RFID: Wal-Mart Has Spoken. Will You Comply?

Radio frequency identification (RFID) has become a very hot topic in the last few months with Wal-Mart's compliance announcement to suppliers. Recently, the Department of Defense (DoD) followed Wal-Mart's lead. It has even adopted the same time frame as the retail giant and announced similar objectives.

Material Handling Management magazine, in cooperation with the Northeast Ohio WERCouncil and Siemens Dematic, assembled a panel of experts to discuss the implications of these initiatives and offer perspectives on the reality of RFID for your supply chain. This program took place at MHM's Cleveland headquarters in front of a live audience. It was also broadcast as a webinar to an audience of more than 500 supply chain professionals.

Our panel consisted of RFID system implementers and end users. All are working with Wal-Mart to make this technology useful for any stakeholder in every supply chain.

All agree that vendors and end users must collaborate to make RFID as relevant to suppliers as it is to Wal-Mart and the DoD. Collaboration starts with preparation. Each of our presenters offered his or her take on how to get started.

The presenters:

Sue Hutchinson, product manager for EPC (Electronic Product Code) Global U.S., responsible for the standards development process for the EPC Network.

Joe Dunlap, supply chain solutions specialist, Siemens Dematic

Tom Torre, B to B supply chain innovation group leader, Procter & Gamble

Chris Golinski, manager of customer logistics, Pfizer Inc.

Doug Naal, electronic business program manager, Kraft Foods

Sue Hutchinson

In 1999 the Auto ID Center got started. It was funded by our parent company, the Uniform Code Council, as well as Procter & Gamble and Gillette. The Center has since grown to about 100-plus sponsors throughout the world, including all of my fellow presenters.

The Auto ID Center has done fundamental work on RFID, not only on tags and readers, but on a systematic approach to applying RFID and automatic identification. That approach focuses on the following: finding cheap, high performance tags and readers, making the electronic product code a common language for everyone to use in the commercial supply chain, and finally, establishing the information network to form the data backbone of the system.

What is EPC Global? The Uniform Code Council and EAN International, our sister organization, came together to form a joint venture, EPC Global. The Uniform Code Council was chosen by the Auto ID Center as the sole licensee for all the technologies and IP that came out of the Auto ID Center. In forming the joint venture, our goal was to be global from day one and to support all types of industries, including fast moving consumer goods. We are the driving force behind worldwide adoption and implementation of the EPC network.

A replacement for bar codes?

No, not yet. The EPC network is really an enabler for smart decision-making to act as real-time eyes in the supply chain. It can also be a tremendous catalyst for change in your organization. It's a way for organizations to be more effective with automatic item identification and information sharing through a global standardized network.

If you knew at a moment's notice where any one of your assets or goods in transit were anywhere in the supply chain, what impact would that have on your business? That's the question the EPC network allows you to answer.

The vision of the EPC network is that systemic approach to RFID — physical objects communicating with each other and with us in real-time using Internet technologies to extend that information network into the supply chain, and finally interconnecting suppliers, manufacturers, carriers, and warehouse professionals. What do we need to realize that vision? A single system for the whole supply chain. The more complex the network gets, the greater the need for standardization.

Building blocks

Let's talk about the building blocks of that EPC network. At the top is the electronic product code itself. This is the code inside the RFID tag, a globally unique pointer for making inquiries into the EPC network. The tag is a data carrier, just as a bar code is a data carrier. This one just happens to use a slightly different technology — radio frequency waves.

The tag features an integrated circuit chip and an antenna connected to the chip. The antenna can be traditional copper wire, although we are moving toward ferrous ink. That allows us to make the antennae very small.

The reader is the other key component at the front end of the automatic identification piece of the network. The data capture device can be portable or fixed and connected to the rest of the network.

Our portal for reading is a Savant, a set of functionality that acts as a real-time traffic cop within your network. It makes quick decisions about data being read through the reader network. It can make real-time decisions based on business rules that you set up within your enterprise. It is also the mechanism we use for querying out to other trading partners in the network. We do this through ONS, the Object Naming Service. ONS is my way of registering and letting other people know where I am holding my information, so when they read my tag, they can query that information on the basis of the EPC information service.

Challenges

We released the version 1.0 specifications for all of the components in that network during the EPC symposium in September. At the lowest level are three radio frequency specifications: two in the UHF range, one in the HF range for tag protocol.

Our biggest challenge for 2004 at EPC Global is engaging the two-ton and the 20-ton gorillas: Wal-Mart and the Department of Defense. The Office of the Secretary of Defense has issued a directive that has two parts: one on war fighting support, the other on supply chain optimization, which looks surprisingly like the set of requirements that Wal-Mart recently put out — to have selected goods at the case and pallet levels tagged and using the EPC network by January of 2005.

