RFID Basics and Supply Chain Optimization
                Faique Sayeed
RFID BASICS AND SUPPLY CHAIN OPTIMIZATION




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RFID BASICS AND SUPPLY CHAIN OPTIMIZATION


Figure 1: RFID Tag diagram                                             are mor...
RFID BASICS AND SUPPLY CHAIN OPTIMIZATION


These tags are more suited for asset tracking on a                     BAR-COD...
RFID BASICS AND SUPPLY CHAIN OPTIMIZATION


current UPC bar-coding scheme. The EPC was                             collabo...
RFID BASICS AND SUPPLY CHAIN OPTIMIZATION


be located are among the immediate benefits                            Supply ...
RFID BASICS AND SUPPLY CHAIN OPTIMIZATION


                                                                           thi...
RFID BASICS AND SUPPLY CHAIN OPTIMIZATION


    Wal-Mart’s requirements; and no more.
    Costly decisions will be made to...
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RFID Basics and Supply Chain Optimization

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RFID Basics and Supply Chain Optimization

  1. 1. RFID Basics and Supply Chain Optimization Faique Sayeed
  2. 2. RFID BASICS AND SUPPLY CHAIN OPTIMIZATION OVERVIEW In this White Paper Radio frequency identification (RFID) is an old technology that has recently hit the limelight Overview 1 with an announcement made by Wal-Mart that it would require its top 100 suppliers to provide RFID tags on pallets and cases by January 1, 2005, Background on RFID 1 and all of its suppliers to comply by 2006. Many are predicting tremendous growth and Bar-Codes, EPC, and Product-Numbering opportunities with RFID in the Supply Chain Standards 3 Arena. While many will scramble to implement RFID simply to meet Wal-Mart’s requirements, the true business leaders will look for Announcements by Wal-Mart & the DOD opportunities to leverage RFID to drive supply- 4 chain efficiencies and let the implementation of RFID pay for itself. Supply Chain Opportunities with RFID 5 IDC has predicted the RFID market, which only topped $91.5 million in 2003 Privacy Concerns 6 will swell to $1.3 billion by 2008. This white paper discusses the basics of RFID, Implementation Considerations 6 describes the Product numbering standards, explores how RFID can help your business and finally ends with questions that need to be further explored as your company goes through an RFID implementation. “Radio frequency identification (RFID) is a simple concept with enormous implications. Put a tag - a microchip BACKGROUND ON RFID with an antenna - on a can of Coke or a car axle, and suddenly a computer can The original theory of RFID can be traced back to "see" it. Put tags on every can of Coke World War II, but it was not until the 1970’s and 1980’s that early adopters of the technology came and every car axle, and suddenly the into existence. Since then, RFID has expanded to world changes. No more inventory be used in multiple technologies, including Auto- counts. No more lost or misdirected Toll Lanes and Auto-Gas paying; from shipments. No more guessing how much intermodal freight container tracking to sports material is in the supply chain - or how race event timing. much product is on the store shelves.” RFID tags are tiny chips (Integrated circuits or -EPC Global IC’s) and antenna units that are capable of emitting information (via Radio waves) and storing information. Page 1 Copyright © 2004 Next Frequency LLC. All rights reserved. This publication contains proprietary information of Next Frequency LLC. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form by an means, electronic, mechanical, photocopying, recording or otherwise without the prior written permission of Next Frequency LLC.
  3. 3. RFID BASICS AND SUPPLY CHAIN OPTIMIZATION Figure 1: RFID Tag diagram are more expensive than passive tags, because of the additional circuitry required. A new hybrid has also emerged, the semi-passive tag, which contains a small battery that is used to increase the read range of the tag. Figure 3: Classification of RFID tags Courtesy of Rafsec Co. Readers The information stored on RFID chips is accessed using readers that can read and/or write RFID tags can be further classified based on their information from/to the tags. Unlike bar code read/write capabilities. Some tags have the scanners, these readers do not need direct line of ability for information to be written on them only sight and can, for example, be placed at door once (Class 0). These tags are good for product exits and remotely scan all boxes as they leave a or container-level information. However, warehouse dock. Scanners range in price, but additional information cannot be added as the start around $1,000. Prices will begin to fall, item flows through the