THE POTENTIAL OF RADIOFREQUENCYIDENTIFICATION APPLICATION ON TEXTILE AND GARMENT INDUSTRY IN VIETNAM

THE POTENTIAL OF RADIOFREQUENCYIDENTIFICATION APPLICATION ON TEXTILE AND GARMENT INDUSTRY IN VIETNAM Nowadays, technology advances quickly so that firms are compelled to catch up with the latest technological developments. In order to protect their competitiveness, they should timely accomplished investments in technology. Ecommerce solutions proposed have drawn the attention of many companies to deploy. One of the technologies offering a solution is Radio Frequency Identification (RFID).

FOREIGN TRADE UNIVERSITYFACULTY OF BUSINESS ADMINISTRATION MAJOR: INTERNATIONAL BUSINESS MANAGEMENT

GRADUATION THESIS Thesis title:

THE POTENTIAL OF IDENTIFICATION APPLICATION ON TEXTILE AND GARMENT INDUSTRY IN VIETNAM

RADIO-FREQUENCY-Student name : Lê Thị Thanh Hải Class : A2 - High quality class Intake : K46 - QTKD

Supervisor : MA Nguyễn Thị Khánh Chi

Hanoi, May 2011

TABLE OF CONTENT

CHAPTER I: LITERATURE REVIEW OF RFID TECHNOLOGY AND RFID

APPLICATION 6

I Overview of RFID technology 6

1.1 Definitions 6

1.2 Components 7

1.3 RFID systems characteristics 8

1.4 Role of RFID technology 11

1.4.1 Improving product quality and work quality 11

1.4.2 Increased yields, shorter lead times, greater flexibility 11

1.4.3 Lower costs, Less inventory 11

1.4.4 Good effects on environment 11

II RFID applications 12

2.1 RFID application in public 12

2.1.1 RFID toll road payment 12

2.1.2 RFID in baggage handling management 12

2.1.3 RFID applications in hospital 13

2.1.4 RFID application in library 14

2.2 RFID application in private 15

2.2.1 Supply chain management 15

2.2.2 Manufacturing 17

2.2.4 Retail 18

2.2.5 Security 21

2.3 RFID Technology in real-world applications 21

2.3.1 Wal-mart 22

2.3.2 Other retail industry RFID initiatives 24

III RFID application on textile and garment manufacturing 25

3.1 Producing process 26

3.2 Inventory 26

3.3 Security 27

3.4.Supply chain management 27

CHAPTER 2: CURRENT SITUATIONS OF TEXTILE AND GARMENT MANUFACTURING IN VIETNAM 28

I Description of several successful RFID cases 28

1 A fashion retailing succesful story – Staff Jeans 28

1.1 The situation before RFID 23

1.2 RFID implementation 24

1.3 Cost of RFID implementation .25

1.4 Effects of RFID implementation 31

2 Another fashion retailing successful story - American Apparel 32

2.1 The situation before RFID 32

2.2 The RFID implementation 33

2.3 Effects of RFID implementation 34

II Reality of Textile and Garment manufacturing in Vietnam 36

2.1 Vietnam textile and garment market overview 36

2.2 Manufacturing process of Vietnam textile and garment industry 40

2.2.1 Producing 40

2.2.2 Supply chain management 42

2.2.2.1 Source of materials for production 42

2.2.2.2 Inventory 43

2.2.2.3 Distribution 43

2.2.2.4 Retail 44

2.3 Business performance of some textile and garment companies in Vietnam 45 2.3.1 Thanh Cong Textile Garment investment trading JC.COM 45

2.3.1.1 Overview 45

2.3.1.2 Company activities 46

2.3.1.3 Financial performance 47

2.3.1.4 SWOT analysis 47

2.3.2 Saigon Garment Joint Stock company 48

2.3.2.1 Overview 48

2.3.2.2 Company activities 48

2.3.2.3 Business performance 49

2.3.1.4 SWOT analysis 50

III Evaluating the reality of textile manufacturing in Vietnam 50

3.1 Advantages 50

3.2 Limitation 51

CHAPTER 3: EMPIRICAL FINDINGS AND RECOMMENDATIONS ABOUT RFID APPLICATION ON TEXTILE AND GARMENT MANUFACTURING IN VIETNAM 50

I Research findings 55

II The ability of RFID application in textile and apparel in Vietnam 61

2.1 Worker’s attendance cards 64

2.2 Managing warehouse and inventory 66

2.3 Production-line monitoring and control 68

III Recommendations to Textile and Garment companies 71

IV Recommendations to Government 75

CONCLUSION 79

LIST OF ABBREVIATIONS

VINATEX : Vietnam Textile and Garment Cooperation

LIST OF FIGURES AND TABLES

Figure 1: Tag RFID 1

Figure 2: RFID encoder Source 7

Figure 3: RFID reader Source 8

Figure 4: Main components of an RFID system 8

Figure 5: Barcode from bottle of Sprite 9

Figure 6 A simple retail supply chain 16

Table 1: RFID implementation costs 31

Table 2: Industrial output textile and garment industry 31

Table 3: Annual export turnover of textile and garment industry in Vietnam 39

Table 4: Income statement of Thanh cong company 47

Table 5 : Business performance of Garmex Saigon Jsc 49

Table 6: The degree of computerisation in textile and garment firms 52

1 Background of the study

Nowadays, technology advances quickly so that firms are compelled to catch

up with the latest technological developments In order to protect theircompetitiveness, they should timely accomplished investments in technology.Ecommerce solutions proposed have drawn the attention of many companies todeploy One of the technologies offering a solution is Radio FrequencyIdentification (RFID) RFID is one of the best tools not only for the implementation

of a tracking solution but also for the strategic purpose of ensuring a competitiveadvantage RFID technology is currently considered a hot topic in the IT arena andhas been described as a major enabling technology for automated, contactless,wireless data collection This is a technology that has been in use in different areasespecially in the textile and garment industry where competition and cost reduction

is paramount issue

In the mean time, Vietnam’s textile and garment industry has developedrapidly in recent years and become a vital activity within the country’s economy.Globalization brings to Vietnam many new opportunities, including textile andgarment industry Garment companies will chance to expand the markets in USAand other markets However, the competitiveness of the Vietnamese garment andtextile is still poor in the process of integration in the region and the world Lowefficiency in production-line, lack of modern specializing machines and investment

in new technology led to low productivity in comparison with other countries Toreverse this situation, the Vietnam’s apparel industry need to take considerableefforts to upgrade technology in the manufacturing process

RFID is a technology where the goal is to identify goods automatically with aslittle human intervention as possible This is one of the emerging technologies that havebeen increasingly used in textile and garment industry in recent years It offerssolutions in production management, so that garment firm can benefit from automaticcontrol, improve productivity based on real-time information Despite that, RFIDtechnology seems to be new concept to textile and garment enterprises in Vietnam

2 Objectives of the study

The world economy is recovering, but is expected to still have manyunpredictable risks, so Vietnam garment and textile enterprises will have tocontinue to protect their competitive advantage, actively welcome businessopportunities the crisis may offer To achieve the goal of sustainable growth, textileand Vietnam will focus attention to develop infrastructure, innovate technique

This study, therefore, examines the potential of RFID’s deployment ontextile and garment manufacturing in Vietnam

The objectives are:

is about, how it works and the potential applications on business

 To review and analyze the situation of textile and apparel industry in Vietnamthrough assessment manufacturing processing of the textile and clothing industry

Main research question

Is RFID a utilizing solution to enhance manufacturing situation of Vietnam’s textile

and garment firms?

