Integrating RFID into logistics and supply chain operations: Plotting your RFID roadmap

Mandates have cooled but adoption continues to boom in some industry segments. Will you have a strategy in place when RFID steps out of the planning stages and into reality in your market?

By Bridget McCrea, Contributing Editor -- Logistics Management, 3/1/2007

The time when manufacturers and retailers can have 100 percent confidence in their ability to track product and pallets at every level with a tiny tag and a hand-held reader hasn’t quite arrived yet. That’s just one of the reasons why radio frequency identification (RFID) has yet to achieve the omnipresence that has long been predicted for it.

“Certain things have to happen in order for RFID technology to be used more pervasively throughout industry,” says Greg Aimi, director of supply chain research at AMR Research in Boston. RFID is still in its “pioneer phase,” Aimi says, with organizations like Wal-Mart and the Department of Defense — both of which have imposed RFID mandates on their vendors — serving as the technology’s biggest cheerleaders while the rest of us watch from the sidelines.

“Without the Wal-Mart mandate RFID would be further behind than it is today, yet the technology still has to go through a natural evolution,” says Aimi. “That’s not going to happen overnight.”

The reason for that time lag: While large retailers see a return on their RFID investments coming down the pike, many shippers see it as a cost burden rather than as a strategic opportunity. “The risk-and-reward trade-off between the consumer packaged-goods firms being asked to participate ... and the retailer is out of balance,” says Bob Parker, vice president of research at Manufacturing Insights-IDC in Framingham, Mass. In other words, the retailer takes on a minimum amount of risk (in terms of technology investment, for example) and claims a majority of the reward, while its supplier takes on the brunt of the risk and reaps insufficient rewards. “That scenario will continue until we get to an item-level tag, which appears to be quite a ways off,” he says.

Does the fact that RFID is taking longer than expected to become commonplace in the business world mean that shippers should continue to sit in the bleachers, waiting for the big play to push the technology into their zone? Not at all. In fact, some companies have concluded that now is a good time to figure out how to integrate RFID into their own operations.

Big retailers have been on the front lines when it comes to RFID, and their support should help break the implementation logjam. “[RFID usage] is not happening as fast as everyone wanted,” says Ann Grackin, CEO of Boston-based ChainLink Research. “But there are a lot of people who are committed to the cause, including power players like Wal-Mart, Kimberly-Clark, Target, and Best Buy.”

The retailers have set an example that’s catching on in other industries. For his company’s RFID Forecasts, Players & Opportunities 2007-2017 report, IDTechEx’s CEO Raghu Das interviewed companies that are testing the RFID waters. He found that certain aspects of the technology are lagging while others are booming. One example is the airline industry, which is tagging an increasing percentage of the two billion bags it handles yearly. RFID usage within government and the military is also on the rise, as is the use of the technology to track livestock, particularly in Europe and New Zealand.

RFID adoption got another big push in January, when eight electronics, IT, and RFID-related trade and professional associations launched The RFID Technology Council. The groups are working together to promote the use of RFID tags and support the U.S. Senate RFID Caucus, which was formed last year to help legislators better understand the technology and its potential benefits.

Consumer packaged-goods companies were among the first to comply with the retailers’ mandates. At this point, says Aimi, most have tested (or at least investigated) the “slap and ship” model — applying tags to cartons and pallets as shipments leave a warehouse — as a way to comply with those mandates.

But that’s just the first step on the road to RFID success, and shippers that want to go beyond that level should look at leveraging the technology to increase productivity in their warehouses and distribution centers (DCs), Aimi says. He suggests starting with routine tasks that could easily be automated through the use of RFID, such as instantaneous reconciliation upon receipt. “If you receive a pallet of goods that is automatically identified by RFID when lifted by a forklift or passed through a tunnel at the dock door, the shipment information can be automatically synced up against an invoice and the accounts-payable system set in motion,” he explains.

Parker recommends that shippers also consider applying RFID anywhere in their supply chains where there are technical difficulties in collecting the data, or areas where human intervention is nearly impossible. “Whether you need to know which hard drive is going into which computer in China, the exact location of a shipment, or exactly when a particular serial number was scanned at the Wal-Mart register,” Parker says, “you’re looking at areas that are probably good candidates for RFID.”

Next stop: product testing. Schools like the University of Pittsburgh and University of Arkansas run their own testing labs, as do vendors like Accenture and IBM. (For a list of testing labs, see “Bringing RFID to Life,” April 2006, at www.logisticsmgmt.com.) Parker says much of the testing of RFID equipment relates to tag location—finding out where to attach them to a carton or pallet to ensure the best readings.

Grackin also recommends RFID labs, but says that setting up shop in a shipper’s own environment is sometimes a better choice. A company situated near a power station that emits enough electricity to disrupt RFID tags’ performance, for example, would have an accurate picture of how well the technology will work when called upon in its actual operating environment. She also encourages shippers to factor in the physical issues associated with what they’re shipping, because the material used in the shipping container and the density of the product itself can affect RFID’s performance.

Where can shippers go with RFID once they’ve completed testing and have settled on equipment, systems, and application environments? For most companies, the pot of gold at the end of the RFID rainbow is a healthy return on their investment. Although ROI can be elusive, it is increasing, particularly for firms that are using RFID to improve their own internal business processes.

In his Worldwide Manufacturing 2007 Top 10 Predictions report, Parker writes that for lack of a business case most companies continue to resist moving beyond RFID pilot programs and really putting the technology to use. Yet falling tag prices are already bringing ROI into sight for shippers, he notes.

Thinking outside the shipping container will also help improve ROI, Parker believes. When shippers do go beyond the mandates’ requirements, he says, they often miss opportunities for payback because they focus mostly on asset tracking and on “the things that build or move the products rather than on the products themselves.”

Expect that to change in 2007, when item-level tagging is expected to be extended to high-value items such as white goods and consumer electronics. But to get to that point — and be able to take full advantage of RFID’s potential — shippers will need to change how they operate.

“There is little doubt companies will need to improve their ability to capture data in a more timely, accurate, and complete way,” Parker says. “This requirement will dictate the development of a data-acquisition platform that will incorporate many technologies, from bar codes to sensors and RFID tags.”