supply-chain. Other tags however, as RFID technology matures. have the ability to be written on multiple times and read many times (Class 2, Class 3 and Class Tags 4). These are useful when trying to track items Tags come in many different forms, including through the supply-chain. These tags are also chips, sticks and some are even printed as labels, reusable and can be erased, reprogrammed and as seen below. placed on other products. These tags are typically used on product totes, carriers or other Figure 2: RFID embedded in bar-code label (left) / RFID tag conveyance devices to allow data gathering and from Texas Instruments (right) tracking as products move through the manufacturing line. Once again, the increased technology comes at an additional price. A hybrid of the two also exists, which are “write- once” tags (Class 1). These tags allow additional data to be written as the tag flows through the supply-chain. However, once used, they cannot be erased and reused on other products. Types of Tags Many different types of tags exist. However, they Range is the next distinguishing characteristic generally fall into 2 main groups, active and between tag types. Passive tags have the shortest passive. Passive tags do not have a power source range, roughly 25 feet or less. Active tags have and only become ‘powered’ to send or transmit the ability to be read at longer-range. Current data when they are within range of the reader’s technologies range from a few feet to satellite- radio frequency waves. In contrast, active tags based technologies that are touted as capable of contain a tiny battery that allows them to reading tags anywhere in the world. transmit data. Active tags are suited for asset management and tracking functions. Active tags Page 2 Copyright © 2004 Next Frequency LLC. All rights reserved. This publication contains proprietary information of Next Frequency LLC. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form by an means, electronic, mechanical, photocopying, recording or otherwise without the prior written permission of Next Frequency LLC.
  4. 4. RFID BASICS AND SUPPLY CHAIN OPTIMIZATION These tags are more suited for asset tracking on a BAR-CODES, EPC, AND PRODUCT-NUMBERING worldwide-basis, as the costs are prohibitive for STANDARDS pallet, case and product tracking. The UPC (Universal Product Code) was created Figure 4: Active vs. Passive Range & Frequency in the 1970’s as an 11-digit code that could be read by bar-code scanners. Within a decade the UPC could be found on millions of products and today it is estimated that the UPC is carried on 10’s of millions of products and has saved millions for the Consumer Packaged Goods Next Generation of Tags (CPG) industry worldwide. Thirty years ago the UPC code was expanded to 12 digits. An Work is already underway on Generation 2 offshoot of the UPC, the RSS (Reduced Space standards, which should lead to faster and more Symbology®) is used for produce, fresh meat, reliable read rates for EPC tags. EPCGlobal has pharmacy, and medical/surgical products. dubbed the standard the UHF Generation 2 Foundation Protocol. The final vote on the Figure 5: 13-digit UPC code with Bar Code standard will be in October 2004, with prototypes likely available within a few months from tag suppliers. Wal-Mart will require use of Class 1 or Class 0 tags initially and Class 1, Generation 2 tags in the long run. By January 1, 2005, American retailers have to update their scanners to accommodate the European Article Number 13-digit and 8-digit Players in the Tag/Label Production numbers (EAN-13 & EAN-8). The UCC has been • Savi pushing for the update in systems in order to • Texas Instruments reduce the need for European companies to re- • Matrics label product with UPC compliant bar codes • Hitachi when shipping goods to North America. The • Philips UCC has collaborated with the EAN in • Zebra developing the EAN.UCC standard. Players in the Reader Segment The Global Trade Item Number (GTIN) is an • Symbols umbrella term that describes the four data or • Matrics numbering structures: 8-digit, 12-digit, 13-digit, • Intermec and 14-digit. The EAN-8, EAN-13, UPC (12- • SamSys digit), and RSS (8-digit) make up the GTIN • AWID grouping. The GTIN number is a movement to provide a homogenous and functional system that complies with EAN & UCC standard rules. Electronic Product Code (EPC) will be used for RFID synchronization across the supply chain. Eventually the EPC standard will replace the Page 3 Copyright © 2004 Next Frequency LLC. All rights reserved. This publication contains proprietary information of Next Frequency LLC. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form by an means, electronic, mechanical, photocopying, recording or otherwise without the prior written permission of Next Frequency LLC.
