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After nearly a decade’s worth of breathless predictions, futuristic fairy tales and the distant promise of super-streamlined global supply chains, the world has finally grown weary of the relentlessly hyped technology known as RFID. Perhaps the fatigue was inevitable. RFID holds great potential, but the road to adoption is a long and costly one. And yet stories of a life full of detailed supply-chain data and free of printed bar codes continue to assault technology executives from every direction.

The reality of RFID, of course, is far less sexy. Only after being bullied by powerful retailers have manufacturers reluctantly agreed to slap-and-ship pallets, crates and boxes of product with RFID tags. RFID readers get crushed by forklifts and clumsy warehouse employees. And many of the tags are rendered unreadable by product packaging or poor placement. Meanwhile, little or none of the data being generating gets put to good use. RFID is most definitely a work in progress.

That’s why Boston-based Global Gillette (formerly the Gillette Co.), the market leader in razors, took a more measured approach to RFID during the launch of its new Fusion brand in February. The company was well aware that consumer goods manufacturers, like the retailers they supply, are still in the learning phase of electronic product codes, the product information stored on RFID chips. Gillette, fresh off its $57 billion acquisition by Procter & Gamble Co., decided to test RFID to track the pallets, cases and displays sent to just two of its retail partners. And only 400 stores and four distribution centers were involved in the pilot.

Gillette executives concentrated their efforts on tracking “display compliance”: making sure the in-store promotional displays that adorn retail store floors were set up in time to coincide with Fusion’s massive marketing and ad campaign. “Maybe we will eventually get to things like smart check-out, or the ability to know where in the store the product has been placed,” says Dick Cantwell, EPC program leader for Procter & Gamble. “But we’re very satisfied right now that if we can have promotional display compliance executed on a broad basis across retailers, there will be significant benefits.” In other words, Gillette figured it was better to learn how to walk before they run.

Indeed, the Fusion launch yielded interesting data that will be of use to Gillette and its parent company going forward. The Fusion pilot even paid for itself, according to Cantwell, in increased sales at stores that were brought into compliance through Gillette’s technological vigilance. But the launch also raises questions about the degree to which RFID technology can ultimately address both the divide between manufacturer and retailer, and the gross inefficiencies that still exist in retail execution. And it does nothing to solve the biggest obstacle to widespread RFID adoption in the consumer goods business: cost.

Planning A Massive Launch

The Fusion launch was not the first time P&G has dipped its toes into RFID waters. And Gillette, acquired by P&G in the fall of 2005, had already run several trials of its own. One such trial, which tracked displays of the company’s Venus line of razors for women, taught the company a dismal truth about display compliance: More than 30 percent of the displays were not getting set up on the sales floor on time. A similar trial with Gillette’s Braun CruZer electric shavers yielded equally dim results.

But the Fusion launch was intended to be a different animal from the very beginning, thanks in part to P&G’s need to convince Wall Street that the $57 billion it forked over for Gillette was money well spent. For starters, the company planned to spend a reported $200 million to support the launch of the product. The launch date was set for Feb. 5, Super Bowl Sunday, and the marketing blitz included not one but two Super Bowl ads, at a total cost of $6 million. P&G took out ads in every major men’s magazine, from Sports Illustrated to Esquire. Paula Abdul and Randy Jackson, of American Idol fame, stumped across the country looking for the “Face of Fusion.” P&G blanketed the earth with ads and promotions, desperate to make Fusion, the five-bladed razor (six if you count the trimmer on the back, for those “hard-to-reach spots”) that sells for about $10—blades are extra—its flagship shaving product, replacing the widely used Mach III.

“There were enormous resources behind getting that product to retail,” says Paul Fox, spokesperson for Gillette. “Mach III is considered one of the best consumer product launches ever, and the investment behind Fusion was even greater than that.”
A critical part of that launch for P&G was timing product availability and visibility in stores with the date of the launch. In the first week alone, 180,000 promotional Fusion displays were sent out to stores. They varied from self-contained perforated cardboard boxes that fold into shelf-level promotions, to entire pallets that were rolled into the middle of supermarket aisles. But just sending out the displays wasn’t going to be enough.

