RFID’s Reality – Finding The Payoff In Technology Industry Week Webcast December 13, 2006
RFID Technology And Compliance Overview
Supporting Data From Benchmarking And Best Practices Consortium
“ RFID technology allows people to design business processes that make the best use of timely and actionable data.” Retail: What do I have in stock and how quickly do I need to re-order? Supply-Chain: Where are my orders and when will they arrive? Pharmaceutical: Is the chain of custody secure? The Most Important Thing To Know About RFID
Radio Frequency Identification (RFID) An automatic identification technology that relies on radio waves to encode and decode information on a microchip or other storage device. RFID allows computer systems to capture data stored on a special tag without direct contact or line of sight acquisition A Basic Definition
Established technology used for access/security control, toll collection, asset tracking, and manufacturing control
Has been niche play in supply chain world due to costs, performance and lack of standards
Auto-ID center founded in 1999 to develop standards and promote technology development. Partnership of academia, retailers, consumer product firms, and hardware/software vendors. Efforts transitioned to EPCglobal in 2003
Supply chain interest explodes with launch of Wal-Mart, DoD, and others compliance initiatives
The key to low-cost tags is to limit the amount of data on the tag, thus pushing the processing burden onto back-end IT systems
Power Source – Active (battery), Passive (powered by reader), semi-passive (signal boosted by battery)
Frequency – Passive Tags: Low (LF) – 125KHz, High (HF) – 13.56MHz, Ultra-High (UHF) 868-915 MHz, Microwave 2.45 or 5.8 GHz
Storage Method – Read Only, Read/Write, Write Once/Read Many (Worm)
Auxiliary Capabilities – microprocessors and sensors for temperature monitoring, condition monitoring…
Graphics Source: Baudin & Rao RFID creates a data avalanche. This requires a significant upgrade of IT assets to process and share this information. RFID Software
The big push for RFID is lead by Wal-Mart. Wal-Mart’s objective is to reduce out-of-stocks (and thus reduce lost sales) by better control of back-room and point-of-sale inventory.
“ The last information-mile of the supply chain.” Companies have excellent control of inventory in their warehouses, and most have excellent control of major-route shipping / transit information. Information visibility and accuracy degrades sharply at the local store and local delivery level. RFID technology is meant to improve this visibility and control.
Current standard is EPC Global Gen 2 Class 1 for UHF tags
Applications By Industry
DoD’s objectives are similar to Wal-Mart’s. They want positive control of inventory and shipments to both the depot and the theater.
Companies already use barcodes and ASNs to pass information up and down the supply chain.
RFID offers much greater data density and product granularity (down to the serial number if necessary) to help tie together manufacturers, distributors, and retailers.
Immediacy of point-of-sale data can be tied to demand planning to allow better adjustment of supply and demand
Applications By Industry (Continued)
E-pedigree (secure chain-of-custody information for drugs) established by FDA Prescription Drug Marketing Act (PDMA) of 1987 and explained / expanded in February, 2004 FDA publication
Initiatives to date have tried to build on retail RFID efforts, particularly EPC standards.
Technology issues are still not settled. EPC Gen 2 Class 1 UHF tags have performed poorly with some pharmaceutical pilot programs, opening the door to new pilot programs using proprietary HF tags.
