The Present and Future of RFID in Logistics… May 23, 2007
The Present and Future of RFID in Logistics
Article Dated: November 16th, 2005
By Noha Tohamy, Forrester Research
Forrester Research attended eyefortransport’s RFID Opportunities for Transport and Logistics Providers event held last month in Las Vegas. At the event, some of the leading logistics providers described their current progress with RFID and provided an analysis of the long-term potential of the technology’s role in their operations.
A number of providers, including DHL, UPS, and TNT, shared their RFID experiences to date. Many of them have experimented with RFID technologies to gauge the applicability of the technology in their operations. Most believe that RFID can make their operations more efficient and build a competitive edge in their market. Specifically, logistics providers that have advanced in their RFID adoption shared that they:
* View RFID adoption as a business imperative for company growth. Most logistics providers present indicated their belief that adopting RFID is not a matter of if, but when. With most expecting RFID to become a minimum customer requirement, logistics providers seek to capture a first-mover advantage in offering RFID-based logistics services. This will give them a significant competitive advantage against other providers that are taking a wait-and-see approach. Additionally, large providers like DHL are interested in shaping the adoption progress through thought leadership, and working with standard bodies like EPCglobal.
* Use nontraditional ROI modeling when choosing to invest in RFID. Logistics providers like Ryder have indicated that, although traditional ROI models might not justify individual RFID project investments, they take a more holistic approach to understand the benefits of early adoption. For example, implementing RFID at their warehouses might not generate much added visibility, but acts as a building block toward uninterrupted, end-to-end visibility services that they can offer their clients. However, logistics providers acknowledge that convincing stakeholders of the future benefits is often a challenge.
* Continue to tackle operational challenges with RFID deployments. While read rates have generally improved in the past year, logistics providers still face many hurdles in collecting accurate RFID data. For example, given proximity of two items, a logistics provider like Schneider Logistics must ensure that the data read that it captures corresponds to the right item. Almost all large logistics providers have invested in their own RFID labs, to research their unique operational needs. Logistics providers also discussed the business challenges, such as the timely return of active tags, to ensure their reuse and to justify their high cost.
Indicative of the increasing penetration of RFID adoption in logistics, providers presented some strategic plans to leverage RFID in their supply chains. And while logistics providers still offer cost-effective services to shippers that are looking to comply with retailers’ mandates, their plans have evolved to analyze the long-term applicability — or lack of it — in different supply chain processes. For instance, FedEx indicated that there is very limited potential in implementing RFID technologies in its already optimized, highly automated package-sorting centers. But many logistics providers see strategic benefits in implementing RFID technologies to:
* Eliminate plant interruptions at just-in-time clients. Logistics providers struggle to meet service-level commitments in industries like electronics and automotive, in which just-in-time replenishment and lean manufacturing frameworks are practiced. It is not uncommon for a logistics provider like TNT Logistics to commit to parts delivery within an hour of a customer placing an order. But, with limited visibility of the location and availability of the parts ordered, logistics providers resort to expedited shipping to meet service-level agreements. This avoids production interruptions or worse, plant shutdown. Using RFID to determine the location of the part and the progress of fulfilling a customer order, logistics providers can determine the time of delivery for this part, and determine if expedited service is necessary.
* Offer less costly transportation services, with guaranteed visibility. Logistics providers are challenged by the inability to offer any visibility of the product flow, as soon as it departs their distribution centers. This is a major problem for logistics providers looking to serve verticals with high product value or strict regulatory requirements. Shippers in these verticals avoid what a logistics provider referred to as the “black hole” of transportation, by opting for the more expensive, more secure air freight services. With RFID, a logistics provider like Horizon Lines can target importers in these verticals, as long as the logistics provider guarantees uninterrupted visibility, from the time the product leaves the distribution center to the time it arrives at its destination.
* Optimize internal operations with accurate asset management. Logistics providers are continuously challenged by the lack of visibility of assets like trailers and pallets in their yards and distribution centers. Using RFID to gauge the location and the status of these assets, logistics providers can significantly reduce asset use. For example, Menlo Worldwide can use RFID-based technologies to assess whether a trailer is present in the yard, and if it is empty or already loaded. Additionally, using RFID-based triangulation techniques, the provider is kept up to date on the location of assets and space availability in its yard, minimizing the efforts of drivers and yard operators to place and locate trailers.
RFID Tags: Working and Worthwhile! March 23, 2007
By IESE Business School, MIT, Wal-Mart, Gillette, Kimberly-Clark
In the retail world, everyone is talking about EPC (Electronic Product Code) tags and RFID (Radio Frequency Identification) technology as the way of the future to identify products and to improve receiving accuracy. The idea is that each product can be accounted for and put on sale as quickly as possible. But does the new technology work? Is it worthwhile? To find out, researchers from IESE and MIT analyze how Wal-Mart uses RFID technology to receive, count and check the product orders that Kimberly-Clark and Gillette deliver to its stores. The study “EPC Changing the CPG Industry” shows that – indeed -companies can earn more money by adopting EPC RFID technology.