Sub-question 1:

What is Radio Frequency Identification technology? And why is it important in

business operation?

Sub-question 2:

What are the strong points and problematic issues lying in Vietnam’s textile and

garment manufacturing activities?

Sub-question 3:

How are RFID technology being implemented in the textile and garment industry

and to what extend do it act on Vietnam’s apparel manufacturing?

Sub-question 4:

What are benefits RFID technology contribute to enhancing profitability at

Vietnam‘s textile and garment enterprises?

Sub-question 5:

What are other solutions to lift up Vietnam‘s textile and garment industry?

4.Methodology

4.1 Problem recognition

The purpose of this study is to give an analysis of ability RIFD application

on apparel manufacturing in Vietnam To achieve the target of this study, a variety

of research methodology was used

According to Saunders Lewis (2003, third edition, p25), researchmethodology is an approach that is adopted for research and it is based on researchphilosophy and the nature of the subject under investigation Therefore, anappropriate research method will have positive impacts on the reliability andpracticability of the study

4.2 Research design

Types of research

The research would utilize both descriptive and exploratory researchmethods in the conduct of the study Descriptive research is a method used to obtaininformation relating to the current status of an issue or phenomenon to describe

"what exists" within the variables or conditions of the situation Exploratoryresearch, on the other hand, is often utilized in order to yield information to explainproblems which are not yet clearly defined or the real scope is still unclear

This present study is an exploratory attempt since it would try to gatherinformation regarding the effects of technology, RFID in specific, on the textile and

garment manufacturing in Vietnam The researcher makes use of existing literature

in order to verify my observations and come up with preliminary ideas regarding theresearch problem

Types of data

One research study will lose its objectiveness if the research’s results base on

no data Such study will be deemed to be personal idea and not recognized for anyfindings The researchers, therefore, must determine if the information needed iscurrently available from existing sources – secondary data or if new research must

be conducted – primary data

In this study, both two types of data are gathered in order to support for thediscussion and assessment of the manufacturing apparel activities A two-stagemethodological approach was adopted The first involved a multi-case study ofapparel companies adopted RFID in the world Some in-depth interviews wereconducted with manager to analyze situation of garment firms in Vietnam Thesecond involved the design of a framework with propositions for examining thevalues generated for fashion enterprise upon the RFID implementation

Primary data

In order to get the quantitative data, personal interviews are carried out.Those interviews with few simple questions do not take more than two or threeminutes or they will be interrupted from their works The researcher had an

interesting interview with the director of Thanhcong textile garment InvestmentTrading Joint Stock Company to ask about Internet services usage in company.Those interviews with few simple questions do not take more than two or threeminutes or they will be interrupted from their works.

5 Structure of the study

Besides the index, list of abbreviations, preface, summary, list of referencesand appendices, the thesis dissertation is composed of three parts:

Chapter 1: this chapter provides a literature review of RFID technology andgives an insight into the applications of RFID The analysis presented in this chapter

is based on qualitative studies providing business cases for RFID deployments

Chapter 2 analyses the situation of textile and garment manufacturing inVietnam From there, evaluation limitations existed in supply chain management oftextile and garment industry in Vietnam is identified

Chapter 3 is devoted to some empirical findings and recommendations aboutRFID adoption in textile and garment manufacturing in Vietnam

CHAPTER I LITERATURE REVIEW OF RFID TECHNOLOGY

AND RFID APPLICATION

Radio frequency identification (RFID) technology, in itself, is not a newidea Radio technology was first used, as early as during World War II by theBritish, to identify their own planes, from those of the Germans This was one of thefirst known applications of RFID Since that time, the capabilities of RadioFrequency Identification have expanded exponentially

In this chapter, the technology of RFID is going to be presented sufficiently,

so as to have an overall picture of what Radio Frequency Identification is about,how it works and which are the potential benefits and drawbacks

I Overview of RFID technology

1.1 Definitions

RFID stands for Radio-Frequency Identification It is an automaticidentification technology whereby digital data that is encoded in an RFID tag or

"smart label" is captured by a reader using radio waves1

RFID is similar to bar code technology but it uses radio waves to capturedata from tags, rather than optically scanning the bar codes on a label RFID doesnot require the tag or label to be seen to read its stored data which is a key factor of

an RFID system

1.2 Components

A typical RFID system consists of four main components: tags, an encoder,reader, and a host computer

Figure 1: Tag RFID

A tag, also called transponder, is

made up of a microchip with a coiled

antenna Tags are the heart of an RFID

system, because they store the information

that describes the object being tracked The

main function of an RFID tag is to transmit

data to the system's other parts Specific

object information is stored in the memory

of tags and is accessed via the radio signal of

RFID readers

Source: Robert A Kleist and partners

(2004),p17

An encoder is used to write information to the tag An RFID encoder is used

in conjunction with a barcode print and applies system The RFID encoder utilizesinformation obtained from a data stream from a host computer, from acorresponding barcode label, or other source to program an RFID label Theprogrammed label can then be applied with an integrated applicator or an externalapplicator

Figure 2: RFID encoder Source: Robert A Kleist and partners (2004),p18

Figure 3: RFID reader

A reader, also called interrogator,

is comprised of a transmitter, receiver,

control module and a transceiver An

RFID tag reader uses antennas to

communicate with the RFID chip Reader

requirements vary depending on the type

of task and application, and almost all

applications will require multiple forms of

readers to make a successful system

Source: www.doowa-rfid.com

A host computer: The reader decodes the data encoded in the tag's integrated

circuit (silicon chip) and the data is passed to the host computer for processing It’sthe system element responsible to record and manage the information resulted bytag reading It’s a computerized machine that communicates (by wireless) withRFID reader and stores what is registered in the RFID tag

Figure 4: Main components of an RFID system

Source: AutoID (http://www.autoidasia.com/eng/RFID.asp)

1.3 RFID systems characteristics

Almost everything that you buy from retailers has a UPC bar code printed on

it These bar codes help manufacturers and retailers keep track of inventory They

also give valuable information about the quantity of products being bought and, tosome extent, by whom the products are being bought These codes serve as productfingerprints made of machine-readable parallel bars that store binary code In fact,Bar codes have been around since the last thirty years or so, during which time, theyhave been used for automatic identification of goods, auto parts, sports tickets,airline baggage and a myriad of other things So what’s the problem now? Why do

we need a better technology?