In the retail business, promotional display compliance rates are not what they should be. Manufacturers are lucky if 60 percent of their displays make it out on the sales floor within three days of a launch or promotion. And the results can be disastrous. “The problem of out-of-stocks is very simple,” says Sanjay Sarma, a cofounder of the Auto-ID Center at MIT and CTO of OATSystems, an RFID vendor that works with P&G. “If you don’t make the sale, then both the retailer and supplier lose. It just so happens that sales typically spike around promotions, so if you flub a promotion, it results in an especially great loss.”

Given the high stakes, Gillette executives started planning well in advance of the actual launch date to use RFID to ensure Fusion’s display compliance. In fact, RFID was taken into account two years before the launch, after the product had been developed but before the packaging was designed. “We put our RFID engineers together with our packaging engineers to make sure decisions affecting the packaging were made in such a way that the product would be what we call “EPC friendly,” says Cantwell.

From the type of aluminum foil used in the packaging to where the tags should be placed on pallets and displays, Gillette’s engineers were looking for what is known as the “sweet spot,” the placement that would give them the most consistent reading. “With Fusion, we were able to start from scratch,” says Cantwell. “We were able to configure the materials, and the way the product was arranged in the pack, so we could get a sweet spot pretty much anywhere on the package.” The collaboration between packaging engineers and RFID experts within P&G offers a glimpse at how electronic tagging will eventually affect the entire product lifecycle, from conception to sale.

Weak Links in the Supply Chain

Of course, with such a high-profile launch, display compliance was bound to be high. P&G made its retail partners acutely aware of the launch’s importance, so that even the most reclusive floor manager would have stumbled across a Fusion ad or two leading up to the launch date. “There was no store or store employee that wasn’t aware that something huge was happening,” says Cantwell. “The strategy was to surround the consumer with Fusion communications, so they couldn’t help but realize there was a major new product being brought to market.”

Among the goals of tagging the Fusion displays was to boost sales at the 400 stores participating in Gillette’s RFID program. But perhaps more important was what P&G learned from the launch. Cantwell received data readings from the tags at a number of spots along the supply chain: leaving P&G’s distribution center; arriving at the retailer’s distribution center; leaving the retailer’s distribution center; entering the retail store’s stockroom; entering the sales floor; and finally, entering the retail store’s box crusher.

As soon as the data began feeding back to Cantwell and his team, the problems started showing up. Some stores were getting too much product. Some got none at all. The inefficiencies in the supply chain were immediately apparent. “If a display arrives a week before it is supposed to go out on the floor, it’s put up on some reserve racks in the warehouse or some other place that’s not very prominent,” says Simon Langford, director of RFID strategy and transportation systems at Wal-Mart Stores Inc., one of two retail partners participating in the launch (Gillette declined to name the other). “Sometimes our associates just forget. This is the real world. With 4,000 stores, mistakes happen.”

When it comes to poor store execution, Gillette executives readily admit that the blame needs to be spread evenly among manufacturers and retailers. “There’s culpability on both sides of the equation,” says Gillette’s Fox. “Error creeps in from the time we’re packaging the product.”

In response, Gillette representatives were able to notify their retailers and redirect product, usually within 24 hours. Stock clerks used handheld devices to find Fusion displays buried behind other merchandise. And P&G merchandising employees were dispatched to stores that were not in compliance with the schedule to correct the problems.

By the launch’s third day, the EPC-enabled stores had achieved 92 percent compliance, a level that exceeded expectations, even given the typical boost in compliance for such high-profile launches. In fact, the 400 stores involved in the pilot achieved significantly higher sales numbers as well, which Cantwell says more than covered the costs of applying the tags. (Gillette executives declined to share exact figures, citing competitive reasons.) “This was a really practical application of a very new technology,” says Christine Overby, an analyst at Forrester Research Inc. “It’s not science fiction, and that’s a good thing.”

