May 2004 | Commentary | Supply Chain Technology

Prospective RFID Users Face Supply Chain Challenges

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Although radio frequency identification (RFID) technology is not new to logistics or the supply chain, interest—and the need for interest in it—has skyrocketed. Alarms set off by the Department of Defense and Wal-Mart, among others, has many a supply chain manager in a tizzy.

The DoD and Wal-Mart now mandate that all cases and pallets enter their systems with RFID tags. That is one great number of tags. That's why it's important to make sure we know of what we speak when we say RFID.

RFID starts with a tag, or a microchip embedded in a tag. The basics of this technology go back at least 10 years. Chips in machine tool cutters go back 25 years or more.

The RFID chip has a data record, such as EPC (Electronic Product Code), on the tag. This includes a set of numbers unique to the tag. The tag has the second function of being able to transmit its data to a handheld or stationary reader. The reader makes use of radio transmission technology to both read the tag data and to send the EPC to supply chain computers.

This means that any computer within the supply chain network can share and track the EPC data, wherever the tagged item may be. The information available can include the date the product was made and when it was shipped, as well as the price of the item. Within the supply chain retail environment, the tag can be attached to a specific item, such as a suit, radio or refrigerator. The tag allows the item to be tracked throughout its supply chain journey.

Tag, You're I.T.

At the factory, for instance, the item would normally be scanned as it leaves the facility, then again at the warehouse or distribution center when it arrives at the unloading dock. If the item is boxed by that time, it can be read without having to open the box or crate for examination.

When the item arrives at a store, it is scanned to fit within inventory, and subsequently as it moves through the store and checked out at sale. The tag can potentially go all the way home with the customer. This is one of the areas, however, where there is a some hue and cry as to privacy and probably justly so. Too much cost and too little privacy make for bad company.

Most tags will start in another "climate" for one simple reason: cost. It is more likely that tags will be used in closed loop systems within the supply chain rather than in open-ended retail environments. If the tag is attached to a pallet, tote, or container, the cost per item could quickly become trivial and the reuse would, in turn, make the economics very sound. This is the kind of reasoning Wal-Mart is expecting as a buy-in to their system.

One recent RFID study cautions that only six percent of respondents have done an RFID project to date, and only less than half expect to implement a project this year. On the other hand, predictions are that RFID will ramp up from a nearly $1 billion market now to $3 billion by 2008.

This kind of growth would depend upon a major reduction in the cost of a tag. The cost of a tag is as hard to quote as the price of a tennis racquet. (You want string? Then...)

A standard tag can cost as little as 50 cents, and Sun Auto-ID is making noise about 30 cents. If you need or want a battery, the price increases dramatically. If you need or want a sensor, the tag can go as high as $100. Standard tags are predicted to drop as low as five cents in a year or two, and at that point it's "tags away!"

Prospective RFID users face a few other problems, no matter how urgent the demand to go RFID. The tags are only a part of the system and there is not an oversupply of materials or providers. Some say (and they do have a point) that at the moment, the demand for a solution is ahead of the technology available. It may be that the implementation will follow out market types.

The most reasonable users of this technology would be manufacturers who have low volume and sell high-cost items. They are probably more sophisticated companies and will opt for tags that are within the closed loop. High volume and low-cost users, in comparison, will opt for the cheapest tag they can find, because for them, RFID may be a one-way street. The two solutions may have a degree of commonality, but they have more non-commonality, and will develop separately.

For the foreseeable future, warehouse management will have to live with a combination of two systems: the normally implemented bar-code system and the introduction of an RFID system, at whatever scale.

Will this be awkward? Yes, but not impossible. Bar-code systems already feed into highly complex supply chain networks. They just aren't as handy in terms of tracking. Some in the industry see RFID as a shot in the arm for Warehouse Management Systems that have had better days in regard to revenues.

The greatest advantage of RFID is the remote sensing, and consequent added visibility, it gives to items, pallets, totes, and packages throughout the supply chain. If it is visibility you need, it is hard to quarrel with the potential value of RFID. The question is, when do you spring? How far? With what products? In what facilities?

Supply chains with all items tagged, moving, and visible is an awesome thought. Done wrong, it is a supply chain manager's worst nightmare.

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