The time to get involved in this is right now. Start by figuring out where it benefits you within your four walls. Then come and get involved with us in driving requirements into standards and specifications and engaging all your trading partners — not just Wal-Mart.

Joe Dunlap — Siemens Dematic

One of the things I encourage you to think about is, whether the cost of the tag is a penny or a dollar, does it influence the way you execute processes in your supply chain? I would submit that it doesn't. So rather than waiting for the cost of the tags to come down, begin looking at how your processes will be affected by this new technology, and how you can benefit from it. Look at your existing processes and how they would change - whether because of fewer tasks or higher throughput and productivity.

Wal-Mart is not necessarily going to pay for the cost of the tag for you. So being a compliant supplier should mean more than simply slapping a tag on a pallet or carton as it is being loaded on a trailer. While you may be compliant in a sense, you are incurring that incremental cost without a payback. Any payback will require you to reengineer your processes and apply that tag as far up in your supply chain as possible.

Get smart on the technology

Involve yourself with EPC Global and the Auto ID Center communities. Start by looking at your existing supply chain processes. There may be information you're not capturing because it will cost additional labor and equipment to scan at different places in the supply chain.

Start looking at traditional time studies, and look at breaking down pieces of each function within your supply chain. Measure their effectiveness. Construct an event map depicting inventory touch points, equipment touch points, people touch points and, most importantly, information touch points - or lack thereof.

Getting started

Begin by purchasing some basic RFID technology. Get some sample tags, readers, antennae, integrating antennae, and begin playing with the technology to understand what it can do, and how you can apply it to your own operations.

Determine how those processes and that event map can be improved upon or changed based on what you learned through RFID and playing with the technology.

Review those events not captured. What additional information that you are not currently capturing would be of value to your business? And construct those new process descriptions. Identify the cost benefits, develop those solution alternatives and prioritize them across the highest returning applications you identify in your own operation.

Create a financial model of those cost benefits that then begins to identify where the payback is. Work with trading partners. These customers were able to leverage that existing tag on the product to do pilots of their own quicker and at less cost.

Re-engineering

Another approach is to be more proactive, and that means reengineering processes, reviewing systems impact implications and applying RFID benefits in your supply chain so that you see the direct benefits.

The benefits of RFID can't be achieved on just one application. The technology must be considered across your entire supply chain.

Tom Torre — Procter & Gamble

We got interested in EPC because we saw it as an opportunity to address two major industry problems — theft and counterfeiting — and to capitalize on an opportunity. Theft is a $53 billion dollar global problem in the consumer packaged goods industry. Today radio frequency is one of three technologies used to fight this problem, but these technologies don't work together.

Similarly, counterfeiting is a $500 billion global problem in the consumer packaged goods space. In the last 12 months, three prescription drugs have been recalled by the U.S. Food and Drug Administration because of counterfeit product being discovered in the supply network.

Bar code limitations

We see the EPC system as a single global way to address those issues in a low cost fashion. The opportunity area is identification. The bar code has served us well for the last 30 years, but it has limitations, not the least of which is that it requires a line of sight and can only be read one at a time.

We have done some things with 2D bar coding, but we see EPC as the next frontier from an identification standpoint. Currently there are approximately 122 RFID protocols globally. They all work, but few work with each other. That's why it hasn't been affordable for the industry, and that's why we are so supportive of single global standard behind EPC.

Supply chain wins

So as we think about what the EPC system can provide from a real-time automated information standpoint, we see it as a win for the entire supply chain. We see EPC as enabling what we call our consumer-driven supply network. That means better real-time visibility to demand and being smarter about where our inventory is so we can run our business more efficiently.

Starting with the consumer or shopper, fewer out of stocks means increased satisfaction, improved value and fresher product. Retailers improving the in-stock situation with consumers will result in increased sales and improved shopper satisfaction. And by reducing theft potential the retailer can reduce inventories and improve labor productivity.

Manufacturer benefits are similar. Fewer out of stocks, and increased sales are the name of the game. Suppliers also get better visibility into material demand and potential reduction in discrepancies and handling deductions.

In summary, we see supply chain wins and efficiencies at the pallet and case level. That's where it starts and where most of our business-case work has been done so far.

Costs

Tag cost is another challenge. It's one of the key cost variables from a manufacturer's viewpoint. It needs to be a nickel or less for the pallet and case level and less than a penny to do widespread item level applications.

The competitive advantage long-term for this is not necessarily building out the low cost infrastructure, although cost is an extremely important consideration in the short-term. What's important in the long run is what do you do with the information to make better business decisions.

Chris Golinski — Pfizer

I am one of three people leading the RFID initiative at Pfizer. I represent the logistics and distribution area. The others are in IT and customer operations.

