hauling. Interviewer: Which is one of the most important things. RFID Vendor 5: Exactly, and thats where RFID comes in. So what we do we provide the RFID receiver that plugs directly into the fleet management system for each vehicle and the tags that are on the load or whatever the inventory is that hes pulling, report into the receiver so they know at any given time what the load is. Interviewer: Can a retailer expect to minimise product shrinkage using an RFID system? RFID Vendor 5: This is a retailer? Interviewer: Yes. RFID Vendor 5: Well down the track what they are going to be able to do, what they cannot do now. So what theyll be able to do is to an inventory count by RFID, so they should be able with portable receivers actually know what is on the shelf, by automatic count. Interviewer: If the technology has so much to offer then why have we not seen any major Australian retailers adopt RFID? RFID Vendor 5: Because its leading-edge technology and its only just emerging now. A lot of the technology to make it work previously was not available. For example, our tags, we are the only manufacturer in Australia for ultra long-range active tags. So the technology to be able to do that has only become available quite recently. And thats through the advancement of battery management technology. The battery itself, in other words battery engineering which is also greatly related to mobile phone technology. Our tags, although they are extremely long-range and active, the battery technology and battery management is so good that they last for 7 to 8 years. And they transmit at only half a microwatt. Interviewer: So is RFID hype or reality? RFID Vendor 5: Its a reality, definitely a reality. The only problem with the industry out there, I dont know what youve found, but Ive found, we exhibit at Trade Shows for example we exhibited at a recent Trade Show, theres very, very few people that are actually providing solutions. There are a lot of people that are supplying tags, readers, technology and what have you. But you go and approach them and ask them how to solve a particular problem, theyll go huh? Youll have to go see an integrator to do that. Where are these integrators? So, unfortunately in that regard the industry is in its infancy. Its only some of the big players that are only interested in the multi billion dollar deals with the likes of the Department of Defence and Wal-Mart, that are really getting into this. Down at the normal level, there are very few players that provide an actual solution. Were one of the few that do. Interviewer: Who has the most to gain from an RFID implementation, the retailer, the customers or maybe both? RFID Vendor 5: Everybody, the retailer. The retailer gains in the end. Because hes going to get his product to market quicker, fresher, cheaper, its got to gain.

171

Interviewer: Overall if theres less loss prices may not keep rising, they may become lower? RFID Vendor 5: Look, any gain in efficiency has got to be the benefit of all concerned, for the shareholder through to the end customer. Interviewer: In what ways do you see RFID being integrated into business? RFID Vendor 5: Again youve only got to look at history and see the impact that barcode technology had on business. Its going to be similar. Interviewer: Do you think that RFID can be used to combat product shrinkage? RFID Vendor 5: Ive got to say that product shrinkage is one of the least important reasons for going to RFID, its just one of the benefits. Interviewer: If you introduced a new RFID system for a retailer would you request that their suppliers also use this new technology? RFID Vendor 5: Well thats definitely the way its going to go. From a retailers point of view item-level RFID will be done at point of manufacture, almost certainly. But where we come in, we dont actually do that, were in the supply and logistics chain. We dont provide RFID tags for individual components or manufactured items, thats not our business. Interviewer: Do your products adhere to any standards like EPCGlobal? RFID Vendor 5: No, because we dont need to. We dont go onto the showroom floor. Interviewer: What are the other perceived benefits that RFID can offer beyond minimising product shrinkage? RFID Vendor 5: Well theres an extra few things there. You can have automated loyalty programmes, but between you and me, I probably shouldnt say this, I think that it benefits the retailer more than it benefits the customer. - End of Transcript -

172

Interview #17 RFID Vendor 6 Managing Director

Interviewer: What is your role in the organisation? RFID Vendor 6: Im the Managing Director with more of a sales role Interviewer: How long have you been working for this organisation? RFID Vendor 6: Too long, 23 years. Interviewer: How long have you been working in the IT industry? RFID Vendor 6: 23 years. Interviewer: How long have you been working with RFID technology? RFID Vendor 6: 5 Years Interviewer: Do you know what product shrinkage is? RFID Vendor 6: Yes Interviewer: How can you break-down product shrinkage; what constitutes product shrinkage? RFID Vendor 6: Its made up of a couple of elements. Probably the most common one that people associate it with is theft. But also, theres shrinkage related to breakage of products and quite often misplaced products. People put things away, they dont know where they have put them, or errors related to picking, so theyve picked the wrong items, so the stock level is incorrect resulting in shrinkage. Alternatively, theyve put it somewhere and it cant be found. Interviewer: From your knowledge, what category of shrinkage is the main contributor? RFID Vendor 6: I suspect it depends on the industry. But I would suspect theft would be the major one. Interviewer: From your knowledge, in what part of the supply chain does most product shrinkage occur in retail? RFID Vendor 6: Im not in retail, so I cant answer that. Theres obviously two parts, theres the retail store and in fact anywhere along the supply chain there could be shrinkage, including couriers, including stores and in shops. Im not in a position to answer that because Im not in that industry. Interviewer: The current EAS systems which are used in retail would you say they are a deterrent or a total solution? RFID Vendor 6: I think theyre an important deterrent, but like all systems you can get around it. Interviewer: How many customers do you have approximately?

