August 2004 | Commentary | Supply Chain Technology

Reconsidering the Role of RFID

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Is RFID the best thing since sliced bread, another Y2K, or something in between? Is it yet another technology fix on top of all the others or is it a new and essential tool for doing business? Is it a go or a no go?

Regardless of your attitude toward RFID, the talk surrounding it and its implementation is not going away in the foreseeable future. And for good reason: RFID represents a tremendous potential advantage in logistics asset management—for improving visibility and availability of assets, and for complying with an ever-growing list of mandates from important customers.

In its recent study of logistics asset management, The Aberdeen Group defines assets as pallets, containers of pallet size, shipping containers, totes, bins, and refillable liquid containers such as soda cylinders and kegs. Half the companies studied are moving toward placing RFID tags on these assets during the next year.

As a corollary to the study, The Aberdeen Group suggests that companies make the following moves to ensure optimum asset management:

  • RFID-tag existing assets and implement tracking that uses the information the tags supply.
  • Measure performance based on customer satisfaction and asset availability.
  • Segment the logistics asset management area in which your enterprise has true domain expertise and leverage logistics service providers, or industry pools, to provide domain expertise and technical assistance in areas where your enterprise is weak.

In an Accenture study of pharmaceutical and consumer goods companies, 47 percent of manufacturing executives surveyed say they expect a high return on their RFID investment. In addition, respondents are concentrating far more on RFID's short-term benefits, such as improved lot tracking and tracing, rather than long-term benefits, such as inventory reduction and other larger goals.

Enterprises that move beyond a minimal, short-term approach to RFID will have the competitive advantage, according to Accenture. The consulting firm also cites the cost of tags as the largest barrier to widespread adoption of RFID technology.

Prime Candidate for RFID

It does not take a rocket scientist to discover that pharmaceuticals are a prime candidate for the use of RFID in our new era of high security (or the lack of security, depending on who you talk to).

The ARC Advisory Group sees pharmaceuticals as an area ripe for RFID implementation. An ARC market study, written by Chantal Polsonetti, notes that the tracing and tracking of goods is of vital concern to pharmaceutical enterprises because of regulatory conditions and the problems surrounding anti-counterfeiting. Being able to have product visibility via RFID tags allows pharmaceutical companies to track the pedigree (origin) of a product or material and to ease the product recall process.

"The U.S. Food and Drug Administration has already recommended that RFID be part of a layered approach to counterfeit prevention that includes RFID, tamper-proof packaging, bar codes, and other forms of security such as hidden inks," Polsonetti says. "The RFID market potential is huge, with more than 12 billion units as candidates for item-level tagging in the United States alone.

"Pharmaceutical manufacturers can easily justify using tags all the way down to item level on the basis of tracking and tracing requirements," Polsonetti says.

ARC also recognizes RFID's less- attractive side, including the limits of passive RFID, lack of interoperability across vendor products, and absence of a strategic business plan for the technology.

This lack of standards in the supply chain costs large manufacturers dearly, according to an interesting new report by the National Council for Advanced Manufacturing (NACFAM). The greatest stress points occur in the management of inventory, scheduling, and accounting. All these functions would be heavily impacted if RFID were to be implemented, NACFAM notes.

In my June column I suggested that the most reasonable use for RFID across the board would be by manufacturers that have low-volume production and high-cost items with sophisticated tags. This may be true. But in the pharmaceutical industry, the compliance and regulatory factors are so strong the need for RFID increases. The tags pharmaceutical companies used at the item level would be, at least at first, the cheap and less robust tags.

Feeling Vulnerable

Pharmaceutical companies must feel more vulnerable than any other manufacturers because any product that is tampered with can make a consumer sick or lead to death. Couple this threat with government rules and regulations, and the cost of not knowing from where, when, and to where products are moving can be staggering.

Pharmaceutical companies, along with those supplying Wal-Mart and the Department of Defense, may therefore become the front-runners in the implementation and testing of RFID technology. They may well be the core companies that push the technology of passive RFID to become more reliable.

In addition, pharmaceutical companies might create a body of standards that will work for their own needs and the needs of all those who may, in time, implement RFID.

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