Back on Track

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Metro has found it difficult to keep its ambitious RFID...
Galeria Kaufhof, Metro AG’s department store brand, is starting to...

Metro AG’s retail empire stretches across more than 2,200 stores that operate in Germany and other markets around the world. Its businesses range from local supermarkets and large cash-and-carry outlets to downtown department stores and suburban electronics superstores.

From his spacious modern office— located in one of a dozen or so office buildings on Metro’s campus in Flingern, a residential area of Düsseldorf—Gerd Wolfram, managing director of MGI Metro Group information technology, works on developing and deploying an RFID infrastructure for the company’s disparate businesses and supply chains.

“Metro’s different businesses have different RFID requirements,” Wolfram said while drawing diagrams to illustrate the complexity of three Metro supply chains.

“Metro Cash & Carry stores are very keen about RFID because they are always looking for efficiency in their processes, but they are supplied by very few DCs [distribution centers] in Germany. For Real and Extra [supermarkets], there is additional complexity because they are supplied by several DCs,” Wolfram said. “And at Galeria Kaufhof [department stores], the interest is in RFID-tagging apparel, which is, again, a different business. Kaufhof is thinking item-level tagging, while the others are thinking pallet and carton level.”

In 2004, Metro launched RFID in these three supply chains. It outfitted nine distribution centers and 11 stores across Germany with RFID portals. The interrogators stand ready to automatically record many thousands of electronic product code (EPC)-tagged pallets delivered from suppliers. They’re networked to a back-end enterprise management system—dubbed Metro Link—that can immediately check that deliveries match orders, update inventory-management systems and alert suppliers when their shipments arrive at Metro.

But most of the time, Metro’s interrogators stand idle. With only about 50 suppliers tagging pallets—and only a portion of their shipments—the hardware has little work to do. However, it wasn’t supposed to be this way.

Metro, the fourth-largest retailer in the world and the largest in Germany, should have been receiving tagged shipments from more than 100 suppliers since the end of 2005. Instead, a host of issues—including a lack of Gen 2 tags and interrogators, supplier reticence to start tagging goods and restrictions on the radio-frequency spectrum available for UHF RFID—blighted the highest-profile EPC deployment in Europe. Metro admits that it underestimated the work that was required.

Back to the Future Store

In 2003, Metro began RFID-tagging pallets and cases at its DC in Essen for delivery to its Future Store in Düsseldorf. The store is a revamped Extra supermarket that is also a test bed for many other new retail technologies. The tags were read on goods as they left the DC and when they arrived at the storage area of the supermarket. Each delivery was automatically reconciled with the order, and the received goods were registered in the store’s inventory-management system.

Results from this limited pilot were so impressive that in January 2004, Metro made a splash at the annual NRF convention in New York City by announcing it would roll out RFID to 10 central DCs and roughly 50 stores by November 2004. In addition, 100 of its largest suppliers would start tagging pallets inbound to Metro. That ambitious timetable put its supplier tagging plans ahead of Wal-Mart’s RFID deployment by two months—and far ahead of its European counterparts.

By November 2004, however, only nine DCs and 11 stores were RFID-enabled, and only 20 suppliers were tagging pallets. Metro moved the 100- supplier target to the end of 2005. Today, only 26 suppliers are shipping tagged pallets to Metro Cash & Carry stores, 18 suppliers are tagging pallets for Real hypermarkets and three suppliers are tagging goods for Galeria Kaufhof department stores.

Still, a study of the savings from the limited deployment, published in January 2006, found that the use of RFID along with advance shipping notices (ASNs) over the Metro Link electronic data interchange (EDI) network would bring a total savings of 8.5 million euros per year ($10.9 billion) at Metro Cash & Carry, Real hypermarkets and Metro DCs—and that was based on an analysis of just two of 11 process stages where RFID is likely to have an impact. Moreover, only Germany was taken into account.

There are additional efficiency savings, said Wolfram, including cutting the waiting and loading times of trucks, improving order picking, and reducing the time it takes to check received and shipped goods. The company is turning its RFID experience into niche and closed-loop applications within its own operations.

“We have now spread out our strategy to look at value-added applications with a very-near-term ROI,” said Wolfram.

“Galeria Kaufhof uses plastic totes to ship some items of clothing to stores. Today, they have a barcode, but even three years ago we were suggesting RFID to track them instead,” he added.

“Then it was too expensive, but now we are looking at it again. These totes are used only within Metro, so it would be a closed-loop system that wouldn’t even need EPCglobal.”

In addition, at the Metro Cash & Carry DC in Hamm, Germany, the company is using reusable tags on shipping pallets. A tag is placed on top of a pallet ready for shipping. When the pallet is taken onto a truck, it passes through one of a handful of portals to check that the pallet is being loaded onto the correct truck. Once loaded, the tags are collected and reused.

Metro remains committed to examining new technologies that could leverage widespread RFID use throughout its DCs and stores, including an RFID-enabled glove that will help speed the picking process for its staff. The RFID glove, developed with Deister Electronic, replaces the manual updating of the warehouse management system (WMS). It works in tandem with the headphones workers currently use to know which cases to pick. When a tagged case is picked, the glove updates the WMS automatically over a wireless LAN or Bluetooth connection. Metro will start pilot tests of the glove in one of its DCs at the end of this year.

Metro has also begun a cold-chain tracking trial to test the potential of RFID tags equipped with temperature sensors in the Cash & Carry supply chain. While tags with sensors are available in the United States, Metro has to work with a supplier to develop a version for the European market.

“We sell a lot of fresh produce, and we want to ensure that each supplier can trace their shipments and track temperature as well,” said Wolfram. “First, this ensures quality. Second, a way to track and trace, even into the fridge, ensures they are in or out of date. One of our sales lines came to us and asked, ‘Why not have RFID-tagged food beeping or saying something when it is not treated well in the supply chain?’”

It is clear that Metro’s enthusiasm for the potential of the technology remains undiminished—even if it has learned that its initial deployment schedule turned out to be a little too ambitious. “I expect every pallet coming into Metro to be tagged within five or six years,” said Wolfram. “I thought the same last year, but still, we have to speed up.”