November 2003 | Commentary | IT Matters

Are You Ready to Ride the RFID Tidal Wave?

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For the last 30 years, bar codes have been the accepted standard for product identification. Current technological advances, however, make radio-frequency identification (RFID) a promising alternative to bar codes in many applications. Now is the time for businesses to acquaint themselves with this technology, and to decide on a strategy for participating in this revolution.

In an RFID application, each item is "tagged" with a small computer chip and an antenna, which allows it to store, send, and receive data. Two-way radios, known as "readers", are located at strategic points throughout the supply chain. When a tagged item is close enough to a reader, the reader electronically stimulates the tag to send the data on its chip to the reader.

This technology allows an individual item to be tracked in real time, creating previously unfathomed opportunities throughout the supply chain.

The Auto-ID Center at MIT is developing a blueprint for an RFID system that is wedded to the Internet to facilitate sharing of data across supply chain partners. When an item is produced, it is labeled with an RFID tag, which contains its unique Electronic Product Code, or EPC. A reader transmits this EPC to a computer linked to an Internet server, which assigns the individual item a unique web site.

The manufacturer uploads information about the item to the web site. When the item passes a reader farther up the supply chain, the reader uploads the item's location to its web site.

The implementation of RFID is expected to remove nearly all uncertainty from the supply chain. Manufacturers, retailers, and distributors will dramatically reduce the expense of counting, storing, and verifying inventory. Write-offs due to theft, bookkeeping errors, and returns will drop.

A greater opportunity emerges when suppliers, freight companies, and customers work together to create a leaner and more effective supply chain. With complete visibility over real-time product movement:

  • Manufacturers will be able to improve capacity utilization and reduce cycle time.
  • Freight companies will be able to deploy assets more effectively.
  • Distribution centers will be able to increase crossdocking.
  • Retailers will be able to turn receiving doors more quickly and assign more personnel to customer service and merchandising.

All parties will realize improved stock positions at a lower cost, leading to increased sales at higher margins.

Reality Check

Despite the promise (and the hype) associated with RFID, formidable technical, financial, and cultural obstacles to its adoption exist. Metal, liquids and other radio waves can obstruct radio transmissions. Worldwide standards must be adopted for use of communication frequencies. Start-up costs for retooling factories, warehouses, trucks, and retail outlets with RFID equipment will be incurred. There will be recurring costs for maintaining and upgrading software, hardware, and data needs.

Corporate partners will be reluctant to share information. Encryption techniques will need to be developed to prevent hacking. And consumer groups who fear the Big Brother aspect of this technology are already strongly opposed to RFID.

The Future and What it Means

The benefits of RFID, however, will outweigh the obstacles. Wal-Mart has already announced that by January 2005, its top 100 suppliers must implement RFID at a case and pallet level. This increased demand will allow technology manufacturers and service providers to increase the scale of their facilities, thereby lowering the unit cost of the chips, hardware, and software that make up the proposed system. Other retailers and manufacturers are sure to follow suit.

Now is the time to incorporate RFID into your planning. Consider how far removed your business is from the tidal wave that Wal-Mart is creating. If you aren't in the retail supply chain, consider what might start a tidal wave in your particular industry. Decide if you want the risks and benefits of being an early player, or if you prefer the risks and benefits of being a follower.

Don't be swamped by the RFID tidal wave, be ready to ride it.

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