There is no question about it Radio Frequency Identification (RFID) is not a passing technology fad. According to a Datamonitor survey of the top 300 manufacturers in the US and Europe, 60 per cent already have an RFID project underway and many more manufacturers are investing.
However, many companies are rushing to meet compliance mandates and reap the benefits of RFID without properly understanding the underlying architecture needed to support these smart tags. In return, inadequate implementations meant that in 2004, nearly half of all RFID pilots were abandoned as failures.
How do we avoid failed projects such as these? What exactly makes up RFID today and what RFID technologies of the future should manufacturers start to prepare for? We should take a closer look at the industry, the challenges and the solutions on offer.
RFID today and its impact on warehouse logistics
RFID uses small radio tags to keep track of goods as they move through the supply chain - from production line right through to final destination. Demand for these tags, which cost from about 40 cents each, has soared due to Wal-Mart and US Department of Defense mandates which require that large suppliers tag products and pallets by the end of 2005. Compliance will also be driven in regulated industries such as pharmaceuticals, food and tobacco where RFID is destined to become mandatory to help improve traceability and counteract fraud.
Suppliers who have been compelled to implement RFID in response to mandates are now starting to realise the full benefits that RFID can provide. We are beginning to see a real shift beyond a mere obligatory slap and ship use of the technology to one where vendors are using it to increase efficiencies and harness the wealth of information inherent within the supply chain.
RFID will impact virtually everyone working for manufacturing companies, from the forklift operator to the head of logistics. It can improve warehouse and distribution centre efficiency, save time in deliveries, increase productivity and reduce human error. It can ensure cost savings in out-of-stock supply chain reductions, prevent counterfeit issues and theft and can also help companies obtain key information on customers and their activities.
The impact of RFID on warehousing will also be tremendous as the guesswork in managing an inventory is dramatically reduced. Visibility is sorely lacking from real world supply chains, which is why companies hold lots of stock in massive warehouses, to accommodate for a shortfall in planning. Although this does eliminate the chance of running out of stock, the cost of having and managing a warehouse is huge adding up to $300 billion in the US alone. RFID provides an opportunity to move from Just in Case to Just in Time.
The combination of RFID hardware with a unique Electronic Product Code (EPC) can transform the supply chain and enable manufacturers to associate a lot of information with each tagged object. However, if companies want to create a truly demand-driven supply chain, RFID will need to be totally integrated in business processes and shop floor systems.
What went wrong and what challenges do we face?
Many RFID projects failed in 2004 due to inadequate thought given to the type of environment manufacturers are operating in and the kinds of products they will be tagging. For example, special tags are needed for movable parts, some tags need to be heat-resistant and others need very precise locations.
One company which has a particularly challenging environment for RFID is Del Monte Foods, one of the largest manufacturers and distributors of branded canned food. Del Monte is currently using RFID with SSA Warehouse Management 4000 from SSA Global, a leading extended enterprise solutions player. Del Montes products are usually in a dense fluid within a tin both liquid and metal are two of the most difficult components to tag for RFID. Del Monte therefore had to ensure that the tins were spaced to ensure that the RFID signals could be strong enough to register multiple cases on pallets. However, the benefits it has achieved far outweigh these initial challenges and the company is well positioned not only to meet mandates but also to take advantage of supply chain efficiency and cost saving opportunities in the near future.
Another challenge that companies are facing is the actual cost of RFID implementations. The major cost is actually the tags themselves. Del Monte is paying approximately 50c to 60c per tag due to its specialised environment - the industry average is only 10c less than that.
Another cost is that existing IT systems may need to be upgraded to deal with the wealth of information generated from the tags. In addition, as the technology or the tags improve, manufacturers need to replace existing RFID hardware, such as readers, so that they can still operate on the latest radio frequencies.
In addition to this cost, companies need to consider if they have the systems in place ready to deal with the amount of information that they will receive. Real time transactions provide a huge business benefit, but the IT infrastructure and software systems need to be responsive and resilient.
Before implementing RFID, manufacturers should review the current technology and standards and ensure that they are using the latest available software and hardware. Manufacturers should also do a ROI business analysis to be able to prove to the board how much it is costing them to have lack of true visibility versus real time visibility in their supply chain.
Crystal ball gazing a sneak preview
RFID is still in its infancy and developments are occurring on a daily basis. The early phase of RFID has had many parallels with the introduction of bar-coding, some 20 years ago. Just as with RFID, initial bar-code implementations were in response to a Wal-Mart mandate and early adopters took time to realise true return on investment within their own organisations. There were readability issues, teething problems and a need to agree standards. But all these problems were overcome and the business benefits of bar-code labels are now unquestionable.
RFID is moving quickly along the same path. A milestone in this journey will be the introduction of Generation II tags, to be released later this year which promise better reader operability over greater distances, harmonized standards and improved security.
Once Generation II tags are released, we will see much greater RFID adoption, particularly because these tags embody open standards. This will fuel greater hardware adoption and bigger roll-outs, which will ensure that tag costs will be driven down, facilitating wider implementation and adoption will continue in this cyclical nature. This standardisation will lower the barriers of entry to new suppliers, driving price, competition, innovation and choice.
Once RFID is truly adopted, the world not just the supply chain - could be a very different place. In a vision of the future, intelligent shop shelves will register as soon as a product is taken and put in a shopping trolley, and will automatically replenish itself, ensuring consistent stock levels. We will simply push our trolley through a check-out point without having to unload it whilst RFID readers register the products individually. In fact, we will even buy those items by simply walking out the shop with them RFID payment devices in our pocket and tags in our items will allow automatic payment. Washing will be made simpler with appliances choosing relevant cycle settings based on tag information in the items to be washed. The applications are endless.
DC Logistics a case in point
DC Logistics is one company which is reaping the rewards from RFID deployment. The company, which is using SSA RFID for Distribution from SSA Global at its RFID Distribution Center in Dallas, tags and tests products from suppliers before they are shipped to Wal*Mart. The software allows the company to locate inventory automatically in the supply chain by reading the RFID tags. DC Logistics has found that this automatic collection and analysis of data through SSA RFID for Distribution invaluable to its successful development of the RFID Deployment Center. The organisation has been able to meet industry compliance mandates and deliver immediate value to its customers.
According to Gartner, during the next 10 years, real time retailing will become a requirement to staying competitive, just as supply chain improvements became critical to surviving the 1990s. Although its not quite available as an off the shelf solution yet and may never be, RFID should be on every manufacturers near-future shopping list. However, in order to meet the pace of development and evolution of standards in RFID, manufacturers are encouraged to work closely with a trusted supplier to ensure challenges are both anticipated and worked through, and the tangible benefits of RFID are realised.
Ros Wilson is Regional Solutions Manager - SCM for SSA Global. Her prime responsibility is for Supply Chain Management and discrete manufacturing verticals (Automotive, A&D, High Tech & Electronics, Industrial Machinery and Equipment. The role is to gather and analyse market requirements in EMEA, provide input to product development strategy, then communicate solutions to the field.