Figure 5: Barcode from bottle of Sprite

Source: http://www.ant7.com/forum/forum_post.asp

Well, the reasons are several One, bar code scanners need a “ line of sight”.This means that a bar code scanner has to clearly “see” the bar code Else it cannotread it This also implies that faded or damaged bar codes cannot be read You musthave experienced this sometimes, again in supermarkets or other stores where theclerk has to scan an item once again, because it didn’t get ready by the scanner thefirst time

Secondly, barcodes can code only limited amount of data For example, itcan tell the store manager, that a breakfast cereal box has been sold, but it cannotsay, which particular box was sold

RFID tags are an improvement over bar codes because the tags have read andwrite capabilities Data stored on RFID tags can be changed, updated and locked.Some stores that have begun using RFID tags have found that the technology offers

a better way to track merchandise for stocking and marketing purposes Through

RFID tags, stores can see how quickly the products leave the shelves and who'sbuying them.

Conceptually, bar coding and RFID are quite similar; both are intended toprovide rapid and reliable item identification and tracking capabilities The primarydifference between the two technologies is that bar coding scans a printed label withoptical laser or imaging technology, while RFID scans, or interrogates, a tag usingradio frequency signals So, the RFID technology has many main features asfollowing:

- Read method: This is not required for RFID tags for the most part, anditems can be oriented in many different directions As long as the tag is in thereader’s read range, it can be read without direct line of sight With bar codes, line

of sight is definitely required, as a scanner must physically “see” each item directly,and items must be oriented in a very specific manner

- Read distance: RFID tags can be read at much greater distances; an RFIDreader can pull information from a tag at distances up to 300 feet Whereas, therange to read a barcode is much less, typically no more than fifteen feet

- Read speed: RFID tags can be read far more rapidly than a bar code label,

at theoretical rates up to 500 per second, while Barcode readers usually take a second or more to successfully complete a read

half Durability: RFID tags are much better protected, and can even beinternally attached to an asset since line of sight is not required Therefore, they can

be read and used in much harsher environments Bar codes have much lowerdurability, and can be easily damaged or removed Additionally, bar codes arevirtually impossible to read once they are dirty or greasy

- Read/Write capability: With RFID tags, the ability to read, write, modify,and update data is possible With bar code labels, only reading is possible

- Security: Extremely high security is possible with RFID tags, and datacan be encrypted, password protected, or set to include a “kill” feature to removedata permanently if necessary Bar codes have much lower levels of security, andcan be more easily reproduced or counterfeited

1.4 Role of RFID technology

RFID has been called the first important technology of the 21st century andhas become one of the most talked-about technologies in business today With thedevelopment of RFID standards, RFID technology plays an important role in a widerange of applications in different fields of business

1.4.1 Improving product quality and work quality

When having the existence of RFID, human errors can be avoided inproduction processes When processes history can be controlled by writinginformation to an inspection data Tag By controlling the quality-relatedinformation (model type, features, etc) in the Tag, optimal control of each productcan be achieved, and products can be exchanged or replaced in mid-process

1.4.2 Increased yields, shorter lead times, greater flexibility

Production line changes can be dramatically speeded up by reading themodel data in the Tag and automatically changing processes By designing theproduction line in a series of modules, functions can be expanded or changed byadding or exchanging module units By writing data to the inspection data Tag,adjustments can be quickly processed

1.4.3 Lower costs, Less inventory

It is possible to reduce costs for losses or mistakes due to human errors ( reading characters from a sheet of paper, mistakes made when writing informationelsewhere, etc Storing model data onto Tags makes it possible to respond to thediversification of product needs

mis-1.4.4 Good effects on environment

Information management by Tag memory can help to achieve paperlessoperations Tags with read/ write capacity are used, so a system can be introducedwithout generating new waste materials The RFID system lets us add functions inmodule units to your present system, making it easy to utilize existing assets

II RFID applications

In recent years we have seen an increase in the use of RFID, mainly due tothree key factors: tag price reduction, high performance reliability and internationalconsensus regarding frequency use There is a wide variety of RFID applicationsimplemented in various sectors The use of RFID systems makes it possible toprovide instant inventory management, increase asset visibility, prevent theft, trackshipments, recall products and support interoperability in an end-to-end integratedenvironment

2.1 RFID application in public

2.1.1 RFID toll road payment

The transportation industry is one of the leading users of RFID technologybecause they have identified numerous applications RFID applications intransportation include railroad car management, traffic management, tolls and fees,fare collection, equipment identification, fleet management, solid waste hauling,and fuel dispensing

RFID is used to automatically identify the account holder and make fastertransactions When the car moves through the toll gate on any road, it is indicated

on the RFID reader that it has crossed the clearing The need for manual toll basedsystems is completely reduced in this methods and the tolling system works throughRFID The system thus installed is quite expedient reducing the time and cost oftravelers since the tag can be deciphered from a distance This application helps tokeep good traffic flow and to identify traffic patterns using data mining techniquesthat can inform the administration or decision support systems

2.1.2 RFID in baggage handling management

For the airline industry, getting passengers to their destinations on time andwith their accompanying luggage is a feat that requires identifying and trackingmillions of items daily The rates of mishandling at airports have been growing inthe last few years Handling large amount of packages from many places to variousdestinations on different routes can be very complex

RFID implementation and experiences are being widely sponsored atgovernment level Amsterdam Schiphol Airport is the first large scale attempt tointroduce RFID baggage control in Europe, before the end of 2007 Other trials ofRFID tagging in Europe are being made in London Heathrow and Paris Charles deGaulle Also, at Hong Kong Int Airport, RFID baggage tagging has beenimplemented and is fully functional since 2005, with decision to upgrade byIntermec to Gen 2RFID Bag-tag read success rates of around 85-90% wereimproved to above 95%, with estimated cost savings of US$3.8 million2.

