Preparing for a RushBy Michael Fitzgerald | Posted 12-27-2005
Kimberly-Clark Believes in the Future of RFID
Someday in the not-so-distant future, when you buy a box of Kleenex at the local pharmacy, it will trigger a chain reaction of events that will result, ultimately, in a tree being harvested in Canada. Call it the RFID Effect.
While not quite as profound as the Butterfly Effectthe notion that a single flap of a butterfly's wings can alter the weather on the other side of the worldthe potential for RFID (radio-frequency identification) technology to affect global supply chains has been the subject of debate for years.
And though it's still early, businesses of all shapes and sizes are beginning to experiment in earnest with this promising but temperamental technology, whether they believe it is the start of a retail revolution or nothing more than a glorified bar code.
Among the retailers that have embraced RFID early and often is Kimberly-Clark Corp., the $15 billion consumer goods behemoth that makes Kleenex, along with a host of other well-known brands, such as Huggies and Depend.
The Dallas-based firm was the first U.S. company to ship an item tagged with an EPC (electronic product code) off a commercial line, in April 2004. (A framed picture of that first box, a case of Scott Towels, hangs in a conference room at the company's RFID lab.)
Six Kimberly-Clark employees have joined EPCGlobal Inc., the international organization establishing the standards for RFID tags. The company is already able to selectively tag more than 144 of the items in its product line.
And in a bold attempt to take RFID beyond the infamous slap-and-ship mandate of Wal-Mart Stores Inc., Kimberly-Clark has even built a 5,000-square-foot warehouse for the sole purpose of testing its use of RFID.
Why such eagerness for an unproven technology? Kimberly-Clark executives say they firmly believe that RFID will give the retail industry the ability to achieve just-in-time efficiencies similar to those of Toyota Motor Corp. and Dell Inc.
"It's going to get to the point where we can send an alert to Wal-Mart and ask them why a store shelf is empty when we know there's product in the warehouse," said Terry Assink, CIO of Kimberly-Clark.
But this just-in-time supply chain is probably still a decade away. Right now, Kimberly-Clark is still figuring out how to incorporate RFID tags into its own operations, let alone those of its suppliers, business partners and customers. Some skeptics say they think RFID technology will never be so inexpensive that putting a tag on something like a box of Kleenex will be feasible.
Currently, developers are still trying to get the cost of an individual tag down to 10 cents (it now stands somewhere around 30 cents). Some say that even if the tags cost only a penny apiece, they would still be too expensive.
Assink steadfastly disagrees. He concedes, however, that RFID has issues: It does need to cost less. It also needs to be more widely useda process that Assink said could take five or even 10 years, as both retailers and consumer goods makers adopt the technology at varying rates. And RFID does not work well in certain environments (it has trouble transmitting through liquids and metals, for example).
None of this fazes the folks at Kimberly-Clark. Assink said he is even more convinced of RFID's impact now than he was in 2000, when the company first started examining the technology. His bullishness has been enough to give the company's RFID efforts its rarified "FOAK" statusKimberly-Clark-speak for "first of a kind" strategic initiatives that are given wide budgeting berths thanks to their importance, regardless of the time frame needed to achieve the business goal.
"RFID should give us visibility into our whole supply chain," Assink said. "From our supplier's supplier all the way to the shelfnot the pantry, mind you, but the store shelf. Think about that."
Greg Tadych, director of business systems at Kimberly-Clark, is known within the company for dragging around an overstuffed briefcase with him wherever he goes. One day in mid-2000, he and his briefcase popped into the office of Mike O'Shea, then the director of North American logistical alliances. According to O'Shea, the two began chatting, as they had done hundreds of times before. And then O'Shea remembered something.
"Hey, I was at this conference, and they were talking about something called RFID," O'Shea said, and explained the technology.
"Wow," Tadych replied, his head swimming. "Do you know what we could do with that?"
"He immediately started rattling off all these things that I hadn't even thought of," O'Shea said: stock tracking. Streamlining of shipping. Improvements in receiving and forecasting. Invoicing efficiencies. Tadych could think of ways RFID would improve Kimberly-Clark's supply chain at almost every point.
