Supply Chain’s next Big Thing

The supply chain has seen more than its share of Next Big Things over the last few years, many of which have turned out to be little more than last month’s news. However, radio frequency identification, or RFID, a deceptively simple technology just working its way into the supply chain, is different.

In fact, it promises to revolutionize logistics from the manufacturer’s loading dock to consumers’ shopping baskets.

With Wal-Mart and most of the top consumer products manufacturers in North America behind the technology, RFID’s time has come. “”RFID is definitely it,”” says Mike Lagasse, Canadian RFID competency leader at IBM Business Consulting Services. “”This is 100 per cent the Next Big Thing. The big difference here is that the customers are driving the business. This is a pull market, not a push market. Our customers are taking us into it.””

Indeed, Lagasse says that Canadian business has to get with RFID, and soon.

“”This is the moment when companies have to educate themselves, do the business case and understand the business implications,”” he says.

“”If you start today, knowing nothing about RFID, it could be 18 months before you’re operational, and by that time, it could be a competitive disadvantage if you’re not.””

In a sense, RFID is simply a digital bar-coding technology. Instead of scanning printed labels on pallets and containers, RFID lets users scan a digital tag. The advantage is that you don’t actually have to send someone out to do an inventory count. RFID readers can interrogate passive tags without line-of-sight at distances up to 10 metres, and radio signals can penetrate air, packing crates, even concrete.

“”If you have a pallet in a warehouse, you don’t have to have someone scanning bar codes,”” says Bob Moroz, president of the Markham-based consulting firm R. Moroz Ltd. and Canada’s leading RFID evangelist.

“”You can have a reader in a forklift, on a wall, whatever, and you can interrogate tags without any human intervention.””

Indeed, it is the elimination of the human factor — and human error — that makes RFID so attractive in

the supply chain. Even companies that are getting 99 per cent inventory accuracy with bar codes are only doing so at a cost. “”If you’re getting 99 per cent with bar codes, then you’re actively scanning at every point in the supply chain, and that’s expensive in terms of cost and

labour,”” Moroz says — the efficiency of RFID actually reduces costs.

That was a major consideration in Wal-Mart’s announcement in April that its top 100 suppliers will have to be RFID-compliant by the beginning of next year. “”This is the technology that will move this area of logistics forward,”” says Wal-Mart Canada spokesman Kevin Groh. “”It offers transparency throughout the entire supply chain and retail process. Ultimately, the technology will give us the ability to track through shipping and receiving right up to the sales floor without direct human intervention.””

That’s not a significant consideration, says Jeff Williams, vice-president of information technology at Staples-Business Depot. “”The whole ROI is around reducing errors in the supply chain and having real-time visibility of where skids are located,”” he says. “”So you’re not relying on someone scanning, or not scanning, a barcode.””

Wal-Mart, which likes to think of itself as RFID’s supply-chain champion, had no trouble getting partners for its pilot in Houston. In addition to its biggest suppliers, some 40 small companies clamoured to get on the bandwagon.

And the world’s largest retailer isn’t alone. Manufacturers, from the auto industry to consumer products, are working hard lest they get left behind.

Procter & Gamble has been quietly developing the technology for five years in partnership with the Auto ID research centre at Massachusetts Institute of Technology. But the company’s development efforts have moved beyond simple technology.

“”Now, we’re really interested in how this can help in the supply chain ROI,”” says spokeswoman Jeannie Farrington. “”We have been finding that our out-of-stock levels are too high, and RFID can help us with that, and with reducing inventory. In the past, the only way to guard against out-of-stock was to keep huge inventory. That’s costly.””

Though the large-scale RFID pilots are running in the United States, it’s only a matter of time, though not much time, before the technology works its way north through cross-border

supply chains. With the marketplace “”heating up on all fronts,”” Lagasse says that Canadian companies are eager to get onboard. “”We are all joined at the hip from an RFID perspective,”” he says. “”It’s worldwide, not just a North American thing.””

If anything, Moroz says, Canadian businesses are even more receptive than their counterparts in the U.S. Many Canadian companies have been using RFID in applications unrelated to the supply chain and that, he says, has primed the market. “”We’re certainly not finding a lack of interest,”” Moroz says. “”Canadian businesses are already familiar with this ‘new’ technology and they know what it can do.””

Indeed, for all of its novelty in the supply chain, RFID has a long history and wide application. It was developed during the Second World War to

identify aircraft. The allies’ IFF — identify friend or foe — system used a radio signal to interrogate a RFID transponder installed on friendly aircraft.

Allied aircraft responded with the appropriate code, and any plane that didn’t was fair game for the anti-aircraft batteries and fighters.

More recently, the technology has turned up in almost everything from automobile identification to subcutaneous pet identification chips. And if Fido and Rex are on the cutting edge of logistics technology, so is Bessie — after the mad cow episode in Alberta last year, Agriculture Canada’s Canadian Cattle Identification Agency announced that it would be implementing a national RFID-based livestock identification system in 2005.

Esso Canada’s Speedpass uses a key-chain-embedded RFID tag to identify specific customers at the gas station.

A reader at the pump interrogates the tag and charges the customer’s RFID account without the need of a credit card or a gas station attendant.

The principal barrier to a widespread deployment of RFID in the supply chain, however, is cost. This is new technology, and that means systems have to be built from the ground up, and the cost of essential items like tags haven’t yet benefited from economies of scale. Bar codes cost pennies per label, but RFID tags can cost as much as $1.50 each.

All that is changing quickly. Manhattan Associates has released a pre-configured, off-the-shelf suite of RFID applications called RFID in a Box, and the apparent cost of the tags is deceiving. In fact, only self-powered active tags that can be read by satellites cost more than a dollar; the tags used in supply chain management are much cheaper.

“”They’re now in the 20-cent range,”” says Greg Gilbert, director of RFID solutions and strategy at Manhattan Associates.

“”That’s still more than a bar code, but the advantages are greater — and the price is dropping.””

Moroz predicts that RFID will take off in the supply chain when the price of tags reaches five cents, but that won’t take long.

The volume cost of passive tags has dropped from about 75 cents each to a quarter in less than a year. With the EPC Council set to release the Gen-2 RFID standard, moreover, the market is poised for massive growth.

The supply chain, Moroz believes, is going to be the biggest part of RFID growth over the next four to five years, by far.

“”This is a technology that just makes sense,”” he says. “”It’s the Next Big Thing.””

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