RFID tags could be used to track and identify airline luggage and passengersincreasing national security, speeding up luggage sorting and transfer, anddecreasing expenditures resulting from heightened security measures The majoradvantages of RF technology in baggage handling are an increased journey speed ofluggage as a result of faster read rates and elimination of human intervention inmisdirected bags and security procedures The International Air TransportAssociation (IATA) believes this technology has countless potential benefits forsimplifying passenger travel for airports and airlines

2.1.3 RFID applications in hospital

Keeping track of patients, equipment, and pharmaceutical products is a veryimportant function in an institution as hospital RFID applications in the healthcareindustry are focused on patient safety, medical facilities management

Healthcare providers traditionally use a paper-based ‘flow chart’ to capturepatient information during registration time, which is updated by the on duty nurseand handed over to the incoming staff at the end of each shift Although, the nursesspent large amount of time on updating the paperwork at the bedside of the patient,

it is not always accurate, because this is handwritten

To solving that, hospitals use RFID tags for transmitting and receiving datafrom a patient to health service without human intervention It is an automated data-capture technology that can be used to identify, track, and store patient informationcontained on RFID wristband, resembling a watch with a passive RFID chip in it

This chip stores a unique patient ID number and some relevant medical informationsuch as the patient's blood type, age, location, in order to speed treatment Patientdatabases can also be linked through Internet into other hospitals databases Toensure patient privacy and to avoid medical records are improperly disclosed,medical data are not stored on the devices but are rather stored in a secure databasethat links the unique patient's ID with its data It will be mainly very useful inmental care hospitals where doctors can track each and every activity of the patient.Hospitals also use these RFID tags for locating and tracking all the activities of thenewly born babies RFID technology has great potential in healthcare, to increaserevenue through improved patient throughput, improve patient satisfaction throughreduced wait times, enhance quality of care, staff efficiency and productivity

Likewise, in the medical equipment field, RFID-product tags can be used totrack and locate medical devices The use of RFID on medical equipment enableshospital staff to rapidly locate critical medical devices This enhances patient safety,and can reduce the risk of theft equipment in hospital Additionally these tags can

be used to inventory equipment and consumables used in an operation, includingscalpels, sponges, clamps and other surgical equipment At the end of an operationeverything can be automatically accounted for Finally, applying RFID help reduceoverhead and minimizing duplicate supplies of critical inventory

2.1.4 RFID application in library

A library is a collection of information, sources, resources, books, andservices Libraries have materials arranged in a specified order According to alibrary classification system, items may be located quickly and collections may bebrowsed efficiently Imagine a library in which no book would ever be misplaced orstolen RFID is a technology that makes it all possible

Library experience with Bar code is still in its early stages But barcodeshave some disadvantages when taking an inventory of the library The need to have

a direct line of sight on the barcode makes it difficult, however, to performfunctions on more than one item at a time Because each book must be tipped outfar enough to read the barcode if it is on an outside cover, or removed entirely fromthe shelf if the book or item must be opened to see the barcode

To improve library management effective, RFID library system is used.RFID library systems consist of an integrated circuit and an antenna, whichenables it to function as a transponder It can be attached to any item with theinformation about the item stored in it Each item attached with an RFID taginstead of bar codes So, what are differences? For one, the tags cancommunicate at a distance with the store clerk’s handheld RFID reader Theycan communicate almost all at once, so there is no need for her to painstakinglyscan each item Secondly, the amount of data on each RFID tag is massive, ascompared to the data that was stored on the bar codes This can be seen on the

PC screen Lastly, the numbers of persons that are needed to do this work areless That means that RFID library system reduces queues and increases thenumber of customers using self-check, which in turn will reduce the staffnecessary at the circulation desks A person can locate RFID library booksmarked with a RFID tags, using the RFID reader which identifies and locates thebook When the book is carried to the counter, the library staff can either activate

or deactivate the electronic article surveillance bit in the book's tag If a book isborrowed, then the surveillance bit is deactivated

The use of RFID reduces the amount of time required to perform circulationoperations The most significant time savings are attributable to the facts thatinformation can be read from RFID tags much faster than from barcodes and thatseveral items in a stack can be read at the same time A unique advantage of RFIDsystems is their ability to scan books on the shelves without tipping them out orremoving them A hand-held inventory reader can be moved rapidly across a shelf

of books to read all of the unique identification information Using wirelesstechnology, it is possible not only to update the inventory, but also to identify itemswhich are out of proper order

2.2 RFID application in private

2.2.1 Supply chain management

Today, the largest RFID application aids companies and governments in

supply chain management RFID is being used to manage products throughproduction, distribution and retail

A simple Supply Chain consists of end-customers or consumers who buygoods or services from a retailer at a store or through other channels, such as an e-commerce website The manufacturer buys raw materials from suppliers Thedistributor normally buys goods in large quantities from a manufacturer who makesthe goods in a factory or a production facility The retailer may stock the goods andtools to provide the services from a wholesaler or a distributor

Figure 6 A simple retail supply chain

Source: Laudon and partners( 2004, p54)

In supply chain management, RFID tags are used to track productsthroughout the supply chain from supplier delivery, to warehouse stock and point ofsale A RFID reader can “scan” the container and load the received inventorydirectly into the company database The company database can further break downwhere each item is to be delivered inside the plant or warehouse also greatlyreducing time and cost to stock or deliver the assets internally RFID provides thetechnology to identify uniquely each container, pallet, case and item beingmanufactured, shipped and sold, thus providing the building blocks for increasedvisibility throughout the supply chain By adding RFID tags to every product, tool,resource and item of materials handling equipment, manufacturers will be able toget better demand signals from customers and the market

RFID promises to revolutionize supply chains and usher in a new era of costsavings, efficiency and business intelligence The potential applications are vast as

it is relevant to any organization engaged in the production, movement or sale ofphysical goods This includes retailers, distributors, logistics service providers,

manufacturers and their entire supplier base, hospitals and pharmaceuticalscompanies, and the entire food chain.

RFID will have a significant impact on every facet of supply chainmanagement—from the simple tasks, such as moving goods through loading docks,

to the complex, such as managing terabytes of data as information about goods onhand is collected in real time It has a potential to dramatically improve supplychain by reducing costs, inventory levels, lead times, stock outs and shrinkage rates;increasing throughput, quality, manufacturing flexibility, inventory visibility,inventory record accuracy, order accuracy, customer service, and the collaborationamong supply chain members

In the very near future, the adoption of sensor-based RFID technology willallow the creation of the real-time, sensor-connected manufacturing plant

2.2.2 Manufacturing

The case for manufacturing efficiency has never been more important than it

is today Manufacturers are faced with globalization, increased competition andother economic pressures and increase asset utilization and reduce material costs,while at the same time address customers who are demanding faster delivery, bettercustomer service and customized products Today’s manufacturers are looking toRFID to address many of these challenges

Firstly, for shop floor applications such as work in process (WIP), tagged raw material and sub-assembly parts are routed and tracked throughout workstations along the assembly line and the entire production process RFID automatesthe validation of sequence and components and speeds build times Customizationrequirements can be built into the system and validated immediately, eliminatingcostly reworks RFID can track the history of the production and finished goods,important information for shipping and possible recalls

RFID-Secondly, for finished goods shipping out the back door, RFID tags on going pallets and containers contain vast amounts of information including contents,product history, origin and destination points, order information and handlinginstructions RFID can track ‘pedigree’ information where the product is, where it

out-has been, who accepted it and at what stage It reduces shipping delays byincreasing staging accuracy and ensuring the right shipment is on the right outboundtruck RFID allows you to “certify” the shipment Establishing agreements withtrading partners to leverage RFID data as “proof of delivery” can speed theprocessing of transactions and and significantly reduce claims or returns.

