In the near future, adoption of sensor-based Radio Frequency Identification (RFID) technology will allow the creation of the real-time, sensor-connected supply chain. By adding RFID tags to every product, machine, spare part, resource or item of materials handling equipment, manufacturers will get better demand signals from customers and the market. At its core, RFID is an enabling technology that has the potential of helping retailers provide the right product at the right place at the right time, maximising sales and profits. RFID provides the technology to identify uniquely each container, pallet, case and item being made, shipped and sold, thus providing the building blocks for increased visibility throughout the supply chain.
The technology will bring benefits to a wide range of industries, but a main driver of RFID adoption has been the retail sector, led by Wal-Mart in the US. Phillip J Windley, associate professor of Computer Science at Brigham Young University, estimates that Wal-Mart could save $8.35Bn annually with RFID. His massive total comprises: $600M through avoiding stock-outs; $575M by avoiding theft, error and vendor fraud; $300M through better tracking of a billion pallets and cases; $180M through reduced inventory; and $6.7Bn by eliminating the need to have people scan barcodes in the supply chain and in-store. Wal-Mart is investing $3Bn in RFID and is a leading proponent of its implementation.
RFID is a system of small electronic tags (comprising a tiny chip plus an antenna) that transmit data via a radio signal to RFID readers and related hardware and software infrastructure. The ‘tags’ (transmitters) can be put on items where movement tracking adds value to the commercial process: on containers, pallets, materials handling equipment, cases or individual products.
The tag data is read when they pass by an RFID reader, and that movement is captured and managed by the infrastructure. In this way, organisations can link the physical world to the digital world without any human interaction. Whatever actions are then triggered depends on the individual application, from basic stock replenishment at one end of the spectrum to facilitating the ultimate lean supply chain at the other.
RFID promises to revolutionise supply chains and usher in a new era of cost savings, efficiency and business intelligence. The potential applications are vast as it is relevant to any organisation engaged in the production, movement or sale of physical goods, including retailers, distributors, logistics service providers, manufacturers and their supplier base, hospitals and pharmaceuticals firms, and the food chain.
It has the potential to improve efficiency and visibility, cut costs, deliver better asset use, produce higher quality goods, reduce shrinkage and counterfeiting, and increase sales by reducing out-of-stocks. It can even help improve the safety of the food and pharmaceuticals we buy.
The key to delivering all these benefits is cost. The falling price of RFID tags is a driver for the technology. One Canadian consumer products manufacturer says that RFID becomes revenue-neutral at 15 cents per tag, at which point the prospect of RFID as a replacement for barcode labels becomes very real indeed. Tag pricing is critical. Industry is hoping that tag manufacturers can hit 5 cents per unit, and that is regarded as a breakthrough level. Yet even that is still too expensive for an individual can of Coke, which is why packaging firms are looking at innovative ways to apply this technology. In the coming years, we are likely to see RFID tags and barcodes existing side by side.
Whether it enters the mainstream this year or next or even by 2010, the business value of RFID is undeniable. It will create winners all round. Manufacturers will benefit from increased inventory visibility, more efficient use of labour, better line operations and improved fulfilment. Retailers can benefit from reduced inventory, from improved supply chain visibility giving better demand forecasting, lower safety stocks and lower order cycle times. Automated data capture will cut costs by reducing labour in the store and warehouse, and fewer sales will be lost through out-of-stocks.
The immediate benefit identified by UK industry was using RFID in the supply chain to identify stock location ‘in store’ as goods move from the receiving dock to the sales floor. Understanding this inventory location ‘real-time’ is key to increasing stock availability on shelf and reducing lost sales. Also, the manufacturing industry will be able to fine-tune the supply chain to optimise efficiency and minimise inventory and waste. RFID tags in car sub-assemblies will make safety checks and recalls faster and easier. Tags in sub-sea structures like oil and gas pipelines will make maintenance and repair simpler. Hospitals can maximise the return on assets by tracking expensive and life-saving equipment at all times. The pharmaceutical industry will be able to reduce or even eliminate counterfeiting by giving each unit of dosage a unique Electronic Product Code (EPC) number, allowing data to be recorded and accessible to all supply chain partners on a drug’s current location, all historical locations and the time spent at each location.
Customer returns will be facilitated for the consumer electronics sector; aerospace will have safer handling of hazardous materials; port security will be improved; the logistics and transport industry will have better management of truck yards, container yards, shipping yards and cross-docking activity; consumer packaged goods will have easier receiving reconciliation, better lot tracking, faster and less expensive product recall.
The path to RFID nirvana is not without its obstacles: tag costs are still high; readers cannot always read all the cases on a pallet; one frequency and one tag design does not fit all; standards are in a state of flux; end-users lack real RFID knowledge; and radio interference can upset the best-laid plans. Wal-Mart laid down its marker as an RFID pioneer by issuing mandates to its suppliers. Wal-Mart, Metro Group, Tesco, Target and the US Department of Defense all told their top suppliers to incorporate RFID tags in all pallet shipments by 2005. Wal-Mart then relented a little, having found that not only would its suppliers find the deadline hard to meet, but so would itself. It is now on track to have RFID in 600 stores and 12 distribution centres by the end of 2005.
RFID is best viewed as part of a broader spectrum of sensor-based technologies including the barcode and magnetic stripe, as well as integration with equipment such as scales and dimensioning devices and sensors for temperature, position and moisture. Hybrid sensors combining RFID tags with temperature sensors, all embedded in a barcode label, are already available.
Multiple point solutions aimed at each sensor-based niche simply will not scale and will not provide the best return on investment. Any RFID capability must be part of a comprehensive technology and applications infrastructure that can collect events from these disparate sources, combine the data into composite transactions and then automatically trigger the appropriate business process. There is no doubt that RFID and other sensor-based technologies present massive potential for creating competitive advantage. Companies in these and other industries will find that incorporating such technologies into their information infrastructure and integrating them into their business processes will provide substantial business benefit. But, to realise maximum return on investment, they need to leverage their information architecture strategically.
Barriers to current RFID adoption in the UK have occurred in several areas. Two main hurdles are the lack of global RFID standards, and expensive and complex RFID hardware. If RFID is to create value for business, first it will create data – masses of data. Users will need to ensure they have an IT architecture that can manage, analyse and respond to this new wealth of data being captured to truly gain visibility into their supply chain.
Translating visibility to action requires tight integration between transaction, execution, planning and event management, with the ability to identify actionable events quickly and to translate these into adjustments to the operational plan. Weekly planning runs must be replaced by net-change interactive planning, Data Warehouse-based reporting replaced by real-time operational analytics and exception event management, and fixed business processes by adaptive business flows. Enterprises can achieve significant business value from embracing RFID. But each company must evaluate its own business processes to determine, where and if, RFID can be applied to improve operational and process efficiencies to positively affect the bottom line. If that suggests that the technology can benefit the business, the next step is to develop a roadmap for RFID implementation.
For suppliers that need to meet deadlines, EPC Compliance Enabler is a good place to start. It is easy to install, will work with a legacy system, print RFID labels and verify outbound shipments. The next stage would be to move to an RFID Pilot Kit, allowing data to be captured and analysed out of the box; test new devices; and filter and perform custom, advanced data analysis. From there you can move to developing RFID-enabled applications and integrating RFID data into existing applications. The early adopters are already well down the road towards RFID. Now is a great time for all businesses to start developing their own RFID strategy.
Nigel Woodland is industry solutions director – RFID at Oracle. T: 0118 924 0000.