“This study is based on data from real implementations, not estimates,” explains Brian Subirana, lead researcher for the study, associate professor of information systems at IESE and visiting associate professor at MIT Auto-ID Laboratory.
Electronic Proof of Delivery
Receiving a shipment might seem like a straightforward task. One simply identifies and counts the product and compares what was received against what was invoiced. However, the process can be much more complicated than that. For example, a wide range of freight can be identified and counted using different methods depending on the freight attributes. Should you count by pallets, or by cases per pallet? What if the pallets are mixed? In a high-volume warehouse that manages large quantities of products, it is not uncommon for a worker to accidentally misidentify product cases, leading to a dispute between the companies.
EPC tags and RFID technology were developed to meet this challenge. EPC tags are encoded with both the product identification and a unique serial number which has the potential to improve receiving accuracy. They enable companies to correctly identify products, to count them and to confirm them against the originating purchase order.
In the case studied, the process is the following: When suppliers Kimberly-Clark or Gillette receive an order from Wal-Mart, they attach passive EPC UHF tags to the cases. The supplier then reads the tags on the cases before sending them to create an advance shipping notice. When Wal-Mart’s distribution center receives the order, it reads the case tags and generates an electronic proof of delivery (EPOD). This scenario involves thousands of tags and thousands of line items (that normally correspond with the orders of a unit of inventory management – a SKU or stock keeping unit).
So, does the process work? According to the study, it does. By improving accuracy and by eliminating or resolving discrepancies between the supplier and the retailer, RFID makes it possible to capture direct value. Other benefits included identifying small inconsistencies between the quantity and type of goods Kimberly-Clark and Gillette said they shipped and the quantity and type of goods Wal-Mart actually received. Previously, such inconsistencies often went uninvestigated because of the cost versus benefit of manually tracing the inconsistency. By identifying inconsistencies that would otherwise be overlooked, companies can reduce the cost of lost or misrouted products and avoid over- and under-stocks down the supply chain.
In addition, the participating companies could identify the divergences between the distribution center and their source. According to the study, the identification of these discrepancies meant for Wal-Mart a cost savings of between one and three cents (U.S. $) per case. While the study did not identify an upper limit for the value, the researchers concluded that benefits from RFID adoption could be obtained even with imperfect read rates.
The second vignette or scenario studied how EPC RFID technology can benefit companies participating in retail promotions. Secondary promotional displays are a key element to driving impulse and incremental sales of supplier product. Some displays support time sensitive ads and product launches, and lack of timely movement of displays from the back room to the sales floor can greatly impact the retailer’s success in selling the product.
The use of EPC can improve the visibility of promotional displays along the supply chain and their arrangement in stores. For the study, Gillette and Wal-Mart applied passive EPC UHF tags to promotional displays and monitored their movements, starting from the moment the displays left Gillette’s distribution center until Wal-Mart placed them in its warehouses.
The strategy worked. Wal-Mart and Gillette both read the RFID tags on promotional displays and cases of product at the distribution center and in the stores. Their read rates reached between 97 and 100 percent of the total cases shipped. Such strong results enable robust inventory tracking, especially at the store level, and efficient movement between the distribution center and the store. The companies could also track whether the displays were in the store by the requested promotion date and whether or not the products remained in Wal-Mart’s distribution center or store backroom after the promotion date passed.
The study determined that the amount of product sold during a promotion can be increased by as much as 19 percent by improving execution and by ensuring that promotional product is available at the store when needed.
Technology Worth Testing
Many boards of directors rule out the total implementation of this type of system because they think it’s too complex. The IESE-MIT research shows that it is a profitable investment, even on a small scale.
“Companies can apply the technology to a part of their operations,” asserts Professor Subirana. To do so, he recommends that companies “carefully study their operations and subsequently test the technology in a quasi-life scenario… We have found that in doing so, you will certainly discover things about your operations that you did not know.”
Subirana believes that EPC RFID is similar to SMS technology, fax, the Internet, mobile communications or e-mail in that managers first had to try out these new technologies before they could perceive their value. His message is that “it’s worth trying.”
RFID FAILS TO DELIVER, SAYS SARA LEE’S CIO
By Shamus McGillicuddy, News Writer/ Article Dated: 03.07.2007
Sara Lee Corp. CIO George Chappelle said he believes radio frequency identification (RFID) supply chain technology isn’t mature enough to deliver benefits to consumer product manufacturers.
“It has to work better than it does today,” said Chappelle, speaking at the recent CIO Impacts Forum in Los Angeles, a conference addressing business and technology issues for today’s enterprises. “That might not sound like the most technical explanation in the world, but it doesn’t work well. Until it works an order of magnitude two, three or four times better than it does today, it’s never going to deliver on some of the benefits that everyone — including myself — agrees exist.”