173

RFID Vendor 6: About 1000 Interviewer: How many of those are retail customers? RFID Vendor 6: Were actually a distributor, so we dont necessarily have retail customers per say. We supply to retailers or some end-users, but we mainly supply to the industry, as a distributor to the IT industry. But weve got about 1000 customers that we work with. Interviewer: Can a retailer expect to minimise product shrinkage using an RFID system? RFID Vendor 6: No, I dont think RFID is going to have a great impact on product shrinkage, no. Interviewer: If the technology has so much to offer, then why have we not seen any major Australian retailers adopt RFID? RFID Vendor 6: Thats simple, its only recently that issues that been holding the industry back have been resolved. The compliance frequency thats been used is quite unique to Australia and its only recently that youve been able to get equipment. Im particularly talking about UHF of course. Interviewer: Do current EAS systems play a role in supply chain management processes? RFID Vendor 6: Not that Im aware of no. EAS is effectively a 1-bit RFID tag so theres no information other than, is the tag there or not? Theres no identification association with the EAS, it doesnt serve much purpose other than an anti-theft device. Interviewer: Is RFID hype or a reality? RFID Vendor 6: Its a reality, absolutely. Interviewer: Who has the most to gain from an RFID implementation: the retailer, the customers, both parties? RFID Vendor 6: I think one of the real values of RFID is if its used within the whole supply chain, many people will get different value out of it. Certainly, you know from a retail perspective obviously theres value of inventory control and stock taking and those elements. Those that are in the manufacturing process again can help manage their items. Those in logistics and certainly the application of RFID now in a box/pallet arrangement, not at the item-level, is more geared towards the logistics and supply chain benefit. So, yes there are many parties which will benefit from it. Interviewer: What do you think are the advantages of RFID over barcodes? RFID Vendor 6: The two key advantages are that you dont need line-of-sight, to read the tags and the second one is that you can read more than one tag at a time. And the first part of course is more related in a retail EPC type environment is that it is a serialised barcode so not only do you know its a can of coke but which can of coke out of a zillion can of cokes. Interviewer: Theres also another thing, I thought what it may reduce in product shrinkage is, maybe one day, is shop return fraud. People are returning things for a higher price.

174

RFID Vendor 6: Oh yeah, certainly managing inventory from a returns perspective, absolutely, yes, even down to the recycling level. Again, its part of the supply chain and it can be used down to that level and certainly as in the case of fraud, so that people who make clothes in particular want to make sure that its their clothes that are being sold and not a copy. Interviewer: If you introduced a new RFID system for a retailer, would you request that their suppliers also use this new technology? RFID Vendor 6: Again, it depends. Theres lost of examples where you could use RFID within a clothing environment and get a return on investment and it doesnt impact on the customers. In the traditional sense of supply chain uses of RFID, the value is, is the fact, that its collaborative and others can use it. People like Wal-Mart, and even Coles Myer insist on using barcodes or RFID tags if its for their main benefit, they dont really care about anyone else. So, the reality is, that if you do put it in, then as part of a selling proposition, is that organisations that use it can also leverage off the investment theyre going to make. Interviewer: Do your products adhere to any standards, like EPCGlobal? RFID Vendor 6: Well certainly, in UHF supply chain, EPC Gen-2 is really only the real RFID technology that we are promoting in UHF, because it can be used in non-supply chain applications. But the reality is, because of the standard, the cost of Gen-2 tags and readers will drop so it makes it a very economic solution in any UHF application. Interviewer: Do you think RFID can be used with any additional technologies? RFID Vendor 6: Absolutely, barcoding will still be required as part of an RFID solution. Because you still need again, in supply chain environment, you still need a fixate, which is essentially a barcode solution and secondly, that barcodes can still act as a backup to RFID. Interviewer: Thats a good point. I thought that one day barcodes would be phased out completely. RFID Vendor 6: Id be very surprised if that ever happened. Interviewer: What are the other perceived benefits that RFID can offer your customers, beyond minimising product shrinkage, which you didnt totally agree with; minimising product shrinkage did you? RFID Vendor 6: No, no. Everyone quotes that the Wal-Mart experience and their issue is, they dont know where there stock is and they have out-of-stocks. So they are able to use RFID to locate stock within their warehouse and environment and get visibility. The whole things about getting visibility in the supply chain and reducing the feedback in terms of their response, whether its distribution or manufacturing or what have you. - End of Transcript -

175

Interview #18 RFID Vendor 7 National Sales Manager

Interviewer: What is your role in the organisation? RFID Vendor 7: The National Sales Manager. Interviewer: How long have you been working for this organisation? RFID Vendor 7: 22 years. Interviewer: How long have you been working in the IT industry? RFID Vendor 7: 22 years. Interviewer: How long have you been working with RFID technology? RFID Vendor 7: The company actually bought a lot of the Intellectual Property rights of RFID from [large international IT organisation]. So the companys been doing the development of RFID for probably around 10 years. But as a product, thats basically marketable, weve probably been involved for the last 2 to 3 years. Interviewer: Do you know what product shrinkage is? RFID Vendor 7: Thats I suppose the nice way of saying thieving and employee stealing. Interviewer: From your knowledge, what category of shrinkage is the main contributor would it be lost or stolen, damaged? RFID Vendor 7: In supply chain Id say it depends on the industry, it depends on the type of products, if youre saying just for retail, grocery versus clothing versus electronics and consumer goods and things, it depends on the products. Weve got customers that do just grocery and the shrinkage rates are very small because the systems that theyve got in place dont really lend employees to have a lot of time with product. Theyre picking a whole case or pallet and shipping the product that way. You probably will have shrinkage issues where youve got high-value items as in electronic goods, PCs, memory chips, mobile phones anybody who manufactures and distributes those are going to see shrinkage at a high-rate. Even split-case picking where youve got high-value items like bottles of alcohol, like good wine or spirits, sometimes are picked as a split-case, so you then have a broken case in the distribution centre were there 12 bottles in that case or 9 bottles in that case? Interviewer: From your knowledge, in what part of the supply chain does most product shrinkage occur in retail? The retail outlet, the distribution centre, in transit? RFID Vendor 7: Id say probably it would be at the distribution centre and perhaps at the store. In transit its a little bit difficult with the way the products are palletised and shipped. Interviewer: The current EAS systems which are used in retail would you say they are a deterrent or a total solution?

