RFID could put the "zig" and "zag" in supply chains

By James Aaron Cooke, Contributing Editor -- Logistics Management, 5/1/2006

Plan-Source-Make-Move ... that's been the mantra of supply chain believers since the advent of this business philosophy a decade ago. It's a linear progression: A company gets an order, manufactures a product, and then ships it to a buyer.

But tomorrow's supply chains will require "matrix," rather than linear, movements. That development will be facilitated as companies band together in supplier networks, collaborating to make and move products across national boundaries. For instance, one supplier might make only a base unit and then ship it to a supplier in another country for final assembly. In such cases, supply chains will zig and zag along complex, global networks of production and logistics nodes.

This type of arrangement would require intensive coordination of production and logistics, and therefore would necessitate a high degree of information sharing. Matrix-type supply chains undoubtedly would be impossible to manage without the benefit of technology.

Fortunately, the technology to do the job already exists: radio frequency identification (RFID). RFID tags can identify parts or products and convey that information wirelessly to readers, which collect and transfer data to computers for analysis.

A report just out this spring, RFID Comes of Age, proposes the intriguing notion of RFID-enabled supplier networks. Sponsored by the North of England Inward Investment Agency and written by the Economist magazine's Intelligence Unit, the report says that RFID technology could provide the catalyst for the formation of supplier networks.

The report goes on to suggest that because RFID would make it possible for two or more companies to share consistent data, it would help them collaborate on product purchasing, development, and promotion. RFID could be integrated into software applications to give suppliers the visibility they need to direct inventory flows in convoluted supply chains. And as more companies team up, they will create multifaceted supplier networks that will render obsolete the traditional, linear supply chain.

But a trend toward supplier networks and matrix supply chains may already be under way. If, for example, a ship that's carrying product from Asia to the United States encounters a delay, the importer often must rearrange inventory and move product from some other part of the world to satisfy demand. For supply chains to effectively respond to such sudden changes and still meet customers' requirements, they will have to become more complex and supple.

As interesting as I found the concept of supplier networks, I couldn't help but think about the fact that RFID still faces some challenges. First and foremost is cost: Tags will have to come down in price before companies can afford to mark every component and product, a key requirement for gaining the level of visibility needed to coordinate inventory movements. And there remain significant performance shortcomings in certain environments.

Although it will be years before the vision espoused in RFID Comes of Age can be realized, logisticians should at least begin thinking about the possible ramifications of more complex inventory flows. Supplier networks could indeed become the way companies make products and satisfy customers in the 21st century. Then it would be just a matter of time before supply chains evolve from linear to matrix form.