Last but not least, RFID is helpful tool for asset management solution Anyitem that is a part of the work process but does not leave as part of a finishedproduct is a candidate for intelligent asset management with RFID RFID can helpenterprises automatically track and secure these assets with very little humanintervention To track assets with RFID, tags are attached to all assets from servers,racks, and laptops to office chairs, carts, and kegs To take inventory, an employeecan simply roam the facility with a handheld RFID reader or a mobile RFID reader

on a cart — there’s no need to properly identify the asset, locate a bar code, andscan each asset one by one Without the intensive labor, companies can afford toreplace the annual audit with weekly or even more frequent inventory counts AndRFID’s automation eliminates the costly errors associated with manual inventory,including missed or mis-categorized assets The result is an up-to-date accuratepicture of asset status as frequently as needed to best manage the business

To sum up, RFID solutions can ultimately help manufacturers reduceoperating costs by reducing labor costs, claims and returns, thereby increasingoperating income And working capital can be reduced by enabling reductions ininventory and lowering inventory write-offs from unsaleables and returns RFIDminimizes human errors and time-consuming steps in the process, increasesinventory accuracy and provides real-time information for managers to makeaccurate decisions

2.2.4 Retail

Retail sector is one of the most important business sectors which seepotential in the use of RFID technology in order to stay at a competitive edge and toachieve profitability in short or long terms In the retail industry RFID technology isexpected to replace the barcode technology as it provides much more functionalities

without requiring the line of sight of the reader thus ensuring speed and processefficiency So, what does RFID offer retail?

Retailers face the constant demand to have the right goods available at theright places in the right quantities First and foremost, incorporating RFIDtechnology into existing supply chain operations can reduce the labor required tomonitor goods movement and inventory flow Bar code-based tracking systems are

an effective tool for basic inventory tracking Used in conjunction with a bar codesystem or as a stand-alone inventory tracking application, RFID allowsmanufacturers and retailers to complement existing systems while gathering moreinformation throughout a supply chain Systems with the power to update theinformation that moves with an individual product provide complete supply chainvisibility without the prohibitive labor costs and error rates a similar manual systemwould entail

For manufacturing, RFID also can act like a security guard at a gateway Asgoods are moved from dock to truck to store, RFID can conduct automaticinventories and compare the goods with the manifest Goods flow becomes morecomplete, stock outs are reduced, overages are curtailed and accountingdiscrepancies are removed

RFID tracking systems are finding their way into cross-dock andwarehousing applications first But as they stretch further throughout a retail supplychain, they will require close cooperation between suppliers and retailers As RFIDsystems are adopted, manufacturers will tag goods during production so everyonealong the way, from supplier to manufacturer to logistics teams and end customers,benefits from the increased information that RFID systems provide

A growing number of retailers are beginning to see RFID as a tool not onlyfor improved product visibility, but also for preventing product theft—or, at least,for reducing the negative impacts of product shrinkage The benefits from RFIDadoption is shown as following:

Firstly, in a retail marketing environment, RFID technology can helpdramatically reduce the amount of theft This, in turn, saves companies money and

allows for lower retail prices RFID chips embedded in products allow retailers totrack them This allows distributors and retails to receive alerts when a product islost and enables them to take immediate action to stop the loss For example, if anexpensive computer system includes RFID, you can notify security personnelelectronically if the product leaves a present area without payment.

Secondly, RFID technology helps to lower overhead in a business, allowing thecompany to operate more efficiently Before a retailer sells a product, it must gothrough several different steps, including being shipped and stored With RFID,retailers can track incoming shipments at each of these stages For instance, retailerscan locate a pallet containing multiple products within a large storage warehouse.Traditionally, locating and tracking shipments took place manually Replacing this timeconsuming manual process with RFID helps to lower labor costs and increase savings

Using RFID also allows a retail company to know precisely how many units

of inventory it has on hand Again, this is a time-consuming task that typically takesplace manually RFID allows a manager to check the current inventory of a statuswith a simple glance at a computer Lower labor costs and less time spent countinginventory translates in higher profits and lower prices

Moreover, RFID allows retailers to streamline the checkout process Becauseretailers can electronically track products within a retail location, they can scanmultiple items and pay for them at once A shopper with a cart full of differentproducts, for example, can check out and pay for the items as a group, instead ofwaiting for someone to scan them one at a time

The advantages of RFID checkout apply to both retailers and consumers Forcustomers, RFID technology reduces wasted time spent waiting in checkout linesand streamlines the payment process For store owners, this electronic checkouthelps to lower labor costs

Lastly, RFID can help improve stocking In traditional retail locations, it isoften difficult to predict when an item will sell out During a holiday rush, forinstance, retail employees may be busy serving customers and left without adequatetime to count the number of products on hand A delay in knowing when a product

is coming close to selling out creates long wait times for customers, who may be

disappointed that an item is not available and bring their business to a competitor.

With RFID, retailers can avoid this problem Because employees do not have

to personally inspect and count the number of products on hand, they are free tofocus on other duties When a particular item comes close to a sellout, a retailmanager can receive an alert and take preemptive action to re-stock the product.Charting daily sales trends for every item, each tracked using RFID, also enablesdecision makers to predict how many products to order to meet projected demand

2.2.5 Security

Security is another key issue in RFID An organization that implementsRFID in its supply chain does not want competitors to track its shipments andinventory People who use devices that carry personal financial information, such ascredit card or other ID numbers, do not want others to access their accounts Theseare significant security vulnerabilities in RFID Some researchers have proposedschemes that would require tags to authenticate readers, transmitting informationonly to authorized readers The tags would have to store ID numbers for authorizedreaders, and a reader would have to broadcast its ID to the tag To protect thereader’s ID—and prevent others from eavesdropping and stealing the information—the reader uses either a fixed or randomly generated number to hash (encrypt) its ID(colleagues) If the tag cannot authenticate the reader’s identity, the tag will refuse

to transmit the information it stores Like most security tactics, this scheme isvulnerable to attacks, such as man in the middle, or reverse engineering

2.3 RFID Technology in real-world applications

Obviously, there is a phenomenon of RFID among global firms Manyenterprises realize the potential of this technology and want to get a head start inturning this potential into a competitive advantage Moreover, they want to beprepared in case their business partners or customers make corresponding demands

There are also many other companies which have adopted RFID within theirsupply chain Some of the most famous examples are Wal-mart, Marks & Spencer,

the Metro Corporation in Germany and Tesco To fully understand how RFID canmake a difference, it is important to explore some real-life examples below.

