After years of silence, Gillette has finally gone public about the expected returns on its RFID investment. At the EPCglobal conference in September, the giant consumer packaged goods (CPG) manufacturer, maker of Fusion, Mach3 and Venus razors; Duracell batteries; and Oral-B toothbrushes, revealed that it was projecting a whopping 25-percent return from its RFID investment over the next 10 years.
Speaking at the conference, Dick Cantwell, Gillette's vice president of global value chain, EPC & retail availability, said the company was confident that RFID would help it shave costs by identifying and rooting out inefficiencies in its supply chain. Specifically, Gillette believes its use of RFID technology will result in process improvements like better receiving and order-assembly procedures, better in-stock performance and, in particular, improved promotional execution.
Many of the projected savings will be the direct result of increased visibility of products in Gillette's supply chain. Through pilots with customers in North America and Europe that have RFID tag readers in strategic locations, Gillette has learned exactly how much time is required for each stage of the distribution process. For example, Gillette found that it took six days and 10 hours for a razor blade cartridge refill pack to travel from its factory to the store shelf. Nearly half of that period—three days and three hours—was spent moving the razor blades from Gillette's DC to its retailer's DC. It took another day to load the products onto a trailer for shipment to the store, and another two days for them to reach the store. Once the razor blades had arrived at the store, it took three hours for them to be re-stocked, and five hours for the case to return to the back room, signaling that the shelf had been restocked.
"That's information that we never had before …," says Cantwell. "This has allowed us to go back and work ... with our customers to identify specific applications where we can derive business benefit with the goal of improving retail availability."
Gillette's announcement was hailed by industry analysts. "This is something that the industry has been asking for—for the companies that are early adopters and have [invested heavily] to come out and help the industry move forward," says Kara Romanow, an analyst with AMR Research who follows RFID developments within the CPG sector. She cautions, however, that other CPG companies shouldn't assume they can realize savings of this magnitude. "Gillette has a specific business problem that this technology addresses; not everybody does."
Losing that promotion
One of the business problems successfully addressed by RFID is the long-standing issue of out of stocks, particularly among products targeted for promotional campaigns. Gillette's studies with one large retailer, for example, exposed problems with products' not moving to the store floor as scheduled. EPC reads revealed that one promotional display was lost in the store's back room for several months. Gillette also discovered that a new product, Tag Body Spray, had been packed into a display case mislabeled as toothbrushes. In another instance, razors and cartridges were loaded into a display case backwards, where they were not visible to the store's restocking associates. By locating these products and finding ways to alert store personnel when products were needed on the retail floor, Gillette boosted sales by 28 percent—a figure it was able to confirm through point-of-sale information.
With RFID tags and new procedures in place, Gillette hopes to avoid the types of miscues that plagued the launch of the disposable version of its Venus razors. RFID reads in the test stores indicated that one-third of the displays didn't make it from the back room to the sales floor in time for the promotion's start date. "These advertising programs cost a great deal of money and they're timed to kick off when the merchandise hits the retail floor," says Cantwell. "So consumers [who came in] looking for this new product that they learned about through TV or a promotional flyer were not able to find it."
Cantwell says the late execution resulted in a 19-percent loss of revenue for that product. A similar problem occurred with a Father's Day promotion for its Braun shaving line. Cantwell says Gillette is using RFID to fix the problem, which tends to have a snowball effect throughout the supply chain.
"These promotions are important because they often become the baseline for future [sales] forecasts," says Cantwell. "So if this promotion ultimately delivered less-thanoptimal sales, then it's not only in danger of not being repeated, but [it's possible] we could see a reduced forecast in the future, which could lead to massive out of stocks and customer disappointment."