© METRO AG 2004

RFID in theSupply Chain:METRO Group`sExperiences

Dr. Gerd WolframExecutive Project Manager METRO GroupFuture Store Initiative

„RFID Innovations and Values“ Symposium, November 18th 2005, Stanford Business School

© METRO AG 2004

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1 Objectives of the project

2 RFID in the Supply Chain: Experiences

3 Business Case: A Retailer`s perspective

4 Next steps: The Roll-out

Content

© METRO AG 2004

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METRO Group – One of the World‘s largest Retail Groups

Management Holding

METRO AG

Cash & Carry

Cross-divisional Service Companies

Food Retailing Nonfood Consumer Outlets Department Stores

© METRO AG 2004

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The METRO Group Future Store Initiative –Benefiting Retailing and Consumers

Cooperation procject of METRO Group with SAP, Intel and IBM with integration of further partners especially from the consumer goods and information technology industries.

The initiative provides a platform for technical and process-related developments and innovations in retailing.

The initiative sets standards for theretail trade of the future

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Partner companies – Jointly Elaborating Visions

METRO GROUP SAP INTEL IBM

CISCO SYSTEMS COCA-COLA DHL SOLUTIONS GILLETTE HENKEL HEWLETT-PACKARD JOHNSON & JOHNSON KRAFT FOODS L‘ORÉAL MICROSOFT NESTLÉ ORACLE PHILIPS PIRONET NDH PROCTER & GAMBLE SATO SYMBOL TECHNOLOGIES VISA WINCOR NIXDORF

ADT ALGOTEC ALPHA TONTRÄGER AVERY DENNISON BIZERBA BOSTON CONSULTING GROUP CHECKPOINT SYSTEMS CHEPCITTADINO EYCKELER & MALT FEIG ELECTRONIC FUJITSU SIEMENS COMPUTERS HINTZPETER & PARTNER INTERMEC KURT SALMON ASSOCIATES LIEBHERR LOYALTY PARTNER METTLER TOLEDO MULTIQ NCR OATSYSTEMS ONLINE SOFTWARE SIEMENS BUSINESS SERVICES SONOPRESS WANZL WMS ZEBRA

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The Extra Future Store – Testlab of the Initiative

Extra Future Store in Rheinberg:Application and combination of a wide range of technologies in retailingTest under real-world conditionsTesting acceptance of customersCa. 4.000 square meters sales and storage areaCa. 3.000 customers per dayIncrease of the customer frequency(+ 20 %)15.000 visitors since the reopeningof the store

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Innovative Technologies in the Joint Testing Laboratory

InfrastructureWLAN ServerContent Bus

ComfortShopping

SmartCheck-out

In-storeInformation

RFID InventoryManagement

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1 Objectives of the project

2 RFID in the Supply Chain: Experiences

3 Business Case: A Retailer’s perspective

4 Next steps: The Roll-out

Content

© METRO AG 2004

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RFID – Base Technology of the Future Store

Technology allowing to read special labels applied to products and packaging via radio signal

The RFID label can store moreinformation than conventionalbarcode labels

Benefits for warehousing, quality assurance and categorymanagement

RFID labels can be read in anygiven number from a distance of up to one meter

Work volume and error rate in merchandize entry are reduced

Full tracking of the merchandizefrom the manufacturer through to the Extra Future Store

Problems in the supply chaincan be detected and solvedearly on

© METRO AG 2004

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Gaining Knowledge and Experience – RFID-Tests in the METRO Group Future Store Initiative

Learning how to use RFID-technology

Learning about requirements, process changes, benefits in a real life-environment

3-Step-Approach

Technical Field Trial

Business Case

Supply Chain Practice Test

© METRO AG 2004

10RFID-ReaderRFID-Transponder

on cartons and pallets

Preparation of RFID-

Transponder

Tests on Pallet and Case Level

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RFID Data Management

SAPApplication

System

Future StoreNetwork

Delivery Monitor

Writing the Tags Exit and Entrance Portal In-Store Portal

Merchandize Flow

I II IV

III

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SAP Portal – Tracking and Tracing

complete tracking control

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Smart Shelf – Inventory Management in Real-Time

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1 Objectives of the project

2 RFID in the Supply Chain: Experiences

3 Business Case: A Retailer’s perspective

4 Next Steps: The Roll-out

Content

© METRO AG 2004

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RFID potential analysis: Project procedure

RFIDpotential

Marketindicators

KSA best practices

Processanalysis

Roll-outoptions

Interviews with industry partners

Suitability of individual categories

© METRO AG 2004

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RFID in the Extra Future Store –Efficiency analysis with Kurt Salmon Associates

Transponders areaffixed duringproduction

Products areloaded in boxes and consigned on pallets

Automatic controlof outgoingshipments

Truck controlto avoid theft

Production Manufacturer

Automatic controland entry into themerchandisemanagement system

Automatic sorting, counting and control

Automatic control of shipments

VI

II

III

IV

VI

VII

VIII9

Warehouse

Tracking of merchandisemovements from storewarehouse to point of sale

Availability and theft control

© METRO AG 2004

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Project resultsThe RFID potential estimates are based on 3 main areas of benefits

Process efficency – based on a detailedanalysis of store processes

Product availability – based on the rootcauses of OOS

Theft reduction – based on estimates of causes of shrink and theft

Out ofShelf

1 –Assortment

management

2 – Backroomstock

monitoring

3 –Organisation of shelf repl.t

4 – Accuracyof orderproposal

5 – Accuracyof forecasts

Shrink

Theft by shopper Other

Back-room

Sales floor

Back-room

Sales floor

All estimates are based on Future Store measured data and/or

KSA industry knowledge

Theft by staff

II

I III

© METRO AG 2004

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Process efficiency: Detailed analyses