2.3.1 Wal-mart

Wal-Mart is one of the largest Fortune 500 companies, which is spreadacross the globe It is an arguably the largest retail chain which deals witheverything from food to consumer electronics

When the world was still grappling with the idea of bar coding, Wal-Martjust went ahead and got RFID implemented Wal-Mart is banking on thistechnology to manage inventory more efficiently, reduce numbers of data entryerrors, and lower human labour costs in a distribution center With all theseadvantages in sight, Wal-Mart is confident of sure success to ensue on adopting thistechnology

Wal-Mart had initiated its plan to employ RFID technology in its supplychain in June 2003 The Wal-mart RFID journey began early in the decade with atrial involving Some of the major suppliers of Wal-Mart such as Gillette, Hewlett-Packard, Johnson & Johnson, Kimberly-Clark, Kraft Foods, Nestle, Purina PetCareCompany, Procter & Gamble and Unilever Scientists from the ID auto Center andthe Uniform Code Council lent support to the three-phase trial Phase I, whichcommenced in late 2001, tested small numbers of products and volumes at the palletlevel Phase II began in early 2002 and tested higher case level Phase II began inearly 2002 and tested higher case level volumes and a greater mix Phase III wasdesigned to test individual items tracking down to the unit level, but was scrubbed

in 2003 in favor of other Wal-mart initiatives

From now on , it is currently more than tripling the number of stores whereRFID has been installed Wal-Mart will continue its rollout and double the number

of stores that are enabled, along with distribution centers that service the enabledstores

Effects of RFID implementation

Wal-Mart tapped RFID technology with an aim to increase the efficiency ofits supply chain This is because RFID implementation will enhance transparency of

their supply chain and hence will help them minimize cost and labor and willstrengthen inventory control According to Venture Development Corporation in

US, “With Wal-Mart selling over $245 billion worth of goods in fiscal year 2003, a1% improvement in the out-of-stock issue could generate nearly $2.5 billion in veryprofitable sales.”

In addition, a study by Cohen at Wharton chalks out the difference betweenthe existing inventory management and the RFID enabled supply chain “In currentsystems, you may know there are 10 items on the shelf, and that information iscompiled in an enterprise planning software system With RFID, you know thereare 10 items, their age, lot number, and expiration date and warehouse origin "It'slike knowing there are 1,000 people in a city," says Cohen "With RFID, you knowtheir names."

From the above studies it indicates that employing RFID technology willhelp in implementing a seamless supply chain and hence yield profits

The increase in their efficiency is evident from the news article atBreitbart.com, where it states that implementation of RFID tags in Wal-Mart’sinventory has helped boost sales by keeping shelves better stocked Usage of RFIDhas reduced out-of-stock merchandise by 16% at the stores that have implementedRFID tags for more than a year The CIO at Wal-Mart stated that, “Wal-Mart hasbeen able to restock RFID-tagged items three times as fast as non-tagged items.”

In addition to improving the availability of in-stock merchandise, Wal-Martaims to reduce the practice of manually placing the order and has achieved 10%reduction in the case

The recent studies show that 130 major suppliers ship merchandise to Mart distribution centers with about 5.4 million tags Wal-Mart expects to increaseRFID implementation by adding another 200 suppliers that are projected to supply

Wal-to another 1000 sWal-tores3

According to Venture Development Corporation, the major implementationmilestones of RFID at Wal-Mart are to expand Regional and domestic

implementation of RFID throughout 2005 These include Regional DistributionCenters, Grocery Distribution Centers and Sam’s Club Distribution Centers inTexas And, by 2006, Wal-Mart aims to mandate RFID implementation for all itssuppliers.

At present, Wal-Mart is at a nascent state of implementing RFID In addition

to strengthening the Supply Chain, the largest retailer is also looking into different

RFID mandate, RFID is alive and growing in the supply chain and help thecompany improve efficiency and productivity through in-time information

2.3.2 Other retail industry RFID initiatives

Although Wal-Mart assumed a leadership role by pushing its mandate first,other retailers are close behind and more are expected to make announcements

Target Corporation, with approximately 1,200 stores in North America,expects top vendor partners to apply tags to all pallets and cases and start shipping

to select regional distribution facilities beginning late spring 2005 Target’s intent is

to accept EPC tags from all vendors as a supplement to the current barcode marking

at the carton and pallet level by spring 2007 Target sees RFID as a complement tocurrent barcode and EDI technologies Target supports a retail industry migrationapproach For the foreseeable future, the current carton marking requirements forshipping containers will be remain unchanged

Albertsons is one of the world’s largest food and drug retailers, with 19DCsand approximately 2300 retail stores in 31 states across the United States, includingAlbertsons, Jewel-Osco, Acme, Sav-on Drugs, and Super Saver The company iscurrently in the testing phase using RFID technology with select partners at the caseand pallet level Albertsons expects its top 100 suppliers to be participating in theRFID program at the case and pallet level by April 2010

TESCO, the largest retailer in the United Kingdom, and among the mostactive retailers testing RFID technology based on EPCglobal’s work, will put RFIDtags on cases and re-usable totes of nonfood items at its distribution centers and

track them to stores Goals are to rollout to over 900 stores during 2004 Tesco is

Metro Group, based in Germany and Europe’s third largest retailer, unveiled

an RFID “ Future Store”, showcasing the benefits of the technology for shoppers.Metro Group has over 2000 stores in 28 countries In their test store in Rheinberg,the company is implementing RFID within the store aisles and checkout areas aswell as receiving For inventory management, RFID is used on the shelves to detectlow shelf stock, or misplaced items Customers can scan products for themselveswhile in the store, and use an intelligent scale to calculate price on weighted items.Display terminals show customers information about products, includingpersonalized ads and suggested recipes The checkout system quickly totals anddisplays the price of goods in their shopping card Customers can debit a credit cardaccount or pay the cashier A de-activator display after checkout allows customers

to kill an item tag if they wish Metro is making information on RFID, EPC and theFuture Store concept available in the store to help educate their customers Earlysurveys at the Future Store show that at least 25% of their customers have tested allthe new systems themselves Satisfaction with shopping experience has increasedfrom 34% to 52%5

III RFID application on textile and garment manufacturing

In recent years, the textiles industry has suffered the effects of a recessiondue to the stagnation of domestic demand and the increasing toughness ofcompetition, since the liberalisation of international trade in textiles products hasmeant a considerable increase in imports of low-cost products made in developingcountries The evolution of the markets has demanded a new business strategy morefocused upon the differentiation that brings added value to both process andproduct

The application of RFID technology to the operational processes of businesseswithin the textiles sector enables garments and textile items to be read more quickly

4 Source: http://www.rfidjournal.com/article/view/658

and accurately, as well as permitting a permanent control over merchandise andreducing human intervention, thereby reducing the likelihood of error.