176

RFID Vendor 7: I find them personally as a deterrent, would they be a solution, Id say theres a lot ways to get around those detectors and so forth. And you will find it in RFID as well, anything that relies on another component as part of the tracking system is always going to have a limitation. Interviewer: How many customers do you have? RFID Vendor 7: In Australia? Because were a U.S. based company and weve got offices all around the world. Interviewer: Ok then, well in Australia? RFID Vendor 7: We will probably have in excess of 2000 customers. Interviewer: How many of those are retail customers? RFID Vendor 7: We have worked with all of them, so [grocery retailer], [grocery retailer] the two major retailers. So I would say 10 to 15 of the majors. And anybody who would have a group of stores greater than 20 or 30 stores they would be a customer of [name of vendor]. Interviewer: Selling EAS solutions or RFID? RFID Vendor 7: Most of our work to date has been in supply chain. So what we do is manufacture barcode printers, barcode scanning equipment and also mobile terminals for mobile picking applications and so forth. So both at distribution centre as well as instores for shelf audit and re-ordering systems. Interviewer: What would you say would be the main driver to adopt an RFID system in the retail industry? RFID Vendor 7: Its got to be the reduction in turn-around time in product at the distribution centre and the reduced amount of handling. If you can track a product electronically through a distribution centre potentially you dont necessarily have to carry stock you could set-up your distribution supply chain with cross-docking applications. Interviewer: How easily could an RFID system be deployed within an entire grocery retailer supply chain and in-stores? RFID Vendor 7: It depends on the tracking level that you want to go to. To track pallets very easy. To track cartons would still be relatively easy but a bit more expensive. To track individual items very expensive and very time consuming at the moment with the technology thats out there. Interviewer: Do you think that item-level tracking will happen in a supermarket one day? RFID Vendor 7: Were doing trials at the moment with [name of organisation] in Germany. They have the store of the future. So [RFID Vendor 7] is supplying a lot of the readers and equipment at the portals for in and out of the stores. They are an example, again theyre treating this technology and the concept as a bit of a novelty at the moment. I say getting to item-level is going to be only achievable when you see the price of tags drop quite dramatically. An RFID tag has to compete with a printed barcode that is incorporated into the label of a can of soup for an example. So were talking about a

177

technology that probably hasnt been invented yet, where you can actually print an RFID board onto a piece of paper. Interviewer: Can a retailer expect to minimise product shrinkage using an RFID system do you think? RFID Vendor 7: What you can use RFID for if you get down to that item-level tracking is the ability to reuse the RFID tag for not only its worth through the supply chain but also at the point of sale. So when youre actually scanning products through point of sale and actually paying for the goods and also as a deterrent for what you currently have those screens around doorways and so forth. So theres economies that can be the reuse of RFID. Isolation, no I wouldnt say it would be a major deterrent. Interviewer: If the technology has so much to offer then why have we not seen any major Australian retailers adopt RFID? RFID Vendor 7: Just because of the cost. If you look at a typical distribution centre for Coles or Woolworths just at carton-level they would be moving a million cartons a week. Forget about the individual items just a million cartons a week would be an average turnaround of a distribution centre. Multiply that by, between 10 and 20 distribution centres per company, thats a lot of tags when at the moment I think theyre 20, 30 cents each. Youve got to work out where youre going to break even. You may put it on an individual item like a packet of 6 or 8 Gillette shaver cartridges or refills, but you wouldnt do it on a carton of flour for example. Interviewer: In terms of Generation-1 or EAS systems. Do you know of any EAS systems that play a role in any supply chain management processes? RFID Vendor 7: Gen-1, Id say it would be very limited in Australia. Anybody who would be using Gen-1 today or even type-0, type-1 tags would probably be using it in a closed-loop system to actually track assets. They wouldnt necessarily be using it for anything else. So if youve got a container or a pallet that you want to track, its re-used, youd probably be using Gen-1 as an example. Interviewer: I have come across EAS as being classified as Gen-1 is that right? RFID Vendor 7: Im not sure, I dont know that level of detail. A good site to visit would be GS1, theyre at Botany, their websites very good. Theyre very much an advocate for RFID and all types of numbering systems, particularly RFID for our industry, so they would be one to call and get data from. Also their websites very good as well. Interviewer: Is RFID hype or a reality? RFID Vendor 7: Its a reality, the technology is here. Are we going to get the costs down to make it generally accepted? That would be the challenge. And there are also other types of technology that are starting that could potentially do everything that RFID does and more. I dont believe the killer application for RFID has been invented yet. As CDs and DVDs for example, that really seemed to take off as that technology. Whereas those types of compact discs have been around in various sizes for more than 20 years and music on CDs how long has that been around? 10 years, before Vinyl. Thats why I dont think RFID has found its niche. I think the cost is really the prohibitive factor at the moment.