The overall launch was pretty successful as well. In its first four weeks on the market, Fusion and Fusion Power (the battery-powered variety) gobbled up a jaw-dropping 55 percent of the razor market, according to one Wall Street analyst. Sales have since slowed considerably, and there is some indication that consumers are not buying refills as quickly as predicted, but the launch itself was an unqualified success.

A Difference of Opinion

Though Gillette purposely limited its use of RFID during the launch, the technology showed its youth on occasion. “There’s a great deal of fine-tuning going on at each location, because of radio interference, process-flow problems, RFID tag readers that get turned off or run over by forklifts,” says Cantwell. But even if the technology were to work flawlessly, the RFID data from the Fusion launch highlighted a significant rift between manufacturers and retailers, one that RFID is meant to address.

“Sometimes compliance doesn’t mean the same thing to the manufacturer as it does to the retailer,” says Jeff Woods, a research vice president at Gartner Inc. Woods points to a trend at some retailers, aimed at giving the store managers more autonomy and allowing them to make decisions about which products will sell to their particular set of customers. “There are complaints that a lot of money is being spent at the corporate level, between manufacturers and retailers, only to have those decisions undermined at the store. The reality is that you’re not going to fire a store manager because he didn’t put out the display of Gillette razors.” Woods says the use of RFID can provide valuable data that manufacturers and merchandisers can use to make their case to store managers. But he says there is a long road ahead. “Store execution is out of control,” says Woods. “Finding compliance problems is wholly different than addressing them. This is a business challenge.”

Wal-Mart admits as much. “Part of our culture is to allow our associates to be merchants, to know their local markets and serve their communities,” says Langford. “It’s the local team that ensures we’re featuring the right products.” Langford says there are corporate initiatives, such as the Fusion launch, that are pushed across the entire Wal-Mart chain of stores. “But we always allow space for local flair.”

There is also the issue of when and how RFID is rolled out to the broader supply chain. Manufacturers are naturally inclined to roll out RFID one product line at a time. Retail stores, on the other hand, want to install the physical infrastructure that reads the tags site by site. “This creates a conundrum,” says Cantwell. “There’s no way a manufacturer can tag everything at once, and there’s no way a retailer can install everything and start reading everything at once.”

Cantwell spends a considerable amount of his time evangelizing for better partnerships between manufacturers and retailers. He repeatedly preaches patience and collaboration. “We are very much in the early days of this technology,” he says. “We have to learn together. The partnership is critical.”

To that end, P&G has developed a complex timetable for tagging its thousands of products. The intent is to inform retailers about which P&G products are on the RFID fast track and why, while others lag behind. It’s called the EPC Advantaged Strategy, and it effectively places each of P&G’s products into three buckets: EPC Advantaged, EPC Testable and EPC Challenged. Fusion landed in the advantaged category thanks to its high value and the ease with which it can be tagged. Cantwell says Swiffer sweepers are in the testable category, for which the company is still determining the business case. And challenged products include low-value items, or items with packaging that makes RFID impossible, such as Cascade dishwasher detergent, which uses a foil liner.

The eventual goal at both P&G and Wal-Mart is to tag all of their products. But that goal will have to wait until the cost of RFID tags themselves, and the infrastructure needed to read them, drops significantly. “It’s all about the price of tags,” says Cantwell. “It’s almost exclusively cost-driven. We’re going to find ways to do it cheaper.”

In the meantime, tracking product-display compliance is a practical, cost-effective way for suppliers to get into the RFID tagging game. It even has the potential for a real return. Waiting until RFID becomes ubiquitous is not a good option, says Cantwell. “I see a lot of CIOs looking at RFID and saying, ‘There are just too many unknowns. I’m just going to wait until it’s proven.’ That would be a mistake. You should be developing competency and understanding, and working on your business cases, or you’re going to find that you’re significantly behind the game when you decide to move.”

And the hype marches on.

Sidebar: Thinking Out: Loud