RFID-enabled pallets soon arriving at a warehouse near you

by Canadian Shipper

The wooden pallet — the lowest common denominator in the supply chain – is about to go high tech thanks to RFID (radio-frequency identification) tags.

As a result CHEP, the world’s largest pallet and plastic container service provider, has recently introduced its ID Plus program to take shippers to the next level of efficiency. The tag serves as a licence plate for the pallet as well as a proxy for the cartons and products loaded on it.

Unlike existing bar codes, RFID tags housing a microchip and antennae can transmit location and other product- and product-related data that can be read automatically without requiring line of sight.

By providing near real-time shipment visibility, such constant enriched data readings are expected to revolutionize supply chain management more than earlier technologies such as EDI. So far, companies are still in the planning stages, wrestling with choices over technology, service providers and implementation strategies.

Nevertheless, real world demands are not far away. Starting in January 2005, major retail buyers — Wal-Mart, Target Stores, and Germany’s Metro AG– as well as others such the U.S. Department of Defense have told their largest suppliers to start using their tags on in-bound shipments. Other large manufacturers such as automakers are lining up. Initially, tags will be attached to pallets. Later they will be found on cases and even individual packages.

The carrot driving RFID adoption is a surge in cost savings, productivity and efficiency for all supply chain partners. Many of the anticipated benefits were outlined in a 2002 IBM study forecasting that the widespread adoption of RFID would reduce inventories by 5% thanks to better visibility that will lower safety stock levels and storage space, improve labor efficiency 7% to 20% in warehouses and stores and 8% in distribution. Such efficiencies will also reduce out-of-stocks by 4% and lower overall supply chain capital costs by U.S.$ 6 billion — $20 billion. Moreover, greater product visibility and traceability would enable logistics practitioners to move closer to their goal of achieving a pull vs. push supply chain.

RFID will affect all industries and companies but not at the same time nor to the same degree. Executives need to do their homework to prevent being blindsided when their largest customers require RFID as an “or else” condition of doing business with them. Talking to service providers with actual field experience is a good start.

CHEP’s new service is the result of a five-year, U.S.$20 million investment that culminated in a recent Florida-based trial involving six service centres, 34 shippers, 350 distributors and 250,000 pallets.

Breaking new ground with each move, CHEP had to write much of its own software code and learn from its mistakes. Along the way, it had to test more than 30 different types of tags. At first, to ensure 100% readability, it attached two tags to each pallet. Later, it decided on a single chip encased in an ultra-thin, bandage-like three-inch sq. plastic label fastened to the pallet’s centre block. CHEP also had to change its original plan to affix readers to forklift trucks after U.S. regulators decided that if CHEP reconfigured the vehicles it had to assume all related liability. Now readers are mounted on bright-yellow pipes erected around internal doorways and external gates.

Since RFID technology is still evolving, implementation remains full of uncertainty and challenges. For example, the presence of liquids or metal interferes with the radio signals. However, CHEP’s recent experience has taught it several lessons. “It is not a ‘plug-and-play’ implementation,” says CHEP’s Orlando FL-based CEO, Victor Mendes. “Five-cent tags won’t work for readers mounted on portal doorways. Forget about 100% success on your first attempt. Open standards are the key to supply-chain-wide savings.”

At the same time, the speed and rate of adoption will vary by industry. In sectors lacking a major driving force such as Wal-Mart or the Big Three automakers, take-up rates may be low. “Quite possibly in the pharmaceutical industry and for certain our company,” says David Yundt, president & COO of Hospital Logistics Inc. in Oakville, “RFID is not even on our radar screens. After all, not all drug products have bar codes on them.”

Even in the CPG market, there are doubters and detractors. “At a recent conference, some consumer goods makers complained they were getting only 94% reads from their RFID systems, says Robert Handfield, a professor of supply chain management at North Carolina State University. “Others are saying that initially at least, retailers will benefit much more from RFID than manufacturers.”

Chip-enabled pallets may start arriving at a warehouse near you very soon. Will you be ready?

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