178

Interviewer: Who has the most to gain from RFID implementation is it the retailer, the customers, maybe both parties? RFID Vendor 7: Its got to be the retailer. The customers got no benefit. Potentially if you took it a little bit further if they could track an individual item, there was an announcement 3 years ago by Benetton that they were going to put RFID tags in every one of their shirts to stop the black market on counterfeits for their products. But then they were also going to use the information to link it to your credit card so that when Nick arrived and bought a blue Benetton shirt they would keep that data and say he uses VISA, hes so many years old and he likes blue. And then they could start to build a profile on you. So the retailers would be using that and I suppose thats what they have been trying to do with loyalty programmes for many years. Interviewer: Number one I would definitely say retailer. I would hope that maybe the customer might benefit, if theres less product shrinkage theres less loss and the prices may come down. RFID Vendor 7: Yes, but I think the retailers would keep that margin for themselves. Interviewer: In what ways do you see RFID being integrated into business? RFID Vendor 7: Outside of retail? Interviewer: No, into a retail business. RFID Vendor 7: Youve got to remember with retail stores as an example they need to replenish their shelves on a regular basis and at the moment its a very manual process. If they had some way of putting RFID technology on the shelves and as product was removed from the shelf that it decremented and it caused an event in their system to reorder another bottle of tomato source the last one was just taken off; that would be a benefit. Again to reuse the technology for shrinkage youve got the ability to keep track of products in and out of the store. You could also use the technology, if you were to take it to that nth degree and link it to loyalty programmes and keep customer profiles. So they could start to target product marketing direct to the people. You walked in and you swiped your card they knew that your profile was to always buy cornflakes, tomato sauce, baked beans and some steak. When you approach those parts of the store a pop-up screen could be displayed showing you recipes for steak and lamb or something like that. Interviewer: What do you think are the advantages of RFID over barcodes? RFID Vendor 7: Quite surprisingly I can see only a few. I think at the moment the barcode has more advantage over the tag because of the cost, because of the database of information, whether you store it on the RFID tag or you store it on a database, theres no real benefit at the moment having it stored in the unit, like in the can of Coca Cola or in the bag youve just bought. The only real one is you dont have to physically scan an RFID tag, you can literally have a trolley full of items and run it through a portal or a screen and it could potentially read all the items in that trolley and so checkout times for a customer would be quite short. Interviewer: If you introduced a new RFID system for a retailer would you request that their suppliers also use this new technology? RFID Vendor 7: They have to. Interviewer: Do your products adhere to any standards like EPCGlobal?

179

RFID Vendor 7: Most definitely, to all the standards, the Gen-2 EPCGlobal standards. You cant be in this game and not adhere to that standard and you cant not have a standard. [RFID Vendor 7] actually is pioneering the Gen-2 tag as its really where we see RFID as having its best shot at general acceptance. The earliest generation have really been quite proprietary, Gen-2 is a global standard. And were looking at the ability to scan products or use the same RFID tag across different borders. I dont know if you realise with RFID it is a radio frequency and it is a band. Its ability to be used in different countries is limited by what weve got. The Australian Communications Authority as an example, they mandate what bandwidth can be used for RFID technology. And that bandwidth is different in Japan, different in China, different in the U.S. What we have developed is the Gen-2 tag and weve got this as a feature to part of the standard is that the one tag when its adhered to a product in China where its made, can be read in China, it can be read in Singapore, because the readers that we supply are frequency agile, so they can actually scan at different parts of the bandwidth and still read the same tag. The tags will then understand which region its in by the reader thats actually interrogating it. Interviewer: Do you think RFID can be used with any additional technologies? RFID Vendor 7: It then opens up the ability to use it with every technology. You could use it with mobile phones, you could use it with point of sale systems, you could use it with any type of automated, electronic system in distribution centres as an example. In manufacturing it could be integrated into forklift trucks that pick up products, you could integrate RFID. You could put it onto the cartons that refrigerators or washing machines are actually packed in and you could actually have a reader on the forklift truck and have fridges and freezers picked up by clamps on the sides of the boxes. By having that data inserted in the tag at time of manufacture to identify that this is a 200kg XYZ Westinghouse freezer and the clamping pressure should be no more than so many kilopascals or something like that. That can actually be read by the forklift truck. At the moment its actually a manual process, the driver will drive up, approach the fridge and put the clamps on and hell apply the pressure that he thinks will be needed to lift it. That can all be an automatic system now. Interviewer: What are the other perceived benefits that RFID can offer your customers, beyond minimising product shrinkage, if any? RFID Vendor 7: It can just improve the cost of supply chain not having to handle products. The big cost for most retailers is the amount of handling that occurs at the manufacturer through distribution centre to the retail store. If that can actually be all done electronically you can reduce the amount of staff in the distribution centre. Its also going to improve the transfer of information from the manufacturer to the distribution centre to ultimate supplier. So youve got con-notes today but again its still a manual process, the information maybe sent electronically but then theres still a person at the distribution centre manually checking off the purchase order versus the con-note and so forth. If all of this can be done electronically, your checking can be done electronically and then error reports or exception reports can be shot back at the same time as a truck arrives at a distribution centre. So theres going to be a lot of cost savings and thats really where I think retailers are weighing up, theyve got to address the technology whole-heartedly if they only do it for certain product ranges or only certain suppliers then they still going to have to have the same infrastructure in place to handle everyone thats not on RFID and theyre not going to get the cost benefit. It has to be something that they have to address across the whole supply chain. - End of Transcript -

