It's a commonly heard argument: Radio frequency identification (RFID) will unlock the benefits of greater efficiency and supply chain visibility when prices drop enough that more companies and more supply chains are using it. But RFID is locked in a Catch 22 loop — many companies are waiting for the costs to drop so they can employ the technology.
For watchmaker Peacemark Ltd., RFID is not a vague notion. Tommy Leung, managing director, is looking ahead to some of the advantages the company can derive from the technology. Though Wal-Mart Stores Inc. is one of his important business partners in the U.S. and China, Leung says he has not yet been asked to be part of the retail giant's RFID initiative. His location in China may account for the temporary reprieve, but he has not been idle as he waits for Wal-Mart to push the requirement up the supply chain to the source.
This is the future, he says, and eventually all merchandise will be able to make use of RFID, but it is still expensive. Peacemark currently uses bar coding and Leung says he sees real value in the fact RFID tags can record more data in a small space. And, he points out, RFID tags can be reused.
One of the major benefits Leung looks forward to is the elimination of physical inventory counts. But, like others, he is still focused on the cost of RFID tags. When you have high volumes, prices will come down, he says, offering an example from his own industry. About 20 years ago when digital chronograph watches were new, they cost about $100. Now, says Leung, they are under $1.
"If you have the volume and time for RFID tags to improve, the price can come down tremendously," Leung says. "Of course, it may not be as cheap as a bar code, but I think it can be affordable."
"RFID is a key technology that companies are employing to gain greater visibility into their supply chain, which is critical for improving efficiencies and reducing inventories," observes Peter Regen, vice president, global visible commerce, Unisys, a provider of information technology solutions. Some companies are looking beyond simple compliance with various customer requirements and trying to mine the benefits of the technology for their own operations.
The Creative Interiors Division of Thomasville Furniture Industries is one of those companies using RFID for greater visibility and track and trace capabilities. Thomasville tags finished goods, allowing it to track and trace products it sends to retail customers and to confirm deliveries. But though 90% of the Thomasville division's sales are to Target Corp. and Wal-Mart Stores (both require RFID tagging), it looks beyond compliance as a reason to adopt RFID.
Some companies facing compliance take a slap-and-ship attitude, says Patrick Sweeney II, CEO of ODIN Technologies. The first question they ask is, "Can we get out of it?" A better strategy, Sweeney says, is to turn the question around — like Thomasville did — and ask, "What can we get out of it?"
A good first step is to look at where additional supply chain visibility can be of benefit. "There are different benefits based on where you tag in the process and where you actually track those tags," explains Regen. Based on the value of the item, you can go all the way back to the components. Thomasville isn't likely to tag all the way back to the tree, he offers, even though it is theoretically possible. Computer maker Dell Inc., on the other hand, has been able to get benefit from tagging at the component level, Sweeney notes.
Dell's famous business model essentially assembles a product in transit. It had tracked work-inprocess inventory using bar codes, but the nature and size of some of the components made reading attached bar codes difficult as the components were assembled into a finished product. Dell was getting about 80% accuracy on its reads using bar codes. It moved to RFID and started to get read rates and accuracy above 95%, says Sweeney. The investment paid for itself in six months.
"You will hear a consumer products manufacturer that's slapping and shipping and complaining it's a pure cost, while a company like Dell saves substantial amounts of money each year using RFID to improve the efficiency of its work in process inventory," Sweeney notes.
Thomasville didn't set up its compliance system in a vacuum. It asked where it could derive value and drive benefit within the organization in a 12-to-18-month timeframe. Then, Thomasville set about developing a system that would deliver those benefits.
Planning was absolutely critical, notes Sweeney. As a specialized engineering firm, ODIN's role wasn't to decide where Thomasville could derive benefit; it was to help them plan and implement and then, with Unisys, to support its RFID network.
An essential goal was to keep the initial investment low. Thomasville was able to set up a mobile tagging operation in its distribution center that allowed it to move a single tagging station from one stretch-wrapping machine to another. This avoided the need to buy multiple tagging, printing and verifying machines for each stretch wrap station.
The mobility offered another benefit in scalability. As RFID use expands, the station can be moved into the manufacturing location, reducing the likelihood it will become obsolete in six months or a year. This will also allow Thomasville to tag earlier in the process and take advantage of the opportunity to track those products as they move through distribution.
Look at where you will be in three years, suggests Sweeney, and design with that end in mind. Where is that additional supply chain visibility going to benefit the company?
To make the planning process effective, it is necessary to look at all areas of the organization that will be impacted by an RFID deployment. Examine the physical attributes of the system (the physics of RFID), the business process attributes and information systems. Each will require that different people be involved in the planning process. With people from each of these functions involved in the planning, "the light bulbs start to go off," says Sweeney.
Test the different physics. The air conditioner being on could affect the radio. Or, ambient electronic noise created by a specific event may disrupt the reader. Document the process and create "knowledge artifacts" that include digital photos with descriptions. Thomasville's packaging group even looked at where hardware was packaged in the larger carton and how this might affect tag placement and readability.
Be sure to return to the planning process periodically to look at what might have changed. New lighting in the distribution center could create electronic "noise." Relocation of a piece of machinery might affect an RFID reader. A packaging change could affect tag readability. The record of the system should be updated with each change to aid troubleshooting, and the information should be shared with each function affected by the RFID installation.
When RFID overcomes some of the limitations at the data collection end (mainly cost), mechanisms such as web-based information systems will open up new opportunities to gain better visibility along the supply chain — even globally.
Dell Inc. www.dell.com