Cs08 Rfid Metro

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1.1 METRO Group (Germany)


This case study is about METRO Group RFID implementation for supply chain operations and forward looking pilots of the technology that aim to drive retailing innovation. The implementation project started in 2004 and focused mostly on tagging pallets with passive RFID UHF transponders. Significant achievement resulted from the implementation across METRO Group's retail functions, including supply chain process efficiencies, and customer service enhancements.

Case study fact sheet

Full name of the company: METRO Group (METRO AG) Location (headquarters / main


Dusseldorf, Germany No. of employees: 281,455 worldwide

Main business activity: Retail, and cash & carry wholesale Primary customers: Consumers and wholesalers

Year of foundation: 1996 (merger of three German retailer


Turnover in last financial year (€): € 64.3 billion (total sales 2007) Most significant market area: Europe, Asia


1.1.1 Background and objectives

The METRO Group comprises more than 2,200 stores in 31 countries in Europe, Africa and Asia and it is organized in 4 sales divisions through 7 different retail brands:

Cash & Carry: METRO, Makro Food retailing: Real, Extra

Non-food specialty stores: Media Markt, Saturn Department stores: Galeria Kaufhof

METRO Group's cross-divisional service companies are providing shared services such as purchasing, logistics, IT, advertising, and asset management. Among the others, the following functions are provided by:

IT: MGI METRO Group Information Technology (MGI) Logistics: MGL METRO Group Logistics (MGL)

Procurement: METRO Group Buying International (MGBI)

Competitive dynamics such as growth of on-line sales, market differentiation strategies and new market positioning of large European retailers, international expansion plans and growth of discount format outlets, are putting pressure on retail companies in enhancing productivity efficiencies, while offering consumers a more consistent and appealing shopping experience across multiple channels. Moreover, the current economy downturn is negatively impacting consumer confidence, thus customer service enhancements and effective loyalty management are imperative to survival.

This challenging market situation requires an increasing focus on centralizing key management functions, optimizing product assortments and replenishment efficiencies, supply chain and store management capabilities, ultimately providing a more effective service delivery and a better shopping experience. Achieving advanced retail demand intelligence capabilities is a major cornerstone for retailers and supply chain partners alike.

For the first time ever, during the second quarter of 2005, the foreign share of sales increased up to 52% of total sales in line with the groups international expansion strategy. Therefore, METRO Group ongoing consolidation and international expansion has urged the company in achieving key efficiency improvements and central management of critical business functions, for example supply chain operations.

The driving forces for METRO Group to roll-out RFID and conduct selected field trials of RFID were:

Achieve higher visibility, accuracy and productivity efficiency of logistics and supply chain operations.

Optimize inventory levels, minimize stock losses and improve working capital management.

Optimise promotion management efficiences.

Reduce out-of-stocks aiming to achieve top-line and bottom line gains, but also to improve customer service levels.


Enable fully automated replenishment efficiencies is the ultimate long-term goal for the METRO Group. This will require the RFID implementation to move beyond pallet-level.

Explore benefits of item-level tagging for the customer experience, store inventory management, and store workforce efficiencies.

1.1.2 e-Business activities

METRO Group began introducing RFID in its supply chain in November 2004 with a gradual and systematic approach. METRO Group extended the number of suppliers involved in the initiative to 50 CPG companies by mid 2006, and approximately 150 suppliers are now shipping pallets tagged with RFID labels. In all of its 9 food and non-food distribution centres in Germany, the METRO Group directly applies RFID tags on re-commissioned pallets and deployed RFID gates at outgoing and incoming goods locations. With the objective of achieving full supply chain automation and visibility in an effective manner, METRO Group decided in 2007 to consider three supplier categories when negotiating purchasing agreements. Starting from 2008, those suppliers that are not tagging pallets with RFID labels and that do not use EDI messages will be more penalized compared to suppliers that send shipping notices using EDI and/or apply RFID tags on pallets.

METRO Group has focused mostly on tagging pallets with passive RFID UHF transponders, which are carrying on data such as the Serial Shipping Container Code that identifies logistics units, store number and refers to detailed information on the pallet contents. Every item to be tracked is uniquely identified by a single electronic product code (EPC) stored in the RFID tag.

The supply chain process is as follows:

RFID-compliant suppliers send to METRO Group a dispatch notice in advance to shipments. Suppliers ship the goods in pallets, which are read through an outgoing gate.

An incoming RFID gate tracks arrival of pallets at a METRO GROUP distribution centre. Pallets are stored in the warehouse and RFID-tags are read again through an outgoing gate when pallets are shipped to the stores.

Pallets arrive at the store back-room inventory, and RFID tags are read via a receiving goods gate.

POS (point of sales) data is then used to calculate stock levels and eventually send an alert for store replenishments or automated orders to suppliers.

METRO Group has deployed the following hardware and software to support RFID applications:

RFID readers in over 180 locations, including over 160 METRO Cash & Carry and Real stores (at goods receiving, some front and back store).

