February 2005 | Commentary | Supply Chain Technology

RFID Mandates: Gorillas in the Mist

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Embracing a new technology can sometimes feel about as good as a hug from an angry gorilla. Implementing RFID within a customer-mandated time frame is a good case in point.

Rushing to implement is less wise than doing finely tuned planning, regardless of the scale of the demand. RFID is not just about tags, readers, or the software needed to manage and run them. It is about implementing a profitable system within the enterprise supply chain, as well as making customers happy.

Implementing a full system, both software and hardware, can be a formidable task. It's important to first understand the objectives of the implementation. The core objective should be a profitable increase within the business processes being augmented. This involves many levels of planning including changes to legacy systems, retraining and educating staff, completing test runs, and, in time, understanding the long-term maintenance and upgrading a full execution requires.

The kind of changes that a full commitment to RFID entails extend beyond the walls of the enterprise. How these changes affect business processes is the true barometer for judging and evaluating an RFID implementation. It's not only about cost and profit.

Companies that have moved forward with RFID implementation have, in some instances, experienced problems phasing in RFID with bar codes, and integrating information with existing ERP and supply chain management systems, as well as older legacy systems. Tag reliability has also been an issue.

Tags and Wal-Mart

As we know only too well, 800-pound gorilla Wal-Mart made it a mandate for its top 100 suppliers to apply passive RFID tags based on ePC Global standards by the end of January.

The Wal-Mart mandate now sits in some form of limbo, which reflects the reality of implementation and compliance. Here's what happened. Wal-Mart's top 100 suppliers are struggling with their own particular compliance to the mandate. In most cases they are making progress, but in many cases only with some deliverable products. Their fears can be summed up briefly: too fast and too costly.

By way of compromise, Wal-Mart agreed to meet one-on-one with its suppliers to look at each company's particular complexities. Each negotiation has different consequences. Some suppliers have come close to meeting the original deadline, while others will comply gradually with groups of their most manageable products. Other companies may not comply until the middle of 2005 or possibly even later.

"These meetings between suppliers and Wal-Mart will occur on an ongoing basis," according to the ARC Advisory Group. "Even if a supplier committed in initial negotiations to a small number of SKUs, that supplier knows in upcoming meetings Wal-Mart will press for an expanded list of SKUs for tagging."

Regardless of delays and compromise, the 800-pound gorilla gets its way.

A second gorilla in the RFID mandate cage is the Department of Defense (DoD), which also made a timed demand to its 43,000 suppliers (yes, that is a good number of suppliers!). The deadline looms somewhere between February and April 2005. The DoD has initiated several pilots to show how goods with ePC tags can move through its supply chain.

A series of negotiations continue between DoD and its suppliers about who pays for the tags, as well as questions about the deadline for compliance. The DoD requires tagging on cases and pallets, as well as on individual items that cost $5,000 or more.

The use of RFID will be accompanied by a fast-track billing procedure as a form of incentive for RFID adoption, says Ed Coyle, chief of DoD logistics. He also notes that there are ways to cut the cost of tagging, and that from his experience, warehouse employees prefer the simplicity of RFID to bar codes.

The Food and Drug Administration (FDA) has published a policy guide to RFID technology studies for pharmaceutical manufacturers. Its purpose is to raise and identify regulatory issues involved in implementing and using RFID technology.

An internal FDA workgroup will facilitate communication between the agency and the manufacturers. This will lead to pilot studies and a collection of data processing information that will aid the policy. The FDA hopes its policy will encourage further development of RFID technology and applied research such as database management and tag numbering. Parameters for eventual enforcement are being established.

Issuing orders for compliance may be satisfying to the egos of those issuing the orders. But unrealistic timing and underestimated complexity reveal a flaw in both the Wal-Mart and DoD demands.

Implementing new technology can be staggeringly complex.

Predicting all the ramifications of installation, technological collaboration, smooth data flow, cost, and quality reading of data can be complex, if not impossible. Those issuing the rules of engagement should be made to go through a profitable implementation themselves. They then might have a more realistic idea of what they can ask of their suppliers.

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