INSIGHTS -- November 2004

Making RFID Work Seven steps to realize a return on investment

Technology vendors and consultants have made Radio Frequency Identification (RFID) overly complex and confusing. Software vendors tout the need for middleware, a nebulous catchall term for integration technologies and reader management software. Consulting firms push the need for extensive modifications to supply chain and ERP applications. Companies exploring the use of RFID for improved supply-chain management must cut through the confusion, roll up their sleeves and begin working with the technology.

Enterprises viewing RFID as a customer mandate and a replacement to bar code will never uncover an acceptable ROI for the technology. Enterprises need to embrace the following seven recommendations if they want to realize ROI from RFID.

1. GET STARTED NOW. Establish an RFID lab to understand how RFID will operate across facilities and how it will interact with products. Experimenting will lead to discovery. For example, analyzing RFID data can reveal opportunities to reconfigure material flows and eliminate unnecessary movements and tasks. One hundred percent read rates are unnecessary; a manufacturer can understand inventory and process flows even with a read rate well below 100 percent.

2. TARGET PROBLEM AREAS. Every company operates differently and has unique opportunities to improve performance. One enterprise may have poor production reporting processes while another has problems maintaining good lot control information. Every enterprise must decide where RFID will provide the most benefit by identifying the areas that will be most improved by the technology.

3. START EASY. To test RFID, companies should pick a problem area or process with limited scope and complexity. The project should represent a supply chain problem within the enterprise's internal operations that can be solved without extensive involvement by others in the organization. Additionally, the project should not require substantial systems integration. The bottom line: Don't go after the company's biggest or most difficult supply chain problems.

4. LOOK BEYOND OBVIOUS BENEFITS. In the broadest terms, the benefits of RFID stem from inventory visibility. Visibility enables companies to understand how inventory flows within and between facilities. Analyzing the flow will reveal inefficiencies within current processes. After identifying inefficiencies, enterprises can modify processes, policies and procedures. Because RFID automatically collects information, enterprises will be able to easily evaluate the effect the changes had on inventory flow, turnover and throughput.

5. PUT ROI IN PERSPECTIVE. RFID is powerful but not perfect. It is another tool enterprises can use to improve supply chain management. Enterprises need to compare the cost of implementing RFID infrastructure and applying tags to every case and pallet with the benefits resulting from improved inventory and operations management. RFID gives companies the data necessary to know exactly how long each case or pallet sits idle at every point in the supply chain. Coupling this intelligence with cycle time data illuminates the amount of wasted inventory within each of your facilities and across the overall supply chain.

6. ASK 'WHAT IF?' Enterprises need to identify how they can improve current processes using the data that is automatically captured about each case and pallet when RFID is used throughout its internal supply chain. For example, how much time will be saved if lot recording and tracking becomes automatic? What if you knew how many times a pallet of inventory was moved before it was loaded onto a truck? What if you knew exactly how inventory flowed through your facilities?

7. DEVELOP A ROADMAP. Any time a company wants to incorporate new technologies, or modify current processes, procedures or practices it should have a business case that defines the strategic and tactical reasons for the change. Enterprises need to identify what they can improve and how RFID can help them streamline processes and improve material flow within and between their facilities. Most companies focus only on the cost to incorporate RFID technology into their supply chains. It takes much more effort to identify how RFID can drive business benefits. Supply-chain professionals must be creative and do the hard work required to understand how to drive inventories down further and streamline processes and inventory flow using RFID within their internal and extended supply chains.