RFID applications and software components for enabling data gathering, EPC-filtering, data transmission, data analysis, advanced inventory management and event based alerting. A software integration project was required to enable RFID data loading from the store goods receiving areas to the merchandise management


system (MMS) of METRO Group. In addition, the retailer’s warehouse management systems (WMS) also had to be updated to address RFID requirements..The latter project took approximately 5 months to complete from process re-design to application deployment. Two months later, in January 2005, the rollout was completed and the solution went live at all warehouses included in the RFID implementation.

In 2006 METRO Group adopted EPCglobal Gen2 tags and moved to the new ETSI frequency regulation, in parallel with the rollout of a new reader gate design. This will also enable carton-level RFID tagging rollout while item-tagging trials will continue and potentially expand especially for fashion items. METRO Group expects additional productivity enhancements using RFID at carton-level especially on incoming goods registration, inventory management and supply management between store warehouse and store.

METRO Group is mainly supported by IBM, Intermec, Impinj, Checkpoint and Reva for its RFID roll-out and pilots. MGI METRO Group Information Technology is responsible for developing the end-to-end RFID business solution including the backend integration of RFID data, the operational deployment of RFID as well as research & development of all pilot activities in Germany, including initiatives on case-level tagging, the Hong Kong ALA logistics project, RFID-tagged forklifts and item level trials.

METRO Group started an item-level field trial at Galeria Kaufhof Essen in September 2007. UHF RFID tags are applied at Kaufhof apparel distribution centre, for over 30,000 articles in stock in the outlet. RFID gates, equipped with motion sensors capable of automatically activate readers when needed, are placed at the backroom goods receiving area and at all transition points from the warehouse to the front store as well as inside the dressing rooms. At the checkout desk EPC-compliant RFID tags are read without requiring physical or visual contact. Using mobile RFID readers the staff can check which articles are available in the front store and where they are located. Rags are also tagged to enable article localization. Store assistants can thus provide real-time information on articles' availability, thus supporting customer service enhancements and optimizing inventory management. Information is provided to consumers with clear signs at the shop, brochures and clear labelling of all readers with the EPCglobal logo.

The process definition and system design phase started at the beginning of 2007, followed by the pilot implementation and education of store managers and personnel involved in the process. Based on EPCglobal standards, MGI developed the EPCIS in-house for this particular project in order to speed-up support issues and new developments. IBM and MGI conducted software developments specific to this project, and an RFID-enabled business intelligence application from Microstrategy was used. Up to 10% of the total inventory value of a retailer is hidden in "lost" products, in other words goods in stock that are not visible due to inaccuracies mostly deriving from errors in manual processes. As a result, the trial aimed at minimizing locked-up capital in backroom inventories and optimizing promotion management efficiencies. The 'Smart Shelves' have been installed as a special service for the customers. They identify clothes via RFID and supply useful information such as the price, size and material of the article via an integrated display. Detailed information on the respective garments can also be displayed on the 'Smart Mirror' and in 'Smart Dressing Rooms'. In the next project phase the customers will also be informed about the additional sizes and colours available


together with suggestions about complementary products and combinations, aiming to drive cross/up-sells opportunities leveraging on targeted promotions. Integration with loyalty programs is reported as a key area of focus in the future.

Looking ahead in the next 10 to 15 years, METRO Group expects that mainstream adoption of RFID will lead to:

Positive effect on logistics efficiencies that can result from RFID adoption may also contribute to the achievement of environmental sustainability objectives, essentially by reducing pollution caused by commercial vehicles due to optimized asset management and dynamic transportation routing abilities.

Attainment of lean supply chain capabilities in distributive trades leveraging on the combined usage of RFID and smart sensors

Provision of a better consumer experience and to front-end retail innovation, for example with the introduction of personal shopping assistants, interactive digital advertising systems and intelligent shelves. These are shelves equipped with RFID readers that can automatically send information to the merchandise management system when goods are removed or incorrectly shelved, so that staff can restock the shelves or rearrange the products. An interesting application of intelligent shelves is also the possibility to enable new forms of communications and assistance to consumers via digital displays that can be triggered by goods' movements from the shelves.

1.1.3 Impact

METRO Group's ongoing RFID rollout and trials are demonstrating business case opportunities for RFID adoption in a large global retail environment, with several measurable benefits already reported.

Improvements resulted from RFID/EPC implementation can be estimated as follows: Supply process efficiencies: significant overall improvements have been recorded

based on full RFID-deployment scenarios. Compared to manual barcode processing, RFID is enabling accelerated goods receipt, reduced idle time via automatic monitoring, inventory management optimization, improved process flow and fewer shelving errors.

Loss/theft shrinkage: 11% to 18%, depending on product category and the utilization of RFID on the case level. RFID-based Electronic Article Surveillance (EAS)-systems promise to increase efficiency gains, by enabling source-tagging approaches.

Sales and customer service: 10% to 20% reduction of out-of-stock situations. Improved merchandize availability may greatly impact sales performance, which in the METRO Group experience can grow up to 15% to 20% (not attributable to RFID integration only).

