Analyst News -- February 2004
The recent proliferation of Radio Frequency Identification (RFID) technologies across the supply chain will be evolutionary. As industry leaders mandate their suppliers to meet RFID compliance requirements over the next 18 months, we will begin to see how RFID can supplement, not supplant, the use of barcodes. Possible questions consumer packaged goods companies need to ask are, "How does a company handle the process changes to leverage RFID's capabilities" and "What strategies should be considered when evaluating an overall RFID program?"
Squeezing Value from RFID Today
Driving economic value from the use of RFID is greatly dependent on the manner a company integrates and manages not only the information provided by the technology, but how a company changes their underlying business processes to leverage the unique capabilities of RFID. Too much emphasis has been placed on the physics and the hardware side of the equation when process re-engineering is equally as critical to success.
Although RFID is a disruptive technology, it is not equally disruptive to every environment. A better understanding of the process re-engineering required for a successful RFID program is found in a quick evaluation of the manufacturing process. A make-to-stock manufacturer will experience significantly more challenges with RFID than a make-to-order manufacturer. The timing of the tag application to case and pallet, the placement and orientation of the tag, integration with the pallet wrapping process, the segregation of RFID product versus non-RFID tagged product and the introduction of a new quality assurance and verification procedure need process-focused solutions.
Within a distribution center environment, there are also significant process-change implications and benefits. Elimination of hands-on scanning of individual cases in favor of an RFID portal reduces labor costs, improves the velocity of through-put and generally improves the accuracy of product count. Better information regarding product location and condition leads to reduction in safety-stock levels and an improvement in product availability, improving customer satisfaction and revenue.
Strategies to Consider
Where and when do you start your RFID journey? Most successful strategies begin with the end in mind and start by assessing your requirements and your customers' needs. Before you begin any RFID program, it is important to understand your strategic approach to the technology. Ultimately, an RFID approach will be determined by an assessment of your company's state of readiness as well as the level of internalization and benefit you feel can be realized by supplementing with RFID technology. When evaluating an RFID program there are five basic strategic options
> Deferment
> Compliance
> Ancillary Tracking
> Supply Chain Visibility
> Supply Chain Intelligence
A deferment strategy is often appropriate for those companies that are not faced with any RFID requirement right now. This strategy allows for RFID technology to evolve and adopts a wait-and-see point of view. Companies that embrace this approach prefer to let others lead the way or are skeptical about the benefits. This approach avoids developing a cohesive automatic data-capture strategy and relies on barcodes as the primary product identification mechanism.
Wait and See
For many suppliers, wait-and-see has become slap-and-ship. With the compliance strategy, RFID is viewed as an additional cost of doing business with these key customers. They have little interest in devoting resources (human or financial) to determine potential internal benefits. The primary objective is to minimize the business impact in terms of resources, spend and integration in route to complying with any RFID requirements.
The ancillary tracking strategy calls for an initial internalization of RFID. This would involve low risk and limited use of RFID for non-core product tracking at a distribution center. Companies that want to explore the technology and are convinced that there is some benefit often begins by tagging containers, pallets, totes etc. This strategy makes sense for companies that want to experience some early benefits to adopting the technology but do not want to absorb all of the inherent risk.
The supply chain visibility approach calls for case and pallet-level tagging of product across the supply chain. This could include RFID tags on inbound and outbound shipments as well as the use of RFID to improve inventory and work-in-process tracking within manufacturing and distribution facilities. Typically this begins by studying low-cost passive solutions on either limited quantity, high-value assets or on a group of selected products. With further experience in RFID technology, this expands to wider scale deployment of RFID-based processes. The goal is to facilitate the sharing of information across trading partners that makes the supply chain smarter.
In the Long Run
A longer-term vision that embraces RFID technology to the fullest would call for the supply chain intelligence approach. This involves leveraging the technology beyond its current capabilities. This implies using item and shelf-level tagging as well as active tags that can provide cost effective read/write capability for product monitoring as well as product authentication. The possible benefits are staggering in terms of stock-out prevention, not to mention the realization of supply chain dreams of efficient consumer response, collaborative planning and forecasting, and zero latency enterprises.
Conclusion
Barcodes are still king, but RFID is here to stay. Improvement in price and performance, closer agreement on standards and industry mandates are contributing to a flurry of activity. Choices and strategies must
be developed now to align business processes to harness the benefits
of RFID.