Sara Lee, the $12 billion food manufacturer based in Chicago, started using RFID technology at the request of Wal-Mart Stores Inc. The Bentonville, Ark.-based retail giant announced in 2003 that it would require all its top suppliers to integrate the product identification and tracking technology into their supply chains.
“We were told we would implement RFID, and a lot of us didn’t even know what it was,” Chappelle said “We started projects to implement RFID and over time we’ve learned a lot about it.”
Chappelle said his company is taking a “slap and ship” approach to RFID. So far, Wal-Mart requires RFID-tagged products at only three of its Texas distribution centers (DC). So when one of those DCs puts in an order, workers at a Sara Lee DC rip open a pallet of products, tag each case, put it back on a pallet and shrink-wrap it.
No other major retailers are using RFID, Chappelle said. And since only three of Wal-Mart’s distribution centers require RFID, there is no efficient way to tag products. The tags are too expensive to use on every product, so Sara Lee tags only those items it knows are being shipped to an RFID facility.
At the time that Wal-Mart launched its RFID campaign, other retailers started thinking about using the technology, too. The buzz seems to have died down.
“Other retailers have not followed,” he said. “I used to get letters all the time, ‘What’s your plan for RFID?’ I have not seen a letter in over a year.”
Chappelle said he has no doubt RFID will eventually automate the supply chain and help manufacturers and retailers sell more products.
“I believe these benefits will happen,” he said. ‘We’re only talking about when. Hopefully in my lifetime. There is no question if you look at what it takes to produce a product and get it on the shelf in the store that the automation of RFID — proof of delivery, advanced shipping notices, automatic inventory, recalls — all these things, there is absolutely zero debate RFID will help those things. It’s only about when.”
Chappelle said there are several challenges standing in the way of RFID delivering real benefits.
The first challenge is cost. He said it costs his company about 45 to 55 cents a case to apply RFID tags to its products.
“We’ve never taken in the history of the company a 50-cent per case cost increase,” he said. “So cost is a real issue. When I meet with suppliers of RFID I tell them, ‘You’re doing a lousy job.’ Tag prices have not come down significantly. Reader and writer costs have not come down significantly. Until they do, this whole RFID movement is not going to go at the pace people believe it will.”
Chappelle said training employees is also a major challenge. Employees need to know how to fix equipment and they need to know how to program and RFID tag with the right information. He pointed out that training throughout the supply chain can be a major issue.
“We were tracking things and we had 800 reads from a case of breakfast meals in one Wal-Mart store in and out of the back room 800 times. How can this happen? What happened was the clerk in the store was using the box to carry other stuff out. So there is another piece of this that says, ‘Look, this technology is great, but somebody better figure out how to use it.'”
Chappelle said the technology is also unreliable. He said the read rates — the rates by which RFID readers accurately identify information in an RFID tag — are too low, especially for refrigerated products. RFID tags do not work well with refrigerated products because water negatively affects their accuracy.
“You can’t operate an efficient supply chain on those read rates,” he said. “As bad as our processes are today, as paper-driven as they are and as time-consuming as they are, they are accurate. This [RFID] is not accurate enough to depend on.”
Chappelle said he is also reluctant to make a major investment in RFID because the future of the technology is unclear. He said he could invest $30 million to buy 100 readers, 1,000 writers and a billion tags and “tag the world.” Chappelle said he is wary of this because a vendor could announce a new solution a year later and say, “We’ve solved the read rate problem, but you’ve got to buy all new equipment.”
Wayne Kernochan, senior IT analyst at Illuminata Inc. in Nashua, N.H., said Wal-Mart’s suppliers aren’t yet seeing benefits from RFID. Manufacturers haven’t yet been able to integrate RFID tagging into their manufacturing process. Instead, they take the “slap and ship” approach in distribution centers, which is less efficient and more costly.
Kernochan said food containers can be “squishy” and difficult for RFID tags to work with, requiring more expensive technology.
“I would say you need to get the RFID tag to down to one cent or less in order for it really to pay off,” he said.
Kernochan said a key to making RFID really cost-effective is to leverage the data that can be collected with the technology.
“You’ve got to use the data,” he said. “It’s not just that RFID is really nice for passing products from one location to another.”
What you want to do is use RFID to improve your inventory management and learn more about your customer, Kernochan said.
“If it had just stopped short at, ‘Boy, this makes much fewer errors in shelving,’ that wouldn’t have paid for it,” he said.
Additional customer satisfaction and improvements to inventory is the real key to making it work, he continued. You’ve got to have the software in place to analyze that.
“There are all kinds of data mining applications, but the architecture at companies has gotten large enough to handle anything more than a warehouse.”
Source: SearchCIO.com (http://searchcio.techtarget.com/originalContent/0,289142,sid19_gci1246571,00.html)