180

Interview #19 RFID Association RFID Consultant

Interviewer: What is your role in the organisation? RFID Association: Im from [RFID Association]. Its a non-profit association that brings awareness about the technology, so we communicate about it, we dont sell it and we dont recommend any vendors. My role in the organisation is more about communication. Im in charge of the newsletters the website and I read RFID press worldwide, so its more knowledge based; thats what I do. Interviewer: How long have you been working for this organisation? RFID Association: 3 months today. Interviewer: How long have you been working in the IT industry? RFID Association: I dont work in IT. Thats the thing with RFID it brings different knowledge into the same room. I come from change management, so its studying business processes and improving business processes, thats what RFID does too. So Im not in IT, Im more change management orientated, Im more a type of a guy who can talk to a CEO and explain to them the benefits of it and I can hardly talk to the IT guys. Interviewer: How long have you been working with RFID? RFID Association: With RFID, Id say 2 years, since Ive been a webmaster of my website for about a year and half now, so 2 years. Interviewer: Do you know what product shrinkage is? RFID Association: Not specifically, I knew that it was like products that get stolen or broken but you explained to me more, that it included product recalls which I didnt know. Once again our association doesnt specialise in retail and this kind of stuff, so I dont know much about it. Interviewer: The current EAS systems which are used in retail would you say they are a deterrent or a total solution to minimise product shrinkage? RFID Association: It depends how its used. If its used only to trigger an alarm, thats a just a misuse of it, because it could be used for tracking devices all along the supply chain. That means theyre using only one part of the system. Like just triggering the alarm part of the system, all Gen-1 tags can do tracking as well they dont use it. I think they can build on this, use the same tag and improve the system. Interviewer: So would you say it deters customers from stealing, it doesnt solve the problem? RFID Association: I dont think customers know what they are. I think they know that it will trigger an alarm when they go through the gate without paying for it. But I dont think people are aware of it. I dont steal in shops very often. Interviewer: What type of RFID solution do you think a retailer would want?

181

RFID Association: A retailer wants to minimise mistakes. When you are at the dock and you receive your deliveries you have to check ever single item on the pallet, right? Well how about you just scan the pallet and the pallet itself will just tell you whats inside. So you dont need to undo the pallet at all. Thats what they want, software or a system that saves all the time that employees spend on breaking down the pallet and checking the delivery. They want to have less in the storage room and more on the floor. So theres no need to check, where is this product? They want to always have something on the shelf, so they want just-in-time and thats provided by RFID. And then, product shrinkage and if you tell them that its going to reduce their product shrinkage because theyre going to know where their products are. They might not be able to fix the problem, but they are going to categorise it; this is stolen, this is broken and then they could get rebates from their suppliers. If they have information about where and why the product is part of shrinkage, then maybe they can get dollars back. Interviewer: What would be the main driver to adopt an RFID system in retail? RFID Association: The main driver is to reduce employment, reduce labour. Because if you dont need that many people at the dock or in the storage room you get rid of them. Thats one of the biggest costs and expenses of retailers. Interviewer: How easily can an RFID system be deployed in one single supermarket? RFID Association: Not the previous question, but the one before, was about how many different systems a retailer could expect from RFID right. So it all depends what you implement. If you implement something with a security system, then thats an internal system, it doesnt take long. If you implement a system that can track products all along the supply chain then that takes much more time. Because you have to tag the products at the factory and then install readers, scanners and design the right processes for the products. Like how the pallets go through the dock door so the readers have to go on the side of the dock door in a special way. The difference with the system you are implementing, if its just an internal system, then its easier because it just relies on your capabilities, right. If you have to rely on your suppliers it takes a lot of time and we dont have much benchmarking in Australia because none of us have done it, except the National Demonstrator product that I told you about before. Interviewer: What are the approximate starting costs for an RFID system in a small supermarket? RFID Association: I dont know. What is the problem you are trying to solve? For security purposes they install Gen-1 tags right? I mean, they are using one part of the tag. It really depends on what you are trying to solve. Interviewer: If the technology has so much to offer then why have we not seen any major Australian retailers adopt RFID? RFID Association: Very good question. I ask myself the same question every morning. I say why arent they implementing it. You know Woolworths and Coles, they have different projects going on and they have different issues. Its like Woolworths want to bring different brands together and there are so many different issues. And they still sit and wait to see position of other, lets see how they do overseas and well do it afterwards, learning from their mistakes instead of learning from our mistakes. Interviewer: Do you think Woolworths upper management know about RFID? RFID Association: Personally, I think yes. Because its been so big with Wal-Mart, its been so big with Metro and if they want to keep on the same level, theyd know about it.

182

They might not know the preciseness, if they havent conducted any pilot then they dont know the real benefits, but Im pretty sure theyve been conducting pilots, they just dont communicate about it, we dont here about it and Id love to hear about it. If we could get them, up there to talk about the pilots theyve been implementing then its going to speedup the implementation of RFID in the industry. Interviewer: How many are employed with the [RFID Association]? RFID Association: There is only two. Its more based on a voluntary basis. We have seven directors, who all work in different areas of implementing RFID. The Vice Chairman is a Vendor he sells barcodes, scanners and stuff like that. Another Director works for the Department of Defence because the Australian Department of Defence is implementing RFID with the U.S. Department of Defence. Another one is working for the farming industries because Australia is one of the first countries in the world to implement RFID on cattle. They have been tagging cows for seven years. Interviewer: Is RFID hype of reality? RFID Association: Ok, it depends on what industry you are talking about. Its reality in libraries, its reality in farming industries, like I told you tracking cattle, Australia is the first country to do it and people all over the world come to see how Australia do it. Because Australia can tell you where did this meat come from? What is the name of the cow? And think about mad cow disease and thats quite valuable. Thats a reality in those industries. Its hype in retail at the moment because nobody is using it they might be using it for security purposes but thats all theyre using it for, which is not really RFID because RFID is about supply chain, its not about security. Interviewer: Who has the most to gain from RFID implementation the retailer, the customer? RFID Association: Not the customer. If you can provide more services to the customer then yes, it could be good for the customer. But its more for the retailer because it needs less labour and it always has products on the shelf and its got better information about its products and most of the time it doesnt need to spend the money on it, because theyre going to ask their suppliers to spend the money on it. Interviewer: Do you think that both the customer and the retailer can benefit from it? RFID Association: Yes. Im going put myself into retail and not think about the other industries right. As a customer its very frustrating when you want to have your product and its not on the shelf. Its very frustrating when the price is different when you take it off the shelf and you take it to the cash register and its a different price, its frustrating. You can add so many things with RFID, like what Telstra is doing at the moment, is that you pick a product, lets say a, I pick up Gillette razor blades. I take it from the shelf and while I pick it up, theres a sensor that realises that Ive picked up this razor blade, so theres a screen on the top of the shelf that displays a commercial about it. It displays how to use it and what are the benefits. Interviewer: Is this in the U.S.? RFID Association: This is a Telstra Australia. Its ready to use. Its not hard, you just need a reader which tells you what product it is so lets start the commercial for it, but its customer service. You know, you dont have to ask for somebody, you just take it and the screen displays the price and displays pictures. Telstra wants to do it for mobile phones, obviously because there are so many more features right. They want to do it for