Counting only the automated dock-door incoming goods processes (2 out of 11 major processes in retail logistics) METRO Group expects that the combined use of RFID and EDI would bring total savings of € 8.5 million per year in Germany considering Metro Cash & Carry, Real and the distribution warehouses.


CPG suppliers will also achieve significant cost reductions. As an example, order-picking efficiencies would improve as 16 seconds per pallet can be saved. In addition, as the goods receiving process is also faster at the retail distribution center, shortens waiting times can be expected for delivery trucks, thus further reducing logistics costs.

Electronic dispatch note can lead to cost savings of up to €2.84 for each dispatch note.

More effective promotions can be enabled via item-level RFID tagging and higher working capital efficiencies can be achieved by attaining full inventory visibility of items.

Space planning and store profit optimization – the item-level trial at Galeria Kaufhof is also enabling instant visibility into the profitability of the different store areas. By correlating this information with merchandise and promotions intelligence data, METRO Group's store or department managers may achieve substantial improvements in space planning and demand management abilities with a positive effect on profit margins.

Least but not last, it should not be underestimated that RFID can also enable compliance with 'track & trace' regulations while ensuring product authenticity. Event-driven notifications enabling real-time decisions on actual information will play a significant role in respect, for example, to food safety concerns.

RFID-enabled innovation at METRO Group

METRO Group RFID Innovation Center is a permanent establishment located in Neuss, Germany, that was formed in 2004 with the twofold objective of driving innovative developments of RFID and demonstrate new applications of the technology. The center also hosts the European EPC Competence Center (EECC) launched in partnership with Karstadt Quelle, DHL and GS1. Among the activities performed in the competence center, a lab is focused on assessing and optimizing RFID tags performance and certifying RFID readers. Workshops and consulting services for companies that are evaluating RFID implementations are also offered.

Lessons learned

MGI reported that retailers using RFID in supply chain operations could achieve a competitive advantage between at least 8 to 12 months. But stronger opportunities to improve retailers' competitiveness resulting from the implementation of RFID are to be found in process optimization efficiencies and in the enablement of next generation shopping scenario.

Early-stage involvement of CPG manufacturers in RFID trials has been a critical success factor for METRO Group and supply chain partners alike. The essential requirement for CPG companies in participating to the RFID rollout is the ability to exchange electronic delivery notes to METRO Group using the Despatch Advice message format (DESADV). DESADV messages are including information such as delivery date, consignment details, handling instructions, customs clearance procedures, and invoice/order references.


RFID is driving a business process re-thinking at the METRO Group, thus positively driving the retailer in optimizing its operational efficiencies, internal productivity, suppliers' workflows and overall business performance. Customer service enhancements and shopping experience innovation emerge as fundamental opportunity areas in the future. The UHF band harmonization from the European Commission represented a critical milestone in order to bring tags and readers' costs down, but still more effort is required to the Commission and other regulatory bodies in preventing long-term risks for enterprises that are investing on RFID as a strategic business enabler.

Training represents a difficult task to accomplish, thus companies evaluating RFID implementations and pilots shall not underestimate the effort required to educate the workforce.

Theoretical business case evaluations shall be validated by real-life assessments and process performance measurements. This hold true fro the METRO Group and other companies may benefit in taking the same approach.

Regarding RFID item-level tagging, it emerges a win-win-win scenario for suppliers, retailers and consumers, with all parties benefiting from the adoption of this technology on single items. In contrast, tags deactivation due to privacy concerns may completely extinguish the business case for item level tagging, for example considering reverse logistics operations, which are of particular relevance to consumer products manufacturers.


Research for this case study was conducted by Ivano Ortis, Global Retail insights, an IDC Company, on behalf of the Sectoral e-Business Watch. Sources and references used:

• Interview with Dr. Gerd Wolfram, September 26th

, Dusseldorf, 2007

• Visits to Metro Cash & Carry RFID Warehouse; Galeria Kaufhof Essen; METRO RFID Innovation Center laboratory and demo-rooms; September 26th, 2007 • METRO Group annual report

• METRO Group Communication Department publications • METRO Group Future Store publications

• Websites:

• METRO Group, www.metrogroup.de

• METRO Group Future Store Initiative, www.future-store.org

A special thanks goes to Daniel Kitscha, METRO Group Corporate Communications, for supporting the study author and allowing open discussions with METRO Group representatives.


About this document

This case study was initially published as part of a comprehensive Sectoral e-Business Watch study report on RFID adoptions and implications (2008). The European Commission, Enterprise & Industry Directorate General, launched the Sectoral e-Business Watch (SeBW) in late 2001 to monitor, study and assess the implications of ICT for enterprises and sectors. The results support policy formulation, notably in the fields of industrial and innovation policy. All study reports and further resources such as data on ICT adoption in enterprises are available online at the SeBW website (www.ebusiness-watch.org).

For further information, please contact

European Commission

Enterprise & Industry Directorate-General D4 "ICT for competitiveness and innovation" e-Mail: entr-innov-ict-ebiz@ec.europa.eu

Sectoral e-Business Watch

c/o empirica GmbH

Oxfordstr. 2, 53111 Bonn, Germany e-Mail: info@ebusiness-watch.org





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