The pharmaceutical companies are not even at the “VHS versus Betamax” stage yet
FDA compliance target of 2007 is in jeopardy
Applications By Industry (Continued)
Industry’s Outlook on RFID
RFID In Supply Chain
Post-pick processing (Slap and Ship) – naked tag or shipping label w/ embedded tag applied and encoded on dock or at pack station
Specialty solution providers
RFID middleware providers
WMS-Enabled – shipping label with embedded tag printed/encoded at wave, pick or pack
SCE vendors utilizing own middleware
WMS vendors utilizing 3 rd party middleware
Custom in-line application (highly automated)
Compliance Solution Approaches
Sweet spot is high-value, serialized or regulated/lot controlled items
Ability to serialize objects and passively capture reads distinguishes RFID over linear barcodes
Compliance initiatives are looking beyond DC cases/pallets
Any gains realized through RFID will probably require significant changes in operational flow and execution software
Efficiency gains must account for exception processing
Expectations must be managed
Technology will improve over time
Compliance will be the near-term focus
Technology will never be able to guarantee 100% reliability – business processes must account for exceptions
RFID in DC Considerations
Scan-free reduces labor costs and improves throughput
Product tracking not dependent on human initiation
Increased accuracy and information timeliness supports leaner
Ability to track and report serialized entity movement throughout
Improved theft control and product authentication
Performance – Impact of material, packaging & interference
Cost – Tags, hardware, software and integration
Evolutionary Pace – Emerging standards & technology changes
Redesigning Processes – Full benefits won’t come w/o business changes
Integration – Not a ‘plug-and-play’ proposition
Let IT lead the project
RFID is about team-based business processes
Assume small or non-existent ROI is covered by existing mandate costs
ROI for RFID can be elusive. Let the process improvement drive the justification for RFID (or not)
Build “Islands of Automation”
Design ways to exploit the data throughout your manufacturing and supply system
RFID Project Implementation Mistakes
Retail: End-users such as Wal-Mart are projecting a 10% - 30% reduction in out-of-stocks due to implementing RFID technology. Positive ROI! Supply Chain: EPC Global Gen 2 tags cost 11 – 27 cents each depending upon volume. This cost, plus the considerable cost of information systems and hardware, is not passed to Wal-Mart or others --- it is a pure compliance cost of a mandate. ROI is typically not possible. Exception: for a company with poor existing supply-chain control, the requirement to implement RFID may create positive ROI by implementing improvements that the company should have already performed using barcodes. RFID Economics
DoD: Most RFID applications use active tags attached to shipping containers. The DoD calculates success in terms of mission readiness, not ROI. The DoD’s use of RFID for container tracking is so successful that they recently issued a $75M contract to Savi for active tags, prompting Lockheed Martin to purchase Savi in July 2006. Pharmaceutical: RFID costs track similarly to Supply-Chain costs. ROI is currently negative; however, the possibility of reducing eliminating pirated / counterfeit product promises significant ROI in the near future. RFID Economics (Continued)
Build an RFID knowledge base
Maintain a strategic outlook
Understand that RFID is not another form of bar coding
Recognize that bar codes and RFID will coexist
Make the proper investment in the design process
Have realistic expectations
Look toward tomorrow
Be prepared for the data deluge
How are we doing in comparison to our peers – below average, average, above average, exceptional?
Are our costs reasonable and in line with other operations like ours?
Are there any major gaps in our strategy that will leave us at a competitive disadvantage?
Are we missing breakthrough opportunities?
How can we demonstrate that we are doing a good job in many areas?
How can we build consensus around initiatives that we feel certain are correct?
The benchmarking and best practices process is designed to answer questions like …
Guidance in selecting and prioritizing the subjects to be covered in the review
Guidance in developing question content
Assistance in expanding the number of consortium members
The process is lead by two Advisory Boards, one for retail and one for consumer products. They provide:
The Supply Chain Best Practices Review includes data from over 100 companies with over $1 trillion in revenue. Supply Chain Best Practices Consortium
Supply Chain Technology and RFID
Do you have the technology infrastructure in place to efficiently manage your supply chain?
Are you fully utilizing the technology you have now? Largest gap?
What do you see as your top technology priority?
Foundation questions for the supply chain technology discussion …
Enterprise Level Systems Usage Use of Supply Chain Applications RFID Information Systems Fall Into All Categories Except Transportation Mgmt. Biggest Category is WMS.
RFID Usage Data Justification for RF ID Tags
RFID – Where will tags be read?
Technology Investment Priorities
Technology Investment Criteria Return on investment does not lead the list for evaluating technology investments.
Technology Investment Returns While financial returns are not the most important investment criteria, what returns are being estimated or achieved?
RFID Technology Adoption Percentage
Respondents Using RFID Technology (Any Type) : 22%
Respondents With RFID-Enabled WMS: 14% (With 1 in 3 Actually Using The Feature)
RFID Technology ROI Findings
Positive or Negative ROI?
Average Rollout Costs (Anecdotal – Not B&BP) Of Equipment And Software
Supply Chain RFID Technology – Findings
Adoption of RFID technology is still driven primarily by compliance mandates.
ROI is elusive. Where positive ROI is found, the root cause of the positive ROI is an improved business process. RFID was the motivation behind the project, but not the key enabling technology – the improved process would have shown as much or more ROI if barcodes had been used.
Integration is often an issue -- between applications and between supply chain segments (e.g. international supply chain and distribution centers to stores). Adoption of RFID-enabled WMS is still slow.
RFID “feels” like the right thing to do, but most implementations are still in the future. Bar coding is the entrenched solution.