April 25, 2004

Let Wal-Mart start the RFID revolution but keep your eyes wide open

Canadian Shipper

In June 2003, Wal-Mart announced that its 100 largest suppliers must be able to implement Radio Frequency Identification (RFID) at the pallet and case level by 2005. Wal-Mart believes RFID will reduce inventory requirements while doubling, tripling and even quadrupling its product turns. 
 
With the worlds largest retailer mandating its adoption, RFID technology may revolutionize supply chain management, in-store operations, and other key business practices. Manufacturers and retailers should watch the RFID environment closely. 
 
While being an early adopter of a new technology clearly has risks, so does waiting too long to implement technology that has been embraced by the marketplace. Monitoring the activities of your business partners, competitors, RFID vendors, and standard setters will keep you apprised of best practices as they emerge. When new systems are mandated-or when you choose to adopt them-youll be poised to do so in the most efficient, cost effective manner possible. 
 
Real time data throughout supply chain Radio Frequency Identification isnt a new technology. Its a subset of Auto Identification Data Capture (AIDC) technologies, which include barcodes, magnetic stripe, voice recognition technologies, Smart cards and GPS (Global Positioning Systems). 
 
For retailers and consumer product manufacturers, RFID will enable end-to-end visibility throughout the supply chain. RFID will make it possible to identify and track everything-events, inventory, orders and shipments-and have that data not only accurate and complete, but also in real time. 
 
As RFID technologies develop and become more sophisticated and cost-effective, their use will move from the pallet level (where they are now practical) to cases, and finally to individual SKUs. Because of this, the technology will first be practical for use in distribution centres, initially in shipping and receiving, and later to facilitate picking. In-store shelf applications will follow, though they wont likely be widespread for at least five years. 
 
At this point, there are no clearly accepted global standards for RFID, nor has any application vendor emerged as a leader. Wal-Mart will likely clarify many of the uncertainties that currently surround the technology. Their choice of vendors, approaches, and processes may become the model for others who subsequently undertake RFID implementation. In fact, the Uniform Code Council Inc. (UCC), the U.S. standard-setter for Electronic Data Interchange (EDI) and other technologies used to track SKUs have agreed to work with Wal-Mart in developing its RFID strategy. 
 
With Wal-Mart acting as the groundbreaker, other retailers can wait until RFID standards are set and best practices emerge. However, they should guard against becoming too complacent-RFID will provide even greater benefits for retailers than for manufacturers, and it is important for them to recognize when the time is right to reap the rewards. Current challenges in RFID implementation Despite their decision to move forward with the new technology, issues exist with RFID that even Wal-Mart may have trouble addressing. 
 
Global standard: It is highly unlikely that a single global RFID standard will ever evolve. Like barcodes, standards for RFID will probably vary between Europe, North America and other major regions of the world. Multinationals like Wal-Mart may need to implement a variety of RFID standards and technologies across their global organizations. 
 
Technology hiccups: While significant advances have been made recently in RFID technologies, in many ways they are still not practical for widespread use. Problems such as signal distortion, reader accuracy and speed, and tag transmission capabilities persist. hnData management: Although RFID has the potential to generate a wealth of information, data will only be valuable if it can be managed and used effectively-and the right information management tools have not yet been developed. 
 
Cost: RFID is currently expensive to implement. Individual tags cost about 30 cents each; this will drop to between one and five cents per tag once billions are being produced. A final barrier to implementation that may need managing is employee acceptance, particularly in light of potential job losses. 
 
Wal-Mart suppliers: investigate requirements, identify vendor, develop roadmap Since most of the costs to implement RFID will be pushed back to manufacturers, there is no compelling ROI reason to adopt it-unless it becomes a cost of doing business, as in the case of Wal-Marts largest suppliers. If you are one of these organizations, youre about to embark on a substantial undertaking. 
 
1. Prepare a business case for RFID The first step is to prepare a business case for RFID, addressing the financial and operational costs, and how you will achieve the anticipated return on investment. 
Consider: o What supply chain best practices need to be implemented before RFID? o Where will RFID be implemented first, and with what scope? o Which business processes and partners will RFID support? o How will the project be managed, and information be shared? o What investments will be required? Who will make them? o What people need to be assigned to the project? o How will the benefits of the RFID project be measured? 
2. Conduct an RFID pilot project Working with Wal-Mart, conduct a pilot project to test and refine the applications and processes required to implement the new technology with minimal disruption to the total organization. As the project proceeds, monitor its performance to make adjustments before rolling out RFID across the organization. 
3. Optimize your supply chain Other suppliers may have more time, but they still need to prepare, as most retailers will inevitably follow Wal-Marts lead. While they are waiting, a significant opportunity exists to optimize current supply chain capabilities. 
 
Deloittes June 2003 The Challenge of Complexity in Global Manufacturing: Critical Trends in Supply Chain Management <http://www.deloitte.com/dtt/research/0,2310,sid%253D3630%2526cid%253D17419,00.html> demonstrated that companies who have optimized their complex supply chains are 73% more profitable than their peers. Existing supply chain technologies: faster paybacks While RFID may well revolutionize supply chain practices in the future, many existing supply chain technologies offer faster paybacks. Implementing these best practices will enable companies to make immediate significant improvements in their supply chains, and position them for faster RFID adoption when the time is right. 
 
Advance ship notices: ASNs improve visibility and coordination of shipments, resulting in more efficient receiving and other warehouse practices. hnWarehouse management systems: These systems enable companies to take advantage of labour and other physical resource efficiencies. 
Barcoding: Despite their proven ability to increase efficiencies, less than 35 percent of North American warehouses utilize barcodes. 
Transportation management systems: One of the most overlooked supply chain optimization areas is improving transportation and freight management.