  5. 5. RFID BASICS AND SUPPLY CHAIN OPTIMIZATION current UPC bar-coding scheme. The EPC was collaborative supply chain, since it will be developed by the Auto-ID center (an offshoot available online. from MIT). The EPC contains a 96-bit code that links with an online database, providing a secure Companies will be able to query the ONS registry way to share product-specific information. The to determine who makes a particular EPC and UCC has entered into an agreement licensing the then query that company in order to get more EPC from the Auto-ID Center and has also detailed information regarding an item. Since created EPCGlobal to manage the EPC system. each item will have a unique EPC code, suppliers will be able to track individual information The European Article Numbering (EAN) also regarding an item. backs the EPC standard. One key difference between the EPC and the UPC code is the EPC While not all RFID tags will need the EPC will allow for item-level tracking. Not only is the system, the opportunities the EPC will provide manufacturer and product captured in the code, for improved efficiencies in the CPG industry’s but the particular item’s serial number is also supply chain are enormous. Imagine being able captured. For example, not only would a tire’s to track a particular jug of milk from the time of manufacturer, brand, and style be identified, but production until it leaves the grocery store aisle also the individual tire would be uniquely in order to ensure it has not expired. identified and could be tracked. ANNOUNCEMENTS BY WAL-MART & THE DOD Currently, RFID chips cost upward of $.50 each. Many believe as adoption of RFID increases, Wal-Mart announced on June 11, 2003 that its top economies of scale will cause the per tag price to 100 suppliers must be RFID compliant at a palette drop to $.05 per tag. Sanjay Sarma of the MIT and box-level by January 1, 2005. Also, all Auto-ID center states, “… the $.05 target is remaining suppliers must be RFID compliant by unattainable with today’s approach.” Sanjay 2006. Sarma and many other leading RFID thinkers envision that, in order to keep the technology Skeptics wonder if even Wal-Mart can reduce the cost low, manufacturers must utilize passive technology's cost, which can be as high as 50 Read-only chips that contain the 96-bit EPC code cents per tag, to the five-cent mark that would and store product specific information ‘off-line’ make them economically viable for a broad in databases using a mapping service called the spectrum of goods. Those in the competitive ONS (Object Name Service). This mapping consumer-packaged-goods industry say the cost service will map the EPC to a DNS (similar to a may even need to get down to one cent per tag for web address) and information about the EPC will it to make sense. be stored using PML (Physical Markup (Investor’s Business Daily: Dec 24, 2003) Language) and can be retrieved using HTML (Hyper Text Markup Language) or SOAP (Simple The Department of Defense has announced that it Object Access Protocol). will require EPC tags on freight containers, pallets, cases and other big-ticket items, Therefore, by keeping a minimum amount of beginning in 2005 by all of its suppliers. information on the chip and more detailed information ‘off-line,’ the ability to store product For Wal-Mart and other retailers, the immediate specific information at a cost effective price will benefits are tremendous. Increased labor be possible. This also means that any efficiencies, reductions in receiving, simplified information regarding a particular item could be inventorying of stock, automatic replenishment, traced and viewed by all the partners in a and reduction in lost-sales from items that cannot Page 4 Copyright © 2004 Next Frequency LLC. All rights reserved. This publication contains proprietary information of Next Frequency LLC. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form by an means, electronic, mechanical, photocopying, recording or otherwise without the prior written permission of Next Frequency LLC.
  6. 6. RFID BASICS AND SUPPLY CHAIN OPTIMIZATION be located are among the immediate benefits Supply Chain Synchronization available. RFID will help Wal-Mart stay competitive, increase its customer satisfaction, The goal of supply-chain synchronization is to keep its costs low and keep its key competitive decrease variability and uncertainty. There exists advantage of world-class supply chain a theoretical linear relationship between the efficiencies high. integration-level with the supplier and the uncertainty in the supply chain. Wal-Mart has promised to help its suppliers through the process of ironing out the kinks; and there will be many. In addition, each supplier will have to build an infrastructure to support the EPC