Featured Article - April 2005

RFID - Myth and Reality

by Andrew Herdan | printable version

A new acronym is rapidly becoming part of our daily vocabulary in the business world – an acronym for a technology that will have as much, if not more, impact on our lives as the PC or DVD. That acronym is RFID, or Radio Frequency Identification.

In the simplest terms, Radio Frequency Identification is a glorified version of bar code scanning, with greatly expanded functional boundaries in terms of flexibility, capability, speed, and accuracy. By implanting either an active or passive chip in a label or a product (or a living creature, for that matter), printers, readers and scanners have the ability to write, read, and track information on that chip at split second speeds through low frequency transmitted signals. RFID engineers are likely squirming in their seats at that abbreviated description, but the purpose of this article is not to explain the technology, but rather the application of the technology to business, and specifically to supply chain management.

What are the implications of this evolving, and sometimes controversial, technology? As much promise as the technology of RFID holds for the future of the supply chain, it does not come without skeptics. Simply type “RFID” into an Internet search engine and you will be bombarded with conspiracy theories on how RFID technology abuses will run wild! From high-tech burglars who can walk through a residential development with a hand-held scanner and determine who bought a new piece of electronic equipment, to “Big Brother” monitoring our activities any time, anywhere, any place.

While there will always be those who fear possible abuses of advanced science, the reality is that we are on the verge of groundbreaking technology that can change not only the way we run a business, but also how we manage our personal lives. Imagine never again having to sign a visitor’s log at a hospital or a place of business, never having to dig for a car key, never having to replace a demagnetized hotel room key…the possibilities are endless.

When considering supply chain management scenarios, what if materials managers had visibility to inventory levels and movement on a real time basis, both for raw materials inbound and finished product outbound, providing a level of inventory accuracy that has been hitherto unheard of? Kanban replenishment would be totally automatic, with RFID signals being sent as soon as material or product is consumed. The issue of accurate lot traceability and the nightmares associated with product recall would all but disappear, with minimal increase in the “cost of quality” thanks to the level of RFID automation that could be implemented.

There is no question that RFID has the potential for revolutionizing the supply chain and that it is the wave of the future for inventory management.  Supply chain management is the very backbone of any business operation, starting with the supplier of information, typically a customer or a demand forecast specifying the need for product, and ending with the final delivery of that product to the same customer. Taking a somewhat futuristic example, a homeowner goes to the kitchen refrigerator and finds that the milk carton is empty. By discarding the empty carton, the fridge detects a need for milk and a signal is sent directly to the store, alerting the replenishment supervisor to an upcoming demand for more milk.  Since RFID can communicate with manufacturers at any level of inbound and outbound inventory control, this “demand signal” will then go to the supplier, which will let him know that there is a need for that gallon of milk.  Immediately, the wholesale order for milk will be updated and there will be guaranteed availability for the homeowner to purchase the needed commodity. From this example it is easy to see that RFID can make forecasting a thing of the past by ensuring that when a product is “out-of-stock”, it will send a signal to a central computer, which will then trigger an order.  No more trying to figure out usage rates, EOQ’s, or min/max levels, and managing Kanban levels becomes an automatic process. Anytime a raw material part or finished component is removed from a Kanban, material planners will be aware of the decremented inventory level and can proactively plan for the required actions.

This all begs the question: “If it’s so easy, why hasn’t the technology been implemented industry-wide?” To find the answer just talk to the “Top 100” suppliers to Wal*Mart, who have been struggling to meet the RFID demands of this retail giant for the past couple of years. Wal*Mart is giving its suppliers the expectation that their implementation of RFID provides 100% readability of all products received at the customer distribution centers. With the current state of the technology, such performance criteria is only achievable through a series of manual interventions and quality checks that become more and more cost-prohibitive as the volume of shipped product increases. Although RFID scanners can read tagged product at speeds in excess of 600 ft/minute (another Wal*Mart expectation!), the need to isolate and “fix” bad tags by slowing down the conveyor dramatically reduces the average performance of the scanning equipment.  Even if a supplier can vouch for 100% product tagging when it leaves the shipping dock, damage to RFID chips and antenna can occur in transit, leaving the customer with an inventory accuracy problem that has to be manually remedied on the receiving dock. Even things as basic as tag placement on a carton or pallet can dramatically impact the functionality and accuracy level of the RFID equipment.

One must also consider that most of those “Top 100” suppliers are only looking at the outbound end of the supply chain, implementing RFID tags on cartons and pallets for delivery to a single customer. Tagging at the unit level, such as individual beer cans in a case, is still beyond the realm of financial viability. Suppliers continue to struggle to find ways to reduce the per-unit-cost of an RFID tag, which is currently about ten times as much as a standard bar-coded label. Furthermore, many of the challenges faced by “early implementers” are finished product related. Scanning RFID signals off a bottle of ketchup is not the same as scanning off a rubber tire or a book. Imagine what a case of soda can do to an RFID transmission, with signals being deflected and bounced off curved metal surfaces ad infinitum.