3.1 Producing process

The application of RFID tags on spare parts and raw materials, as statedabove, helps in locating them easily A lot of time and energy can be saved UsingRFID tags on work-in-progress enables the management to track the time taken invarious processes, so that unnecessary processes can be eliminated and time can besaved The production process becomes more efficient, and ultimately the quality ofthe product rises This, in turn, leads to an improvement in the profitability of thefirm, and a rise in its goodwill

The use of RFID makes the production process simple and efficient, andhelps in avoiding wastage of time The same is the case with finished goods at aretail outlet The location of the merchandise can be easily tracked using RFID tags,which ensures that the right goods are placed at the right location Even if the goodsare not placed at the right place, their location within the store can be easilydetermined with the help of RFID This would help in reducing customer wait time

at the point of sale

3.2 Inventory

Inventory control being a time-consuming and laborious process, it is usuallyundertaken once or twice a year As a result, up-to-date information cannot bemaintained The adoption of RFID helps in solving this problem Up-to-date,reliable and complete data can be maintained using RFID, which makes the process

of inventory control simpler and more effective Accurate data about all the materialthat comes into a warehouse and goes out of is available through the use of RFID.Similar is the case with a retail outlet Hence, stock can be replenished as soon as it

is exhausted Out-of-stock situations can be reduced, thereby increasing customersatisfaction and trust on the outlet Similarly, keeping track of capital assets alsobecomes simpler, and their management also becomes easier and more effective

3.3 Security

With its slim, unobtrusive design, and excellent functions the RFID smartlabel is the ideal solution for the traceability of textile garments The RFID tag can

be discreetly hidden in the garment or item, in a variety of places As it is notvisible, it can carry out anti- theft protection, providing a great level of savings,particularly to the retail store concerned

3.4 Supply chain management

Once merchandise is tagged at the source and shipped its next port of call is thedistribution center Packed in boxes or hanging on rails, it can immediately be checkedagainst the advanced shipping notice or ASD Regardless for logistics providers ofwhether the center staff receives a high volume of goods in one go or needs to verifythe contents of box , RFID simplifies the process and makes it more effective

After being processed, the merchandise is sorted automatically based on theelectronic product code (EPC) enabled as possible What this means in practice is areduced need for manual labor, a reduction in handling errors and lower costs

After RFID tags are attached at the item level and the garments areautomatically identified, the text step is to make sure they go to the rightdestination Com-pared to current barcode systems, RFID is more reliable and faster

at sorting and routing goods, regardless of whether they are allocated for direct storedelivery , for-warded to a distributor or stored in-house

Real-time supply chain information enables retailers to know well in advancewhich goods will arrive and when Incoming goods are scanned with a hand-heldRFID reader connected to an enterprise resource planning ( ERP) system This type

of system reduces administrative time for sales staff and allows them to focus on themore important business of selling What’s more, they know what goods they have

in the storeroom and where they are This means that they can react faster tocustomer needs and provide a better level of service

CHAPTER 2

CURRENT SITUATIONS OF TEXTILE AND GARMENT

MANUFACTURING IN VIETNAM

In this section of the thesis, several successful RFID projects, adopted bylarge global retailing companies are presented They are very special examples ofRFID implementation, since it refers to a fully integrated firm, and, therefore, veryinteresting to examine how the technology of RFID has been applied in thesecompanies and which are the current results of it Facing to such successdeployment of apparel firms in the world, so, how are the real conditions ofVietnam garment industry? From there, we can evaluate the ability of RFIDimplementation in apparel manufacturing in Vietnam

I Description of several successful RFID cases

1 A fashion retailing successful story – Staff Jeans

Staff Jeans began as a denim production company in 1992 in Larissa, a city inCentral Greece The focus of the company has always been on the production of highquality jeans The company has an RFID strategy to optimize its supply chain andimprove item level tracking from factory, through distribution, to the point of sale

1.1 The situation before RFID

Staff Jeans has been deploying the technology of barcode as the maintracking technology within its supply chain, since the company began producingand selling its products Therefore, all the processes related to manufacturing withinthe plants, transportation to the distribution center and distribution all over Greece

to the local stores were aligned to the use of barcode

The technology of barcode had been very effective till that time for StaffJeans, since the company was able to track and sort the products in a rather fast andreliable way However, all these activities were performed without having fullvisibility of the whole supply chain and flexibility to trace potential problems Thus,the system of counting the items, managing orders and delivering to the stores wasmore or less ”manual”, since the information system of the company could notsupport real time information for each item

For this reason, the company decided to take on the challenge to upgrade itscurrent information system and change the tracking technology used till that time,from barcode to RFID The expected outcome of this strategic decision was mainlythe improvement in accuracy and speed of the main supply chain processes,warehousing, packing, transportation and picking, while at the same time thecompany was expecting a significant cost reduction, by means of personnel costreduction and better warehouse management.

1.2 RFID implementation

Staff Jeans company initially implemented RFID in late 2008 for warehousemanagement in the city of Larissa, Greece The company has implemented RFIDthroughout its supply chain, from the manufacturing plant, to the retailing store

Firstly, as far as the manufacturing is concerned, Staff Jeans has adjusted itsproduction lines within its plants by adding the RFID tagging line This new part ofthe manufacturing line is placed after the core manufacturing line of the products,and before their packaging is performed At this RFID line, each product isequipped with a passive EPC tag, before it is packed and shipped to the distributioncenter Therefore, the item level tagging is performed at a very early level in thechain and it reassures the continuous control of the product’s position and conditionwithin it

After the garments are tagged and packed, the shipment to the distributioncenter is performed The company’s transportation fleet is also RFID enabled, inorder to control the quantity of each product category loaded and transported to thecentral warehouse When the garments arrive at the distribution center in Larissa,they are unloaded, sorted and arranged within the warehouse In order for theseprocedures to be accelerated and more efficient, Staff Jeans has installed big RFIDscanners across the warehouse As a result, the products are sorted more easily and,then, forwarded to the retailing stores according to the orders placed, based on thereal time inventory control through the RFID enabled information system

When the products arrive at the retailing store, they are scanned and arranged

in the storage room or inside the store’s selves, according to the inventory

availability of each garment category At this point, it is important to mention thatthe RFID tags are still active and transmit information regarding the product.However, the moment when the customer is purchasing the product, the Staff Jeansseller is responsible for deactivating the RFID tag and removing it from thegarment, so as not to be active any more This deactivation process is performeddirectly after the garment has been scanned at the cashier, in order for theinformation system to keep track of the sales and inventory levels at real time.Lastly, the deactivation process is also crucial for Staff Jeans, so as to agree with thecurrent legislation regarding the customer’s privacy.