We have been a sponsoring company with Auto ID since 2001. We have been on the sidelines watching carefully. We do not want to miss any of those huge benefits in cost savings we hear about, but we didn't necessarily see any immediate opportunities. My own involvement started only recently in June with the big Wal-Mart wakeup call.

We thought maybe this would help us solve out-of-stock issues on the shelves. Having the right product at the right place at the right time is key. We also wanted to see if it would help us solve the theft and retail issues and to look at the productivity opportunities in our DC operations, in our shipping and our receiving.

We have heard that RFID will help us improve our fill rate, our on-time delivery, and our order accuracy. Those measurements are already very good, so we will have to see how much investment we are going to get back from making those improvements. We hope to improve inventory accountability with the retailers and minimize recalls and returns.

Studying

We followed the advice of others and implemented a diverse steering committee with representatives across the organization: manufacturing, distribution, logistics, market operations, packaging, sales, and IT.

We were chartered to "implement RFID," not really knowing what that would mean. There was a lot of education required for us, for the members of the task force and the executives of our company. One of our first steps was to purchase an Auto ID evaluation kit, a little box that proves you can read a tag without seeing it, without that line of sight, and it can read multiple tags simultaneously.

Then we decided to investigate possible integration partners. Now we have set some aggressive goals.

The first one is a product feasibility study by the end of 2003. We tried to break down our product group of 250, identifying 12 to 20 that would represent most of our products. They were the liquids, the foils and the creams. We're doing product feasibility testing on those. Will the RFID tags work? And if they will work on those products, will they work in our environment? In our distribution center? Our goal is to complete that evaluation by the end of the year. From there, we want to work on the business case, then we have to evaluate what our approach will be.

Right now we're doing site surveys in our plants and distribution centers with in-depth evaluation of all the data collection points along the supply chain to see if we can identify opportunities to take cost out of our system. Next year we'll complete the cost benefit analysis and finalize our response to Wal-Mart.

Doug Naal — Kraft Foods

Kraft employs more than 100,000 people in 68 countries in more than 200 manufacturing facilities. We have some supply chain challenges when it comes to integrating RFID and the infrastructure. To start with, we have two distribution models: warehouse- delivered to customers and our direct store delivery. As part of our North American warehouse delivery model, we have more than 100 plants and plant buffers, which would be equivalent to outside store plants. These encompass more than 1,000 manufacturing lines, more than 10,000 pick bays, more than 1,000 lift trucks and millions of pallet positions, which include both floor and rack.

Not only do we have to look at our own internal facilities, but we also use co-manufacturing, third-party distribution centers and direct plant shipments to our customers, which again complicates the deployment of products.

Kraft has developed a cross functional KFNA business team, and an internal RFID lab so we can test some of our RFID applications. We have collaborated with other companies as well.

Externally, we are a sponsor of the Auto ID Center and are active in the EPC Global action groups. We are also involved in the UCC and EAN committees.

Road map

Our RFID Road Map is similar to other companies. We start with a business case. Everyone needs to start trying to come up with reasons, justification benefits, and opportunities. At some point you'll get enough critical mass to do a business case reassessment to move from pallet and case levels to item level. The key to this one is it is transitional. You don't start out jumping in.

We are looking at benefits beyond our four walls. Success requires business process integration. We are looking at total supply chain visibility. You need partners willing to work with you so you can track product coming from suppliers to plants to mixing centers to customer warehouses to customers at stores.

More challenges

Challenges include lower tag and infrastructure costs. Also, data standards. Is it bar code-compatible? At this point, we don't see RFID as a total replacement for bar codes. We still have customers who are interested in bar coding.

Are the tags going to be read only or read/write? EPC standards are looking at read only tags, but we have other customers that are talking about read/write applications. Finally, we are talking huge amounts of data, especially at the item level. Somehow we have to manage all of it.

Physical challenges within Kraft include RF-unfriendly materials like metal containers and fluid contents. There is no single RFID solution.

Q&A From Material Handling Management's RFID Webinar

There were a number of questions for the panelists, both from the live audience and from those online. Here are selected highlights.

Q: When will there be a global standard for RFID?

HUTCHINSON: We'll be working very hard during 2004 to continue honing version 1.0 specifications and moving them toward a global standard. We are working again with the user community as well as with global standards organizations. EPC Global is a standards organization, but we are working with others like ISO and ANSI MH 10 to make sure we are all working together toward an inclusive, integrated standard. (For more information, go to www.EPCglobalinc.org.)

Q: Where do you place the readers? Is it best to mount them on the lift trucks or at the picking location?