Since that day, his group in IT and O'Shea's logistics group have been joined at the hip. O'Shea is now director of Auto-ID Sensing Technologies, a position that didn't exist three years ago.
Kimberly-Clark Believes in the Future of RFID
RFID Seen as a
When Tadych told Assink about his conversation with O'Shea, the CIO immediately saw that RFID was going to be a major initiativethe kind of project that would warrant FOAK status. And the hunt was on.
Assink, O'Shea and their colleagues began building their business case for significant investment early on, working toward a presentation to Kimberly-Clark's executive steering committee.
That committee, which includes the heads of the company's product groups and some of its top executives, makes a number of the company's operating decisionsincluding approving the global IT budget.
The case Assink and O'Shea were building became a no-brainer when Wal-Mart began talking up the technology in 2002. As a result, RFID got an easy green light from the executive steering committee that same year.
Of course, Kimberly-Clark wasn't the only consumer goods giant spurred to action by the Wal-Mart mandate. Sony Corp., Johnson & Johnson and Procter & Gamble Co. all have representatives on the board of EPCGlobal. But Kimberly-Clark is "clearly an innovator," according to Bill Hardgrave, who runs the RFID Research Center at the University of Arkansas.
Staying on the shelves at Wal-Martand at Target Corp., Albertson's Inc., Metro Group and Tesco Corp. (other big retailers pushing for RFID)was not the main reason Kimberly-Clark was interested in the technology, however. It was only the ante.
RFID means money, probably big money, for Kimberly-Clark: The company has the potential to wring huge efficiencies out of its supply chain by revolutionizing inventory management. Bar codes have to be seen to be scanned, and empty shelves have to be noticed by someone before they can be restocked.
But a shelf with an RFID reader can sense that there are no more Huggies, Size 5, on the shelf, and automatically send a message to the retailer, the distributor and even the manufacturer.
That should translate into higher sales, for both the retailer and the wholesaler, though how much higher remains to be seen. Hardgrave, who conducted a study on Wal-Mart's use of RFID, speculated that the technology could increase sales by about a half percentage point. That might not sound like much, but for a $300 billion company such as Wal-Mart that comes to $1.5 billion a year.
Kimberly-Clark also said it expects RFID to improve inventory tracking. Despite investing heavily in building a world-class supply chain, the company still gets calls from customers claiming they were shorted on orders. In fact, it gets such calls every day. O'Shea said the customers probably received the boxes, but don't have the right bar code information, so it seems as if they don't have them. And if there is a shortage, then there's probably an overage in another store.
But the truth is that RFID's impact on Kimberly-Clark's business is still to come.
Today, less than 1 percent of the goods Kimberly-Clark ships carry RFID tags, and that's only at the case and pallet level. For that matter, only a handful of retailers are currently pushing for RFID (though, of course, one of them does happen to be Wal-Mart).
Even tagging the actual shelves is a completely separate, and huge, investment. A typical Wal-Mart store has 12,000 four-foot shelves. That's a lot of shelves to equip with RFID readers.
All of which means that Wall Street isn't exactly rewarding Kimberly-Clark's share price for its efforts. "It's not something investors should be paying much attention to yet," said Jason Gere, an analyst at A.G. Edwards & Sons Inc. He said he thinks it will be at least a couple of years before RFID starts to have any kind of material impact for large consumer goods companies such as Kimberly-Clark and Procter & Gamble.
However, Gere said he does think it's good that Kimberly-Clark is ahead of the curve on RFID. "I'd be concerned if they weren't doing it. I think it can be an important piece of any consumer packaged-goods strategy a couple of years down the road. They should be doing the legwork."
Kimberly-Clark Believes in the Future of RFID
Flattening the Learning Curve
Ground zero for RFID at Kimberly-Clark is its massive manufacturing plant and distribution center in Neenah, Wis. Roughly 5,000 square feet of the facility has been built out as a laboratory just to test RFID. Its formal name is the Auto-ID Sensing Technologies Performance Test Center.
Designed to reflect actual factory and distribution facilities, the lab has a 270-foot-long conveyor loop, part of which runs at factory speeds of 200 and 250 feet per minute, while another part duplicates the 600 feet-per-minute speed used at Wal-Mart, Target and other retailers.
