RFID technology further automates the process of gathering mission-critical information in real time at the point of business activity. The promise of RFID technology for organizations that manage global supply chains is that the increase in efficiency, data integrity and inventory visibility will lower costs, and deliver goods faster and more accurately to the end user.
A typical RFID system uses RFID tags that store a unique serial number, which are attached to or embedded in designated objects such as retail items or containers. Fixed or handheld RFID readers transmit a UHF signal that supplies power to the RFID tags and communicates to them from a distance, even when the RFID tags are not visible. RFID readers capture the data on multiple RFID tags virtually simultaneously and pass the data to the management systems.
RFID technology is already in use in a wide variety of applications ranging from toll-road transponders, animal tracking and key immobilizer systems used in automobiles. The RFID technology was developed further, under the guidance of the MIT Auto ID center, for application in the supply chain. The electronic product code, or EPC, is the type of RFID technology endorsed by retailers such as Wal-Mart, as well as the United States Department of Defense (DoD). Wal-Mart, the world’s largest retailer, required its top 100 suppliers to use EPC™ at the carton and pallet level by 2005. The U.S. DoD is following suit, demanding that all suppliers tag at the lowest possible level. The RFID market is predicted to reach more than $2.1 billion (USD) by the end of 2005 – much of it in retail, pharmaceuticals consumer packaged goods and the defense market.
Business Benefits from Radio Frequency Identification (RFID)
Today the largest government and business enterprises in the world are developing plans to deploy electronic product code (EPC™)-RFID based solutions across their global supply chains and operations. These enterprises have initial deployments and programs that utilize RFID technology to build faster supply chains, which provide economic payoffs and greater visibility into merchandise movement.
With many enterprises adopting and mandating EPC-RFID, companies across the globe are posing the question: how do we identify and capture the business benefits of EPC-RFID technology?
Structuring Your RFID Business Goals
The first step in measuring the value of RFID is to define the functional, technical and operational changes the enterprise is considering. Key questions are:
- How effective and efficient are the existing business processes?
- What are the effectiveness and efficiency goals for our processes?
- How can RFID help reach those goals?
This process grounds the RFID program in the reality of your specific enterprise. Creating a realistic business model that represents both the status quo and the economic impacts of RFID technology is essential.
Over the last several years, consulting firms, academics and individual companies have addressed the issue of defining the return on investment (ROI) for RFID technology. There is a growing portfolio of assessments and studies concerning how and where the ROI for RFID technology is generated. The following sections examine some of the value areas.
Cost Reduction
Cost reduction is a target area of many consumer packaged goods (CPG) companies, retailers and the United States Department of Defense (DoD). These enterprises expect to reduce inventory and inventory management expenses by billions of dollars over the next several years.
Examples of cost-reduction objectives for RFID systems include:
- Lower inventory stock levels
- Reduce waste
- Reduce manual checks
- Reduce inventory handling costs
- Reduce logistics costs
- Reduce claims and deductions
- Improve asset utilization
Increase Revenue
Both large and small retailers and manufacturers are developing RFID systems to drive sales. The utilization of RFID systems empowers these companies to design innovative solutions with tangible benefits, including:
- Reduced out-of-stocks
- Improved order fill rates
- Reduced shrinkage
- Improved inventory turns
- Enhanced in-store customer support
Counterfeit Product Shielding
Quality manufacturers across the globe are losing sales, profits and their quality image from the expanding flow of counterfeit products. Equally important, counterfeits of many products (such as pharmaceuticals, currency, passports and aircraft parts) represent a safety and security hazard for customers across the globe. There are several pilots in place to identify counterfeits using RFID tags. These RFID tagged products, coupled with real-time databases, represent a viable information platform to prevent the distribution and sale of counterfeit products.
Shrinkage, Theft and Diversion Prevention
High-value consumer and industrial products face the large risk of theft and diversion. RFID technology has shown considerable progress in:
- Identifying theft and diversion at the shelf level
- Identifying theft and diversion points in the supply chain
As the price points of RFID products decline, this technology will provide a widely used tool to prevent theft along the supply chain-from the factory floor to the storefront.
Competitive Advantage
Any business case or profit improvement program is intertwined with a company’s business goals and competitive advantage. Understanding competitive advantage can be reduced to a simple question: are we better than our peers in key performance areas? Several leading companies believe that RFID technology is the key to increasing competitive advantage. Sources of advantages include:
- To increase distribution center productivity
- To increase yield per end user, customer or site
- To create a flexible, adaptive supply chain
- To create a cost advantage in logistics
- To reduce the impact on prices of recycling legislation for electronics
- To reduce the impact of homeland security measures (e.g., country of origin)
- To target an additional point of margin by 200x
Industry Applications – Business Cases
Today there are dozens of RFID system deployments and pilots around the world. RFID technology addresses a global array of business applications. A short list of examples includes:
- Retail supply chain
- Military supply chain
- Container tracking and management
- Pharmaceutical management and tracking
- Automated payment solutions
- Baggage tracking and management
- Vehicle, paper and aircraft assembly
- Asset tracking
- Document tracking
- Reusable pallet and container management
The development of the business cases behind these deployments generally followed several stages. Companies evaluated the benefits carefully with the costs. They defined and isolated the problems to solve and the opportunity to solve them with RFID technology. Working from business cases, they forecasted the annual benefits that the RFID solution would provide.
Summary
A successful RFID business case needs to address several subjects.
Identification of the business objectives and benefits that the enterprise is pursuing
- Enhanced merchandise or asset management
- Reduced operating expenses
- Higher revenues and/or margins
Develop a Technology Assessment and Plan that Addresses the Available RFID Technology Solutions
The RFID technology plan should address data collection/analysis and establish the baseline data sources for operations. When a company evaluates RFID technology, there is a need to understand several key issues to avoid technology dead ends. Those include:
- EPC-compliant RFID technology
- RFID reader platforms that are software upgradeable
- RFID systems that can manage large volumes of data
- Applications that can scale as the deployment expands
The leveraging of innovative applications in business concepts and RFID technology creates the opportunity to drive business success for companies across the globe.
