Few emerging technologies have the potential to impact such a wide array of businesses within the supply chain as radio frequency identification (RFID). Consumers, retailers, suppliers, logistics companies and manufacturers will be affected by this revolution with varying degrees of enthusiasm, choice and affordability.
Analysts estimate that around £2.3Bn will be spent on RFID technologies by 2008, highlighting just how much investment will be required by all parties in the supply chain if an RFID solution is to work efficiently. The larger retailers are driving the adoption of the technology and, in order to comply with RFID demands, manufacturers will suffer huge costs, tightening margins that are already squeezed to next to nothing.
With any large investment, ROI and business benefits will always be in the spotlight. While the larger retailers have a clear framework of benefits, the ROI for manufacturers and other supply chain partners is less clear.
Many retailers seem to be marching ahead without consulting the manufacturers who supply their goods, and without considering the wider supply chain issues that come into play when implementing an RFID scheme. Retailers need manufacturers to comply with RFID in order for it to work but many smaller manufacturers do not have the resources or technology at this stage to do so. To avoid reaching RFID stalemate and to ensure that they do not miss out on the potential benefits RFID can bring to their own business and the supply chain as a whole, manufacturers need to consider the various issues surrounding RFID, and work out how RFID can fit into their future plans.
The fact that the concept of RFID has taken off in such a big way is mainly due to the business benefits that a successful RFID solution can bring. For manufacturers, RFID will touch every part of the business allowing for more efficient forecasting, production and distribution operations. The new technology will give manufacturers increased visibility of their business, allowing for greater control and transparency especially with regards to such important issues as traceability. RFID really will revolutionise the supply chain for all parties involved.
So, with these benefits, what exactly is holding back the widespread adoption of RFID solutions and what do manufacturers need to consider before jumping in feet-first and choosing a solution?
Perhaps the most pressing concern for manufacturers is the initial investment required to implement an RFID solution. Many manufacturers are faced with the high cost of the RFID solution itself as well as the cost of integrating RFID with existing product systems. Add to this the fact that around half of the test RFID projects that have been carried out so far have been abandoned and you can see why many manufacturers are reticent to invest in RFID just yet. Smaller manufacturers in particular often feel they are facing a no-win situation: they cannot afford to implement state-of-art RFID systems but, if they do not, they fear losing partnerships with retailers who will require their suppliers to be RFID enabled.
VHS or Betamax?
Another issue that is worrying all supply chain members at the moment is the lack of uniform standards for RFID tagging. Many retailers are putting off asking suppliers and manufacturers to use RFID chips because of non-existent international tagging standards. The fear of choosing the ‘wrong’ standard is preventing many companies from even launching any trial projects. At present, technology is developing at different rates in Europe and the US which has led to rumours of a possible VHS/Betamax situation, resulting in total incompatibility between both sides of the Atlantic.
However, steps are being taken to rectify this situation. Industry standards group, EPCglobal, a joint venture of standards bodies EAN International and the Uniform Code Council, is considering four different protocol proposals. EPCglobal intends to have reached a decision by September. Although initially trialling RFID schemes, wise retailers are delaying the widespread implementation of RFID technologies until a uniform standard is agreed. Manufacturers would be well-advised to do the same.
Manufacturers in the UK and Europe are relatively lucky when it comes to the attitudes of retailers. In the US many suppliers to major retailers do not have a choice about when they implement an RFID system. For example, Wal-Mart is insisting that all of its suppliers conform to their RFID standards by a certain date. UK manufacturers are more fortunate in that many retailers this side of the pond are opting for a more collaborative approach. UK retailers have realised that without co-operative manufacturers and suppliers, RFID simply would not work, resulting in RFID stalemate.
Many manufacturers are feeling pressure that they will get left behind if they do not sign up for RFID schemes immediately. What they should be doing is discussing the various options open to them with the retailers that they supply. Retailers are reliant on their supply chain partners and manufacturers need not feel that they are at the mercy of the larger retailers. By working together, retailers and manufacturers can ensure that they invest in the right solution, reaping major business benefits and standing them in good stead for the future.
Ultimately, caution should be assumed. As with all emerging technologies, costs will fall as the desire to be the first to implement it dies down. Retailers have no choice but to recognise that their suppliers cannot all afford the latest RFID technology and by working in a collaborative manner, retailers and manufacturers can ensure that they invest in the most efficient, cost-effective solution on offer. The emerging standards will have an effect on the cost of RFID technologies as vendors vie with each other to offer the most competitive prices to their customers. The all important standards will drive down costs, improve the quality of technology on offer and increase the choice of vendors.
Manufacturers must leverage the value they add to retailers and the supply chain in order to carve out an RFID path forward. Retailers are dependent on their supply chain partners if they are to implement and maintain successful RFID technologies with the full support of their suppliers.
The dawn of RFID brings with it its own retail revolution and manufacturers must realise that by working closely with retailers and supply chain partners, they too can be revolutionaries, not just loyal followers of the retailers. n
Steve Baxter is managing director of Ross Systems UK. Tel: 01604 614188.