framework. Some estimate that the major CPG manufacturers will spend between $13 and $25 million to comply with Wal-Mart’s requirements. Competitors of Wal-Mart are not sitting idly by while Wal-Mart creates its competitive edge. As integration with supplier’s increases, Albertson’s, Metro, Target, and Tesco have each uncertainty decreases. As uncertainty in the made announcements that they are also supply-chain decreases, costs that are incurred in formulating strategies that will utilize RFID in an effort to compensate for the uncertainties also their Supply Chain management initiatives. decrease. Other announcements A simple supply chain starts with raw materials that are manufactured into a product that is then The FDA recommended on February 8, 2004 that distributed and sold to a customer. The customer manufacturers of medicines and medical devices may take this product and use it or, in the case of adopt use of electronic track and trace a B2B transaction, use it in the production of a technologies. RFID was recognized by the product that it in turn manufactures, distributes agency, as being one of the most promising and sells. technologies and that it would probably have to be implemented over time. Basic Supply Chain Environment The use of RFID will help to significantly reduce Raw Manufacturing Distribution Retail counterfeiting and drug delivery mistakes, both Materials Sales of which have become significant issues in the Pharmaceutical industry. Product Flow Information Flow Supply Chain Opportunities with RFID While products flow down the supply-chain, it is necessary for information to flow up the supply- So, with all the talk of RFID, how will your chain. With the information comes coordination, company benefit from an RFID implementation? and with coordination comes a reduction in The vision for RFID is broad and there are many uncertainty. opportunities for gains in efficiency in RFID presents many opportunities to improve manufacturing, supply chain and inventory the coordination in the supply-chain by changing management. the supply-chain from a linear linkage model to an integrated linkage model Page 5 Copyright © 2004 Next Frequency LLC. All rights reserved. This publication contains proprietary information of Next Frequency LLC. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form by an means, electronic, mechanical, photocopying, recording or otherwise without the prior written permission of Next Frequency LLC.
  7. 7. RFID BASICS AND SUPPLY CHAIN OPTIMIZATION this technology to reduce costly overhead resulting from the checkout process. Integrated Supply Chain • Freshness of Merchandise: RFID tags can carry information regarding expiration dates Raw and other information. This will help to Distribution Materials reduce spoilage. Customer Privacy Concerns Retail Manufacturing Sales No white paper on RFID is complete without addressing potential privacy concerns. In A coordinated supply-chain has information flow response to Gillette’s announcement that it in all directions and is truly customer-focused would start product level tagging in conjunction and responsive. with Wal-Mart, privacy advocates raised so much hoopla that Wal-Mart and Gillette decided to Some of the opportunities provided by RFID are: retreat to only providing box and palette level tagging. Benetton is also facing similar cries from • Physical Inventory Counts: With RFID-ready so called privacy advocates after it started tags on all items, companies can run tagging individual clothing in Europe. instantaneously accurate physical inventory Consumers Against Supermarket Privacy counts whenever required. These counts will Invasion and Numbering (CASPIAN) take minutes to complete, with virtually no successfully lobbied Benetton to use embedded user intervention. This can result in millions RFID chips that could be discarded at the time of of dollars annually in savings from labor and purchase. mistake proofing. • Visibility: RFID gives instant access and No matter what RFID solution your company visibility into all locations of the warehouse, uses, privacy concerns will need to be addressed the back-office stock room and the storeroom during the RFID deployment decisions. floor. For instance, the GAP ran a pilot in its Atlanta store and it found that by implementing an RFID inventory tracking Implementation Considerations system, sales increased by 5% because sales personnel had additional time to spend with While the promise of RFID and visibility in the customers instead of searching for in stock Supply Chain is a lofty goal, a successful RFID items. implementation is just as lofty. There are many • Reduction or Elimination of Stock outs: considerations that must be addressed as your (Just-In-Time) With full visibility to usage and company