183

themselves so they can sell their services. So these kinds of services are enabled through RFID, the reason why you implement them is because how can you value this? Its better customer services. Interviewer: In what ways do you see RFID being integrated into business? Would they use existing barcode systems? RFID Association: At the moment what they do use are smart labels. A Smart label is a tag, its a sticker with a barcode on it that you can read, but inside the sticker there is an RFID tag. So if you reach the warehouse that is not RFID enabled they can still read the information for barcode right and then when you reach the warehouse that is RFID enable then they can use RFID. So thats the transition period using smart labels. So thats how its going to be implemented. If youre going to implement it in one store, then thats alright you can just change the whole store and make it RFID enabled. But if you want to implement it in the whole supply chain, like every actor of the supply chain has to be RFID enabled and there not going likely to be on this at the same time. So thats how they are going to do it, they doing to do it through a transition period thats going to last two years and then theyre going to switch to RFID. Interviewer: Could newer 2nd generation RFID systems provide a better solution over traditional EAS systems? RFID Association: Yes, because you can store more data. Im not a technical person but Gen-2 has better capabilities. Interviewer: What are the advantages of RFID over barcodes? RFID Association: No line-of-sight required. At the item level you know that its not only Pantene shampoo, its Pantene shampoo that came from this factory, it has been made on this day, you know the bottle, you know the pallet as well, you know the name; its called singulation. You know the information at the item-level. Usually its at the pallet level or the box level or the carton level or the container level. Interviewer: If you introduced a new RFID system for a retailer would you request that their suppliers also use this new technology? RFID Association: You have to. The question is what kind of problem are you trying to solve with RFID right? If its about improving your inventory then it has to be implemented across the whole supply chain from the factory and then you have to them using the same technology as yours, so yes. And its the retailer who has the power, because they are the ones that sell the products that the supplier sells. Interviewer: Do you recommend an RFID system adhere to standards? What kind of standards do you recommend? RFID Association: Gen-2 is considered now at ISO and is considered now as an International standard. So, standards are about frequencies, reading range and stuff like that. But theres not enough standards about privacy because when you walk away with Pantene shampoo well they know when you bought it, when you threw it away, theyll be able to read the tag how long have you been using it for, between the time you bought it and the time you threw it away. I mean, thats information about you, so there are some privacy issues. Interviewer: Do you think RFID can be used with any additional technologies?

184

RFID Association: You can link a satellite to it. So when you have RFID on a container in the Pacific Ocean you can pinpoint with GPS. So RFID can identify your container and you can locate your container with GPS. If you had sensors that have temperature, well then you can track that this meat has been through these kind of temperature all the way along through the supply chain, so yes you can add new technologies. RFID is just one piece of the puzzle, because as you are doing e-business process you need also emessaging, alright. If Im a retailer and Im going to order 10 cases of shampoo Im going to do it electronically right, its called e-procurement. And then its linked to RFID Im going to know I need this item so theyre going to tell me back with e-messaging what kind of items, the numbers, and the names of the items you want. So RFID is just part of the puzzle, its going to be part of all different technologies. There are just so many. RFID is just how to capture data and thats how you can identify an item at the item-level and not at the case level. And then you can plug everything like temperature, movement sensors, chemical sensors, theres so many applications. Interviewer: What are the other perceived benefits that RFID can offer customers beyond minimising product shrinkage? RFID Association: If you draw some similarities to libraries. Thanks to RFID patrons of libraries can checkout their books themselves. So you dont have lines anymore, so you dont waste time just lining up, you just scan your membership card and then touch your book on the reader, its going to read all of them very quickly, you use the check-out yourself. So whats going to happen if all the items in your store have an RFID tag, theyre going to be able to do the checkouts themselves. So, its going to be quicker for the customer because they are the ones who will do it and thats one of the advantages as well, but that will be 10 years from now, because a tag at the cheapest, cheapest price is 50 cents. So thats 50 cent more on a can of beans or pasta, I mean that will increase the price by like 50 percent for some products, so its not worth it now. But in 10 years time we will be able to do the checkout ourselves. Maybe just walk out of the store with the trolley. - End of Transcript -

185

Interview #20 RFID Standards Body Standards Development Coordinator

Interviewer: What is your role in the organisation? RFID Standards Body: Im Standards Development Coordinator for the EPC network. Interviewer: Is that a department as such? RFID Standards Body: I work in the Standards Department Interviewer: How long have you been working for this organisation? RFID Standards Body: Two and half years Interviewer: How long have you been working with RFID technology? RFID Standards Body: Two and half years Interviewer: Do you know what product shrinkage is? RFID Standards Body: I guess its unaccounted for goods as they move through the supply chain. So whether that is via stolen, breakages, products that have gone to the wrong place, but along the supply chain; the reduction in stock. Interviewer: From your knowledge, what category of shrinkage is the main contributor? RFID Standards Body: Im not too sure. I would assume damaged or stolen. Interviewer: From your knowledge, what items constitute the most to product shrinkage? Are they high-end items are they easy to hide? RFID Standards Body: I dont know because I dont really deal in that area. Interviewer: From your knowledge, in what part of the supply chain does most product shrinkage occur in retail? Would it be the retail outlet, distribution centre...? RFID Standards Body: Whether it be the manufacturer, the DC or the retailer. Again, thats not really where we are dealing. We are more about creating the standards and education. The actual shrinkage in that aspect I dont deal with it much. Interviewer: The current EAS systems which are used in retail would you say that they are a deterrent or a total solution? RFID Standards Body: Deterrent. Interviewer: Do you have customers? RFID Standards Body: We have about 15,000 members that we deal with regarding barcoding. Interviewer: How many of those are retail members?