The lab has a full-sized stretch-wrapper of the same kind Kimberly-Clark uses to shrink-wrap "cubes" of, say, 60 boxes of Huggies to ship to a retailer. There's also a table with more than a dozen different RFID tags, including some with antennas printed on paper.
Mike O'Shea, giving a tour of the lab, pointed to a row of doors that lead onto the shipping dock. There are RFID readers mounted next to each doorway, but they're useless. "Look how close together the doors are," O'Shea said. "The reader on one door picks up the signals from something coming into the other door."
In other words, outfitting the roughly 1,000 dock doors at various Kimberly-Clark facilities would not prevent the packing errors that are among the reasons the company is investing in RFID.
Putting the readers on the forklifts used to load the trucks presents its own set of problems. Besides the prospect of the readers being crushed, there's also the fact that RFID doesn't transmit well through metal. "We aren't completely dressed for the dance yet," O'Shea said.
There have been productive lessons learned, however. Kimberly-Clark has figured out that tagging the upper left corner of individual boxes gives the most accurate reads when, later, these boxes are shrink-wrapped and might wind up in the middle of a cube. And the company has discovered, too, that it will need different tags for different kinds of productstags and readers that work with paper towels, for instance, don't work well with wet wipes.
To resolve that matter and others, the company is considering setting up a separate lab in Roswell, Ga. The company is also upgrading its warehouse management system, which currently communicates with forklifts over the same 915MHz frequency used by RFID.
And then there are environmental concerns. The lab recently shipped two stacks of goods by boat to Malaysia so that the effects of temperature, humidity and other factors could be monitored, in an effort to get a sense of the issues that might arise when exporting product. There's even research into what impact RFID tags might have on the environment itself. "There are still a lot of challenges," O'Shea said. "I'll be at this job for a while."
Kimberly-Clark Believes in the Future of RFID
Preparing for a Rush
In mid-2004, Assink first saw the writing on the wall and began taking steps to prepare for the gobs of data that would be heading his way when RFID became a reality at Kimberly-Clark. He took the unusual step of demanding that Tadych develop an RFID strategic applications plan.
Using that plan, Kimberly-Clark began focusing on two supply chain projects: One is an electronic proof of delivery program, the other is an out-of-stock management program.
Jonathan Landon, director of personal productivity and communications services, had to make sure not just that the company's centralized hub-and-spoke network could withstand the huge uptick in data volumes that RFID will eventually produce, but that it can help customers and suppliers do the same thing.
"We've done things we've never had to do before," said Landon, such as including one business partner in an application pilot project. Extending the company's IT infrastructure past its traditional boundaries has meant rethinking its security model, and figuring out how to make relevant data, and only that relevant data, available to partners.
The biggest issue with RFID is that it pumps out data in real time, 24 hours a day, 7 days a week. "We have to be highly available," Landon said. "We can't just tell someone, 'Oh, we were down for the last eight hours and didn't get any reads.'"
Once the RFID technology is fully operational, the company's applications will have to handle data on a far bigger scalethat's an issue Landon is still working on. As RFID use spreads across retailing, Landon said, the huge amount of addressing and routing capability needed will clearly require an infrastructure upgrade.
For now, though, he has network throughput at about 43G bits per second, with room for expansion, so capacity is not an immediate concern. In fact, Kimberly-Clark would like to pull in more data than it currently does. "We're trying to influence the standards so there's a little space for us to use for custom data," Landon said.
At the same time, the company said it expects it will regularly dump most of its RFID data, saving only the data it needs, in order to prevent overwhelming its storage infrastructure.
Despite the many unknowns, Kimberly-Clark executives say they strongly believe that RFID will trigger a slew of new ideas they've yet to even conceive. And Assink points to the fact that RFID standards have moved far faster than UPC codes did. Today, 30 years after the bar code was first deployed, there is still not a single international standard.
By comparison, EPCGlobal passed its preliminary Gen 2 RFID tag standard in June. Kimberly-Clark has even applied for its first RFID-related patent.
"RFID is a positively disruptive technology," Assink said. "So idea leads to idea. We're not on the bleeding edge just to be bleeding."