begins an RFID project. supply availability, RFID systems will help to realize true JIT stocking and re-stocking of • Begin with the end in mind- Borrowing from goods. Stephen Covey, it is important for your • Automation of Checkouts: Imagine paying company to have a strategic plan prior to for your groceries by simply walking out of implementing RFID en masse. Decisions that the store and having the items in your cart are made in the beginning can make or break automatically scanned by RFID readers the whole implementation. For example, embedded in the ceiling. Some parts of many companies rushing to meet Wal-Mart’s Europe have already begun implementing or the DOD’s requirements will expedite implementation by looking to simply meet Page 6 Copyright © 2004 Next Frequency LLC. All rights reserved. This publication contains proprietary information of Next Frequency LLC. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form by an means, electronic, mechanical, photocopying, recording or otherwise without the prior written permission of Next Frequency LLC.
  8. 8. RFID BASICS AND SUPPLY CHAIN OPTIMIZATION Wal-Mart’s requirements; and no more. Costly decisions will be made to implement a Whatever strategy is taken, it is important to technology that will, due to the nature of a ask how will RFID enable (rather than drive) “slap and ship” implementation, have to be your company’s strategy? stripped out and rebuilt when the company decides to implement RFID properly in order to strategically align the supply chain. A At a minimum, we wholeheartedly recommend phased approach is a good methodology company’s start investing resources in a needs when part of a bigger strategic plan. analysis for implementation of an RFID solution • Can this be accomplished through bar codes? and begin defining a long-term vision for where Does RFID need to be implemented or can and when the technology should be your company reap many of the same implemented. Also, whether a Wal-Mart benefits by further leveraging bar-codes? supplier or not, company’s should start looking Continue asking this question throughout the at the GTIN and EPC and begin the process of implementation and challenge to find the aligning systems to handle these codes. Whether true ROI of RFID. Can your company get continuing to barcode or beginning the migration some of the same benefits by simply to RFID, GTIN and EPC will quickly become adopting the EPC standards? global standards and huge benefits will be • Is the technology ready for your company? realized by utilizing these systems. Question your RFID vendors on what are the shortcomings of their solution and when are the next releases of their products scheduled. * * * What limitations have been encountered by nextFrequency is a Global Business & others? What is an acceptable failure rate for Technology Consulting Services Firm. Our your company? professionals partner with companies to provide solutions that work for our clients. There are many discussions on the best way to nextFrequency provides the following services: implement RFID. While some companies will be • RFID Strategy Articulation and cautious and rather take the fast-follower Implementation Road mapping approach, others will be market leaders and will • Tag & Reader selection process use the technology to enable streamlined supply • RFID Pilots chains and achieve significant reductions in cost. • Business Case development There is no correct answer as to which method is • System integration and Program correct and the go/no-go decision seems like the management classic prisoners dilemma. If you wait too long to implement, will your competitors use it as a Let nextFrequency be your partner of choice to competitive advantage and gain a strategic hold assist you through your RFID process. To learn on you customers? If you jump too early, will more contact us at 678.921.5229, email us at your competitor’s be able to quickly match you sales@nextfrequency.com or visit our Web site at for a fraction of the cost? www.nextfrequency.com. RFID is a technology and, like other technologies, will mature as companies move toward it. Wal- Mart has begun the plunge with its announcement requiring suppliers to adopt an RFID campaign at a time that some may say is still a little premature for the technology. Page 7 Copyright © 2004 Next Frequency LLC. All rights reserved. This publication contains proprietary information of Next Frequency LLC. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form by an means, electronic, mechanical, photocopying, recording or otherwise without the prior written permission of Next Frequency LLC.
  9. 9. 1413 Walcutt’s Way Marietta, GA 30064 678.921.5229 sales@nextfrequency.com www.nextfrequency.com

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