Fresh prod.'s

Dairy prod.'s

Fruit & veg.'s

Frozen foods

Dry & spirits

PNNon-food

PN

Industrypartners

METRO Group

warehouseIncoming merchan-

dise

Store warehouse

Point of sale

50

50

2

486

18 50 10 8.5 15213629.5

1.5

1.5

8.51

1

1

7

14

15

15

3

3

5

5

5

721

21

213

36

3624

29.5

29.51

18

18

5

135

# of pallets

Stor

eSu

pply

chai

n*

Bever-ages

45

45

Activity Storage for longer than 12 hours

7

12

331.5

Pallets stored less than 12 hours

N: Normal, P: Promotion-based: KSA store surveys, Dec. 2003 – typical number of pallets per week(*) Supply chain not included in the extent of the project

© METRO AG 2004

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Process efficiency: Leaner and faster processes

Incomingmerchandise

Less time required for control of incomingmerchandiseLower costs for returns

Store warehouseQuicker retrieval of stored productsUpdated and immediate information on storewarehouse inventories

Automatic control of incoming merchandise at thepoint of saleCorrect shelf placement of the products

Point of sale

© METRO AG 2004

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Merchandise availability: Potential benefits due to RFID

Accuracy of receivedmerchandise

Replenishment at thepoint of sale

Compliance withplanograms

Visibility of storewarehouse inventory

Current situation Expected benefitOnly random sample tests Individual and systematic

control

Poor/no control of storewarehouse inventories

Control of inventories throughautomatic scans of incomingand outgoing merchandise

No system information on shelf stock-outs

Real-time shelf stock-out warnings

Insufficient knowledge of space management plans

Automatic control of planogram compliance

Loss of time through productrelocation

Automatic tracking of misplaced productsLocating products

© METRO AG 2004

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Loss/theft

Merchandise availability

Process efficiency

11% to 18%(depending on the

merchandise category)

Retail unit

12 to 17%(Incoming

merchandise and shelving)

9% to 14%(reduction of OOS)

RFID at the retail unit: Significant improvements are possible

Pot

entia

l

Log. unit Retail unit Item

Incoming merchandiseShelving

© METRO AG 2004

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Consequences of stock-outs: Significantly larger for industry than for trading companies

Substitutions

Shelf stock-out*

Trading companies Industry partners

No purchase

50% 65%

* KSA project experience

© METRO AG 2004

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RFID use at the log. unit/retail unit: 1/3 of total potential*

RFID potential Consequence

Log. unit/retail unit

35%

Product65%

Extent

Benefit

Potential

Totalsupply chain

Significant

Market processes, also thoseindependent of RFID

*Level of benefit also dependent on supply (supplier/direct), incoming merchandise control, forecasting system

© METRO AG 2004

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Benefit for industry and trading companies:Potential in many different areas

Management recycling processes

I Supply chain and production efficiency

Reduction ofstock-outs

Fight againstbrand piracy

Reduction of lossesImprovement of

product availability

Efficiency ofafter-sales services

Supply chain

StoresAfter-sale

II

III

IVV

VI

VI

© METRO AG 2004

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Benefit for retail

Benefit for industry

More efficientprocesses

Requirement of manufacturer analyses

Potential

Greater merchandiseavailability

PotentialPotentialRFID kick

off

RFID readiness

Supply chain

maturity

Supplier business

case

Design of RFID

strategy

RFID strategy

Jointbenefit areas

RFID Benefits: Both METRO Group and Industry

© METRO AG 2004

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1 Objectives of the project

2 RFID in the Supply Chain: Experiences

3 Business Case: A Retailer’s perspective

4 Next Steps: The Roll-out

Content

© METRO AG 2004

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Starting November 2004 with around 20 industry partners, as well as selected warehouses, stores and branches of the METRO Group

Launch of theroll-out

Incoming/outgoing goods, inventory replenishment, automatic reconciliation

Logistical units (pallets) and retail units (boxes)Individual items are not included in the RFID roll-out

RFID transponders

on...

Focus of theroll-out

Going live: The METRO Group RFID Roll-out

© METRO AG 2004

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Focus on logistic units and trade units

Initially, RFID transponders for the individual items will beexcluded from the roll-out

Today Phase 1November 2004

Phase 2July 2005

Phase 3January 2006

Later

Num

bero

f sup

plie

rs

ItemsTrade units(boxes, sub-boxes)

Logistis unit(pallets)

© METRO AG 2004

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The METRO Group RFID Roll-out is Reality!

Kaufhof, Neuss Real, RatingenMetro Cash & Carry, Neuss

© METRO AG 2004

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Distribution warehouse

Vision: The Use of RFID along the Supply Chain

Delivery notification (DESADV)Incoming merchandise

Incoming merchandise – precise verification

Store/Branch

Reserve areaOrder picking/additional merchandise

Outgoing merchandise

Incoming merchandiseInventory management

ShelvingShelf management

Manufacturer

LoadingStorage

Production

© METRO AG 2004

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Customer Cross-sectionalcompanies

Suppliers

Logisticsprovider

Serviceprovider

Marketresearch

Sales divisions

Determineadvanced

retailingstrategy

Developpriorities

Improve roll-out

Com-plementadvanced

retailing

Adjust theorganization to the newrequirements

Our vision: The network organization

© METRO AG 2004

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The METRO Group Future Store Initiative

Experience the innovative technologies in the Extra Future Store in Rheinberg ...

Extra Future StoreMoerser Straße 2847495 RheinbergGermanyPhone +49 (0) 28 43 - 90 16 82Fax +49 (0) 28 43 - 90 76 87 8

Or visit our websites! www.future-store.orgwww.metrogroup.de

© METRO AG 2004

METRO Group Future Store Initiative

Experiencing the Future of Retailing

Thank you !