186

RFID Standards Body: Dont know. Interviewer: Would the majority of them be retail members? RFID Standards Body: I would say the majority, yes. Interviewer: Are they implementing RFID solution these retailers? RFID Standards Body: No. Theyre not using RFID solutions. I would say a very, very small percentage are asking about RFID solutions at the moment. But they are becoming more and more aware of it. Interviewer: What would you say would be the main driver to adopt an RFID system in the retail industry? RFID Standards Body: Within retail it would be to improve the supply chain efficiency of the back-end at the moment. And youre looking at reducing the logistics, improved efficiency, on-shelf availability by everyone within the supply chain knowing where products are at any given time. I would say they are the main benefits at the moment. Interviewer: How easily can an RFID system be deployed within an entire grocery retailers supply chain and in their stores? RFID Standards Body: Are you talking from the front-end to the back-end? Interviewer: Yes, the entire system. RFID Standards Body: It really depends on what information you are trying to capture. If youre just trying to capture goods coming into the back-end; from the back-end to the shelf and then to point of sale, then thats a lot easier. If youre looking at getting complete shelf reading, than it becomes a lot more difficult. Interviewer: So, shelf readers? RFID Standards Body: Yes, if youre looking at shelf readers then that outlay and the complexity increases considerably. Interviewer: Can a retailer expect to minimise product shrinkage using an RFID system? RFID Standards Body: Therere different ways that RFID can do it. If theyre losing products some how falling off the back of a truck during a delivery, or after theyve been delivered going out. If you have a manufacturer tagging their product, if you read that product on the way out and then read that product as it arrives at the retailer, you can then get some certainty of how much of that product has reached its destination. And then because you have readers on the dock doors if any product does back-out you can pickup unscheduled movement of a product. So thats one way it could work quite well. Interviewer: What would be a more realistic alternative for retail: pallet-level, cartonlevel or item-level tracking at this stage? RFID Standards Body: At this stage definitely pallet and carton. Interviewer: And, in the future item-level?

187

RFID Standards Body: At different parts of the supply chain, because item-level has got very short read ranges and you want to be able specifically get that at dock doors when theres a four metre gap. You will have some item-level reading ability once you start going out the front-end of a store, where the gap of where you can walk out has significantly decreased. Interviewer: This may be obvious, but do current EAS systems play any role in supply chain management processes? RFID Standards Body: No. Interviewer: Is RFID hype or a reality? RFID Standards Body: Its somewhere in-between. It all depends where youre coming from. In America, with Wal-Mart using it, its definitely a reality and their moving now to 500 or 1000 stores where theyre going to be rolling it out, so there its definitely a reality. In Australia, while we think its reality, at the moment nobodys actually deployed it. I think theres something like 15 RFID deployments Australia wide for RFID. That includes things like toll-ways is one deployment, but really theres only 15 major deployments of RFID. Interviewer: Who has the most to gain from an RFID implementation? The Retailer, the customers, maybe both parties? RFID Standards Body: Both parties. If you can make a more efficient supply chain with less cost then it saves money for the retailer, it may save money for the customer, but at the same time if you can start ensuring that products are on the shelf more often, then you are going to have a happy consumer. So the consumers going to get that benefit. Interviewer: Do you think that RFID could combat product shrinkage? RFID Standards Body: Definitely. Interviewer: Could Gen-2 RFID systems provide a better solution over a traditional EAS system? RFID Standards Body: Any RFID solution will provide a better solution than EAS. Because all EAS does is pretty much on/off, so as it moves through a gateway, its whether its read it or not. It doesnt carry any product information at all. With the new generation, Gen-2 RFID system it does carry product information, so you can actually use it within supply chain for things like groceries and retail and there abouts. I dont really see the two as comparable systems Interviewer: What do you think the advantages are of RFID over barcodes? RFID Standards Body: In all honesty, in some situations it will be actually better than RFID. But in a situation when RFID would be better than barcoding, would be the point where you have products that read well with RFID, so you dont need line-of-sight and you read them very quickly. Or with pallet and carton-level you can then have quicker movement of goods and you can have more real-time capture of data. Interviewer: If were asked to provide some type of advice for an RFID system for a retailer would you request that their suppliers also use the technology?