TORRE: That's still to be determined. If you look at the current cost of readers, to outfit every storage location in the distribution center probably isn't feasible, especially while you are trying to understand all the dynamics around the different types of products and product form factors you are dealing with. In a distribution center, you might have liquids and metal packaging. So the question is: Could you get the visibility around the location in a little bit different way? The lift truck application might be a more cost effective way to get at that today.

NAAL: It depends on the material handling. If you have a conveyor system where you can isolate the cases, that might be okay for building the next pallets. We are actually picking the product and putting it on the pallet as we build it. There is an assumption that we need to build an association of what material, what products are on a particular pallet, and the easiest way to do that, if you are building a pallet as you are going up and down the pick line, is to have the readers on the lift truck.

You would then have a pallet license plate, which would be an EPC or RFID tag, and associate the products, the individual cases you are picking, with that pallet number. And as you take the product through there, if you have different products, in fact, you need to read only the one tag on the pallet to identify the entire pallet.

Q: When you pick and build a pallet, you have individual case labels. Now, where does the pallet label come into play? Where do you generate it?

GOLINSKI: The ultimate dream is to have it part of the corrugated case, but the point that we would program them is right at case erection. You program it right then and there, and for the rest of its life, you know what that case is and associate it with that tag. It will only be useful if the product is returned in the case, however. If it comes off the shelf, I don't know if any retailer is going to go through the investment of doing us the favor of putting the tags on when it comes back.

Q. Sue, you talked about data transfer protocol earlier. Is this going to affect existing WMS systems?

HUTCHINSON: Management of the data generated by tracking cases and pallets will lead to different requirements for the information systems a company uses. Most ERP and WMS systems will have to be enhanced to handle this new data as goods move through the supply chain.

Q. Are there any processes or capabilities that RFID can enable that early technology (bar code) could not?

DUNLAP: I don't think so. But this response should not imply that bar codes are going away. Assume that there will be exceptions where RFID tags fail or become damaged and human readable information will always be required. What is the savings of not printing the barcode? A little less ink or ribbon? How much is that worth? If bar codes ever go away, it will be a long time from now. So, there will be a long dual mode transition period.

For details on how to obtain a full transcript of the webinar, contact MHM's business administrator Chris Marinez at (216) 931-9547, or by e-mail at [email protected]

Uniform Code Council Certifies Internet Commerce Corporation

The Uniform Code Council, Inc. (UCC) Solution Partner Program has certified Internet Commerce Corporation (ICC) and the ICC.NET network services as UCC-compliant for UCCnet services users. ICC offers consulting, mapping services and network connections to aid customers in being data synchronized in a timely manner. ICC.NET, the company's global Internet-based value added network, provides complete supply chain connectivity solutions for EDI/EC while also offering users a vehicle to securely transact files of any format and size.

"Our UCC certification assures our customers that they are utilizing the most efficient means possible to implement cost-saving business practices and industry standards," said G. Michael Cassidy, President and Chief Executive Officer of ICC.

The UCC is a not-for-profit organization that helps develop and implement standards-based, global supply chain solutions.

Its Solution Partner Program increases awareness, adoption, and implementation of UCC standards by facilitating a partnership between the UCC and solution providers to produce standards-compliant, "off-the-shelf" implementation solutions for the expanding UCC community. Companies that use UCC-certified products and services will be able to minimize implementation costs and maximize supply chain cost savings.

The UCC Solution Partner Program team works with partners to certify their products and services are standards-compliant and ensure they meet the needs of the business community. The program provides an independent test environment for certifying solutions that enable a user company to perform a variety of standards-compliant implementation tasks. Products and services that have achieved UCC-certified status are marked with a UCC Solution Partner seal showing their designated certification. A complete listing of UCC-certified solutions is available at www.uc-council.org.

Helping Suppliers Meet the Wal-Mart Deadline

At a meeting with suppliers in November, Wal-Mart further addressed its requirements for RFID compliance by 2005. The company announced that it will begin rollout by accepting RFID shipments at three distribution centers that service 150 Wal-Mart, Sam's Club, and Neighborhood Market stores across the country.

Supply chain execution software companies are gearing up to help suppliers meet Wal-Mart's deadline. Provia Software has developed an Electronic Product Code-compliant bolt-on kit called RFIDware. The company says the kit will enable suppliers and 3PLs that have an existing WMS or ERP system to become RFID-compliant and fully meet Wal-Mart's requirements.

"Our approach to this solution was to offer a bolt-on or drop in product that works in conjunction with a company's existing logistics software solution and process flows," said Paul Crist, Provia vice president of sales and marketing. "This puts the suppliers back into control of prioritizing their IT projects because they can be easily and quickly compliant with Wal-Mart and the Department of Defense requirements for RFID. The next step for them is to look at how they can reap the benefits of RFID internally within their own operations."

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