The Wal*Marts and Targets of the world glibly tell manufacturers and suppliers that RFID must be implemented without any incremental cost, stating rationale that the benefits of this evolving technology are as great to suppliers as they are to customers. That may be true if one looks way down the road, but it is far from reality today. A few notable exceptions include major electronic equipment manufacturers who are utilizing RFID for internal inventory tracking, and suppliers who have established an RFID scanning capability at their shipping docks who are seeing distinct improvement in delivery accuracy.  Every early adopter must look at ways to keep moving the technology UP the supply chain, working link by link to understand where the major improvements can be implemented without a total redesign of existing hardware and software delivery systems.

We are only on the very edge of this supply chain revolution, but those organizations that want to remain or become industry leaders will have to wholeheartedly embrace the concept of RFID. The struggles that businesses went through to establish bar coding as a standard inventory management tool will be re-lived as we move into the next wave of electronic gadgetry. Incoming materials must have RFID readable labels or embedded chips, allowing product to be stored randomly in warehouses, depending on its need for accessibility. Cycle counting and product tracking or identification will no longer be this time-consuming weekend activity for a small army of employees… just drive a forklift down an aisle and the job is done! RFID technology can easily be integrated with existing “sortation” or carrousel systems, obviating the need for a total redesign of costly systems already in existence. The same traceability applies to work in process - once RFID capability has been applied to a product, its whereabouts in a manufacturing facility is never in question.

Supply chain management is all about focusing on the whole rather than any individual part of the process, to avoid sub-optimal results. RFID provides that overall capability of providing leadership with the greatest amount of accurate inventory information at any point in the supply chain, thus helping to achieve sustainable benefits through timely and accurate data. No more pushing the problem from one area to the next, like a child prodding a water-filled balloon! As one moves to the back end of the supply chain, picking product for shipment, sorting it for optimal routing, and ensuring accurate delivery becomes an automatic extension of the RFID capability established during the production process. As product is moved off the dock and onto a truck or railcar for shipping to customers, every pallet or container will be scanned, ensuring last-minute validation and accuracy of deliveries. A similar scanning operation will take place at a customer location, closing out the end-to-end supply chain loop.

One of the greatest challenges associated with the use of RFID technology to drive product through the supply chain is the technology itself. Still in its infancy, it lacks such basic elements as standardization. Chip reliability is highly dependent on the supplier, and that reliability is dependent to a large degree on the method of attachment of the chips - to antenna, labels, and containers…and so the story continues. Availability of RFID raw material components in the US is also at a critical level due to booming demand, driven to a large degree by industry giants such as Wal*Mart. Optimal RFID performance with certain chips or labels can only be achieved through the use of very specific readers and printers. We are a long way from an “open RFID architecture” in which any RFID product will work on any piece of RFID equipment. There are also very few vendors of RFID technology who can provide a totally bundled product, including software, that will work in any operating environment. Supply chain managers are faced with an amazing array of options when attempting to implement an end-to-end RFID solution for inventory control. All the component pieces are available, albeit in short supply, but integrating the new technology and software into an existing environment is like a complex jigsaw puzzle.

Never has the need for detailed planning and repetitive testing been more critical to the success of a major implementation project as this. The starting point for any RFID implementation should be a detailed mapping of the processes where the new technology could potentially be applied. Business process owners and RFID integration experts must work together to map out the future state environment, clearly showing where it makes sense to use RFID, what the quantifiable benefits would mean to the organization, and what the changes would mean to end customers, both internally and externally. It is also essential to “pilot” selected products to selected customers, using simulation techniques, as both a learning tool for the workforce as well as a validation tool to ensure the viability of the technology in specific working environments.  

Although the challenges to widespread RFID implementation are significant, so are the business-drivers that are making leading corporations such as Wal*Mart demand that its suppliers AND customers all “sit up and listen”. There is a thirst for secure, timely, and accurate information that cannot be met by the well-established technologies that exist in businesses today. However, RFID has the capability of delivering the required “raw” data, making it so readily available that the concept of Planning and Forecasting will be revolutionized.

Now, apply Lean Six Sigma tools and techniques to creatively manage all that data, converting it into “value-added” information, make the appropriate cultural and behavioral changes across the organization, and the success or failure of an operation will ultimately be determined.  What may seem like a far-distant luxury today will rapidly become a necessity once RFID technology has stabilized and meets the quality criteria demanded by its users. When developed to its ultimate capability, RFID has the potential to improve our ability to service our customers by quantum leaps.