1.3 Cost of RFID implementation

After having described the implementation of RFID, it is essential to presentthe costs that this project has incurred for Staff Jeans Even though the costs of theRFID project have been made available by both Staff Jeans and Sensap, theoutcome of the system's implementation has not been provided in numerical data byStaff Jeans, for reasons of confidentiality

The different cost categories include the initial investment cost in theDistribution Center of the Staff Jeans, which consists of Hardware, Software,Planning and Installation costs, the implementation costs per store, the annual cost

of support and personnel education and, finally, the major source of cost, the EPCtags purchase

The initial investment cost for the Distribution Center in Larissa includingPlanning, Support, Hardware and Software equals to 60.000€ The cost of full RFIDimplementation for one store is equal to 10.000€ It is interesting to mention thatthere are five official Staff Jeans stores in Greece, which means that the total cost of

was only performed in two central stores, as part of the pilot project The rest threeofficial Staff Jeans stores adopted the technology during 2009 There are, of course,many other stores, showrooms or department stores within Greece and the rest

6 RFID in retailing supply chain( gupea.ub.gu.se/bitstream/2077/22606)

European countries which are offering the Staff Jeans products, but the potentialimplementation or not of a RFID project lies completely on the management ofthese firms

The annual cost of personnel education and further support from Sensaptowards Staff Jeans is approximately 3.000€ Lastly, the most costly cost category,the annual cost of 1.000.000 EPC RFID tags, already containing the informationneeded for each product category is equal to 120.000€

Table 1: RFID implementation costs

-Annual Cost of support

(including education, support,

service)

Source: RFID in retailing supply chain (gupea.ub.gu.se/bitstream/2077/22606)

1.4 Effects of RFID implementation

Staff Jeans, thanks to the RFID deployment, achieved complete visibility toall its processes, from manufacturing, packing, order preparation, shipping andwarehousing However, it is very interesting to point out that the greatestimprovement has been realized in the inventory handling processes The visibilitythat RFID is offering enables the better management of inventory levels, and, thus,

is helping the company towards inventory elimination

Another very useful outcome of the use of RFID in Staff Jeans has been theautomation of many supply chain and logistics processes, as already mentioned Inparticular, the picking and stocking routines within the central distribution center

have been automated through the new technology, which enables the faster andmore convenient handling of the products.

Staff Jeans has performed item-level tagging with RFID, which means thateach individual garment is equipped with a RFID tag This enables the company totrack the position, as well as the conditions to which the product is exposed As aresult, Staff Jeans has been able to minimize the products losses and damages, and,thus, increase the reliability of manufacturing, warehousing and transportationfunctions

As a final, general benefit created by the implementation of RFID in StaffJeans, is the achievement of a high customer service level This is happeningbecause the company has increased its reliability towards the customer, by avoidingstock out situations, by improving the service in the stores and by providing a lot ofinformation about the product to each customer individually

2 Another fashion retailing successful story - American Apparel

American Apparel is a vertically integrated manufacturer, distributor andretailer, based in downtown Los Angeles, California The company currentlyemploys approximately 10,000 people on a global level (about 5,000 in LA), andoperates more than 260 retailing stores in 19 countries The company operates the

largest garment factory in the United States (American Apparel website,2010)

2.1 The situation before RFID

In stores of American Apparel, they experienced the same concerns thattrouble other retailers, from pharmacies and super-markets to department stores andsuper-stores Shrinkage-that is, lost, misplaced, or stolen goods—eats into profitmargins and is often difficult to quantify That typifies a larger problem thatAmerican Apparel, like other retailers, had in lacking sufficient visibility intoinventory to under-stand its shrinkage rates and other inventory issues It struggled

to determine what was on the retail floor, what needed to be replenished on theretail floor, and where and whether merchandise was in the back of the store, ready

to move to the retail floor The lack of sufficient visibility is a very down-to-earth

problem: Any item that is not where it needs to be does not get sold and meansrevenue lost to the store.

In the case of American Apparel, those challenges were highlighted by aboutique retail model that called for one item in each size, color, and style to beavailable in the store at all times—a total of 12,000 different items on the sellingfloor To make this model work, American Apparel first con-ducted manual ―cyclecounts of its entire store-floor inventory twice a week The process took 20 to 30hours of personnel time and typically uncovered 100 to 300 items that needed to bereplaced7 But cycle counts could undercount missing items, and there was noguarantee that replacement items would make it quickly to the sales floor or eventhat the needed items were in stock at all

With an economic downturn looming and retail sales poised for declinesthroughout the industry, American Apparel needed a solution that wouldimmediately cut inventory levels and boost store sales

2.2 The RFID implementation

The company decided that its choice of RFID technology was sound; thetechnology didn’t require a direct optical read by a scanner, so store employeescould use the technology both in the backroom inventory and at the point of sale.But its choice of RFID platform on the basis of cost, integration, and businessintelligence capabilities was not

For each of the pilot stores, American Apparel chose a complete item-levelRFID inventory tracking solution consisting of:

Step one called for attaching RFID-enabled tags to every item This wasaccomplished using Avery Dennison AD-222 inlays, chosen for their consistencyand accuracy These tags were then attached to the garments and individuallyencoded on-site at the pilot store

7 Avery Dennison-Apparel solution(www.apparel.averydennison.com/solutions/american-apparel-rfid.asp)

Step two involved establishing four RFID stations at key in-store locations totrack inventory The station functions were as follows:

 Receiving (entering and leaving the stockroom): To capture/verifymerchandise being received into the stockroom inventory, as well as items shippedout of inventory (factory returns, damaged goods, items for display, etc.) Thereceiving station tracks all inventory except for items on their way to the sales floor

pulled from the stockroom inventory match up with the sales floor POSreplenishment orders

 Validation Point (entering the sales floor): To verify that thereplenishment order from the fill station is accurate and authorize the movement ofinventory from the stockroom to the sales floor inventory

 Point of Sale (on the sales floor): To capture the sale, adjust storeinventory and generate a replenishment order for the stockroom

The servers hosting the solution in each of the stores communicate with acentral server at American Apparel headquarters, where data on store sales andother opera-tional data is fed into a business intelligence application from Xterprise.Managers and executives use the dashboard to receive overview as well as detailedinformation about how long it takes to get items onto the sales floor, whatmerchandise is out of stock at a given store, top sellers, incoming shipments, howlong it takes to scan merchandise, and more

2.3 Effects of RFID implementation

Doing more with less is the maxim of business, especially during tougheconomic times The RFID solution has turned that philosophy into reality forAmerican Apparel, which now really is doing more with less increasing profitswhile reducing the money that it spends to generate those profits The companyestimates that sales in the RFID-equipped stores are up 14 percent, for an averageincrease in net income of $126,900 per store

The system also helps reduce costs because conducting cycle counts andreplenishing merchandise are far more cost-effective than before Cycle counts that