Lack of RFID knowledge at 3PLs is holding back RFID implementations

Major European manufacturers and retailers expect logistics service providers to knowledgeable about RFID, experienced in its implementation and capable of taking a proactive role in its integration. While tier-1 companies are bullish about the business benefits of RFID and leading in deployments, tier-2 companies are more sceptical and look to logistics service providers to help them extract value from the technology.

These are the key findings of Analytiqas latest report RFID in Retail Logistics - Expectations of the 3PL. This in-depth report, based on one-on-one interviews with senior supply chain managers and RFID project managers at major European retailers, manufacturers and logistics providers (3PLs), details companies RFID strategies and how they hope to drive results.

Predictably, market leaders are pushing RFID forward, but their RFID plans will run into serious snags since many companies to the right and left of them in the value chain are not up to speed on the technology, argues report author and Senior Analyst at Analytiqa, Mark OBornick. Companies that lag behind are looking to their logistics service providers (3PLs) to help close the gap and want their providers to take a more active role in moving RFID forward.

Analytiqas report sheds light on the approach, opinions and strategies of some of Europes leading companies towards RFID and investigates the activities that they have in their pipelines. It also examines the key issues blocking large-scale RFID implementations.

Among these issues are technology standards, cost burdens and the lack of a clear business model.

For example, Boots plc, a major UK retail chain providing health and beauty products in 130 countries worldwide, remains uncertain of the business case for RFID. One of the big disadvantages we see at the minute is that systems applications dont exist to exploit the potential of RFID, a company executive confided to Analytiqa. Most of what is around really is just treating RFID as an electronic bar code. When I ask people running the trials how much they couldnt do with a bar code before, the answer is much could be done with a bar code.

Surprisingly, another barrier is the lack of practical knowledge among logistics providers. Analytiqa found the vast majority of respondents expect 3PLs to work in partnership and push forward RFID projects. They further expect 3PLs to be flexible about sharing the management burden and the knowledge they gather from customer projects across all sectors. The message is clear, Mark OBornick stresses. Logistics providers should invest in RFID gather expertise and manage the complexities of RFID. This capability is not considered a service; manufacturers and retailers demand this from 3PLs and have pointed out they will consider switching from providers they believe lack this competence.

This view is echoed by many major retailers and manufacturers including Danone, a leader in the world food industry. The company told Analytiqa it expects logistics providers to bring their economies of scale to play and be fully aware of RFID technology issues and opportunities. Moreover, Danone expects logistics providers to be proactive and develop realistic and effective business cases.

However, Analytiqa discovered a dangerous disconnect between customers expectations and logistics providers capabilities. Tier-1 logistics companies are far ahead of tier-2 players and its imperative that these companies close the gap, Mark OBornick warns.

While some logistics providers clearly lack the proper RFID skills set, the majority of logistics providers are nonetheless convinced that implementation know-how and consulting services will be their strongest selling-points moving forward. To this end several logistics companies revealed they are currently developing new service offers to drive revenues. An example of this new value-add approach is their capability to tag products at the point of origin.

One provider aggressively pursuing this strategy is TPG N.V. in The Netherlands. It is involved in a pilot project tagging equipment for a Chinese customer. Were also talking with several (Chinese) manufacturers to extend this service, the company told Analytiqa. TPG also expects that new waste and recycling laws effective in Europe in 2005 will boost its RFID tracking business.

RFID technology could be used to capture and communicate information about where a specific product touches the end-consumer. In the case of a computer printer, RFID could provide an important link between the companies that make the cartridge and the companies and consumers that buy them. Against this backdrop, TPG told Analytiqa it sees a clear business opportunity using RFID technology to provide the client with all sorts of marketing information (including) where (from which customers) the cartridges come from.

Likewise, logistics providers see a separate service evolving around providing Key performance Indicators (KPIs) to their customers. Were not selling a tag; were selling a service, one 3PL told Analytiqa. We know what is required to manage our element of the supply chain and therefore we can help on specifying the KPIs relevant to that area (through RFID track and trace). We provide the link between the retailer and the manufacturer.

Sharing the cost burden of RFID

Analytiqa found manufacturers are upbeat about the benefits of RFID, but less enthusiastic about sharing RFID costs. In their view, they must accept that retailers will both dictate the costs and reap the majority of the business benefits. While most respondents indicated they believe it is the responsibility of logistics providers to carry part of the RFID implementation costs, they were unclear on the precise split. Still more uncertain is whether logistics providers can pass this cost to other parties, Mark OBornick notes. Some 3PLs plan to charge the costs back to the customer, but many admit that they may end up paying a huge share of the costs of RFID implementation and integration as part of the investments they need to make to keep clients.

This is because despite the uncertainty expressed in Analytiqas report the vast majority of respondents believe RFID impact on the worldwide supply chain is inescapable. Item-level tracking is several years away, but there is no denying that RFID gives the companies an advantage over bar codes, ensuring product visibility throughout the supply chain, Mark OBornick says. Most companies are clear that RFID will play an important role in their businesses and coexist with bar codes for several years before ultimately replacing them.