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How radio frequency identification (RFID) tags may revolutionize supply-chain operations.
Monica Deady, CFO Magazine
January 1, 2003
Motorists use them to cruise through highway tollbooths, marathon runners rely on them to accurately monitor race times, and they can even help reunite a lost pet with its owner. Now radio frequency identification (RFID) tags may revolutionize supply-chain operations by offering a superior way to track individual items compared with bar-code labels.
A report released in October 2002 by AMR Research Inc. says early adopters of RFID tags have cut supply-chain costs by 3 to 5 percent and have achieved 2 to 7 percent increases in revenue thanks to the better inventory visibility the tags provide.
RFID tags have made headlines recently because the cost of producing them has plummeted to as little as 15 cents apiece for some varieties. At that price, tagging individual items, whether parts or finished products, becomes viable for many companies.
The tags are superior to bar-code labels because they don't require a line of sight between laser and label: contents within a crate can be "read" as it passes a scanner, even if everything within the box is fully packaged and each item is unique.
That provides new flexibility and power in terms of tracking parts and products from one end of a supply chain to the other. Pete Abell, AMR's director of research, global retail, points out another advantage: RFID-tagged products can be scanned at from 150 to 1,000 per second compared with 1 or 2 hand-scanned bar-coded items per second, which can reduce warehouse labor by 20 percent. Simon Ellis, supply-chain "futurist" at Unilever, says CFOs need to follow RFID advances because they will reshape IT infrastructures.
The Auto-ID Center, a not-for-profit global research program based at MIT and in Cambridge, England, predicts RFID technology will usher in reduced transaction costs, shorter lead times for manufacture and delivery, a decrease in inventory, and improved product availability.
There are some roadblocks: while some types of RFID tags have become very inexpensive, they don't suit every application, and some tags can cost up to $100 each. Metal and liquid can affect data transmission, although the installation of insulators can help prevent this. The tags can store more information than bar-code labels can, but bar-coding is cheaper and firmly entrenched.
Of more concern may be competing or still-emerging standards. RFID chips rely on different portions of the frequency spectrum to send data. In limited applications this is no problem, but if companies want to achieve the broadest possible supply-chain data-sharing using RFID chips, interoperability becomes a bigger concern.
In addition to the Auto-ID Center, the RFID Center of Excellence, launched this year by RedPrairie Corp. and several other technology suppliers and major corporate users of RFID tags, is working to bring together consumer-goods companies "to really examine where RFID can have the greatest impact in the supply chain," says James Le Tart, corporate marketing group leader at RedPrairie.
And, while tags may have gotten substantially cheaper, an investment in the wireless infrastructure needed to make full use of RFID technology can run to millions of dollars at a large company. Analysts say many companies will take the plunge; Venture Development Corp. in Natick, Mass., predicts companies will spend $2.6 billion on such equipment in 2005, three times what was spent in 2000.
At this point, companies are intrigued rather than hooked -- they underwrite research efforts and run pilots, but they're moving slowly.
Wal-Mart Stores Inc., for example, is working with the Auto-ID Center on a three-phase pilot that involves limited use at one location, then broader use on more products at the case level, and eventually tagging individual items.
"The jury is still out," says Wal-Mart spokesman Bill Wertz, "but it seems promising."