188

RFID Standards Body: If youre talking in all honest, a retailer wouldnt care if they use the technology they would just require that a tag gets on the product Interviewer: So, like source-tagging? RFID Standards Body: Slap and ship. What weve seen from Wal-Mart is that they dont really care whether their suppliers are tagging at the beginning of their process or at the end of their process. All they really care about is that theyre getting products with Gen-2 RFID tags on it. Now thats one end of the truth; most likely the retailer wouldnt care. The only time when a retailer would care is if they wanted to see the time that the supplier sent the products. Not many retailers would care about that information. More often than not I dont think a retailer would really care whether the supplier used the system, they just want to make sure that theyre RFID tagged. Interviewer: Do you think RFID can be used with any additional technologies? RFID Standards Body: Such as? Interviewer: GPS. Any others? RFID Standards Body: Yes. You can back-end it to a Wi-Fi system, have a wireless network. So instead of cables everywhere you can just use 802.11 to get the information back. Have a GPS system on a truck, so you can start following products instead of having to read the tag, you can read the GPS and see where the product is. So, I think anybody that wouldnt be looking at some sort of convergence between RF systems would be pretty narrow minded; they wouldnt be looking at the total solution, they would only be looking at one part of it. Interviewer: Do you think they would be convergence with Barcodes and RFID? RFID Standards Body: Barcodes and tags will coexist for a very long time. And most RFID tags that weve seen up to now essentially sit behind a barcode. Interviewer: Yes Ive seen that, those large type tags? RFID Standards Body: Yes, sitting behind a SSCC. Interviewer: SSCC, What does that stand for? RFID Standards Body: Serial Shipping Container Code. Interviewer: With that convergence do you somehow see UPC and EAN codes converging with the EPC standard? RFID Standards Body: They already do, theyre called Tag Data Standards. Now the GS1 standards which is EAN UPC standards they form part of the EPC standard. So you take the standards and you can create EPC codes. You have data codes like a general identifier, you have DoD codes, which are the Department of Defence codes in there, but definitely the GS1 codes are implemented in there. Interviewer: GS1 as an organisation they cover EPCGlobal, is that right? RFID Standards Body: Yes, EPCGlobal is a subsidiary of GS1. - End of Transcript -

189

Appendix G Participant Information Sheet

Participant Information Sheet

The research being conducted is addressing the use of Radio Frequency Identification (RFID) and specifically Minimising Product Shrinkage across the Supply Chain using Radio Frequency Identification: a case study on the retail industry. Product Shrinkage refers to unexplained stock shortages; that is, missing merchandise that has not legitimately left the store. This form of retail loss arises through diverse avenues such as vendor or supplier fraud, administrative and vendor error, stock wastage through deterioration or breakage, poor stock control, thefts of stock while in transit, employee theft and customer theft. The research is being conducted by Nicholas Huber, contactable on 0410 325 289 and supervised by Dr. Katina Michael, contactable on 4221 3937. It is being conducted as student research through the Informatics faculty of the University of Wollongong. As a participant, you will be asked questions in an interview style procedure with the opportunity to elaborate and explain your opinions and beliefs. This will be performed at a convenient time to you and should take no longer than half an hour depending on the depth of answers provided. The interview will be performed only once and all information will be extracted from this. Aside from the generous offering of your time, there are no other inconveniences and certainly no risks or discomforts that will be encountered. Some examples of typical interview questions are as follows: Example Question #1: Do you know what product shrinkage is? Example Question #2: What types of loss prevention mechanisms do you have in place in your organisation? Example Question #3: Do you know what RFID is? The research may offer some potentially insightful information for your organisation and benefits could be gained by helping to minimise the extent of product shrinkage in retail. It is, however, designed to be an academic piece of work enhancing a gap in knowledge pertaining this area of study. If you have any questions or comments regarding the research or its procedures, please feel free to contact me on the phone number listed above. You are entitled to refuse participation in this research and furthermore, you are freely able to withdraw consent, if you have previously granted it, with no repercussions from your organisation or the University of Wollongong. Data will be collected using an electronic Dictaphone on an audio tape during the interview process and all primary data will be held securely for a minimum of five years according to the University of Wollongong Code of Practice by Dr. Katina Michael on University premises. At all times, your confidentiality will be respected and ensured with the changing of names and no reference to your specific position the two methods to be used to guarantee this. If you have any concerns or complaints about the way this research has been conducted, please contact the Secretary of the University of Wollongong Human Research Ethics Committee on (02) 4221 4457.

190

Appendix H Consent Form

Consent Form Minimising Product Shrinkage across the Supply Chain Using Radio Frequency Identification: A Case Study on a Major Australian Retailer Researcher: Nicholas Huber
I have been given information about Minimising Product Shrinkage across the Supply Chain using Radio Frequency Identification: a case study on the retail industry and discussed the research project with Nicholas Huber who is conducting the research as part of a Bachelor (Honours) of Information & Communication Technology supervised by Dr. Katina Michael in the department of Informatics at the University of Wollongong. I understand that, if I consent to participate in this project I will be asked to Allocate some time for an interview Answer questions asked of me by Nicholas Huber pertaining to the use of RFID and the issue of product shrinkage in the workplace. Be available at some later stage to ensure accuracy and validity of results I have been advised of the potential risks and burdens associated with this research, which include the offering of about half an hour, and have had an opportunity to ask Nicholas Huber any questions I may have about the research and my participation. I understand that my participation in this research is voluntary, I am free to refuse to participate and I am free to withdraw from the research at any time. My refusal to participate or withdrawal of consent will not affect my relationship with my organisation or the University of Wollongong. If I have any enquiries about the research, I can contact Nicholas Huber on 0410 325 289 or Dr. Katina Michael on 4221 3937 or if I have any concerns or complaints regarding the way this research is or has been conducted, I can contact the Complaints Officer, Human Research Ethics Committee, University of Wollongong on 4221 4457. By signing below I am indicating my consent to participate in the research entitled Minimising Product Shrinkage across the Supply Chain using Radio Frequency Identification: a case study on the retail industry, conducted by Nicholas Huber as it has been described to me in the information sheet and in discussion with Nicholas Huber. I understand that the data collected from my participation will be used for a thesis and I consent for it to be used in that manner.

Signed Name (Please Print)

Date / /

191

Appendix I Human Research Ethics Committee Approval

192