Some years ago, Radio Frequency Identification (RFID) was going to power supply chain systems to the next level. Retailers like Target, Metro Cash & Carry and Walmart adopted it, only to discover that there were several challenges. Integration with SCM was one—tracking everything down to the last part/unit using RFID was turning out to not be practical. The technology was expensive and the wireless distance it claimed to cover was being questioned. RFID was about to be written off.
But wait—RFID is a relatively little-used technology, and it’s too early to write it off. Besides, along comes Electronic Product Code (EPC)-enabled RFID tagging to bring the technology right back into sharp focus.
Understanding the transformational nature of RFID in SCM
To understand the transformational nature of introducing RFID into SCM, we need to first look at two things:
- What is EPC-RFID? This is a universal identifier that provides physical objects (components) with a globally unique number. EPC is encoded on RFID tags and then can be used to track anything, from boxes and bottles to chairs, computers, power storage devices, documents, vehicles…just about anything that pops up in a supply chain.
- What is the most critical and irreplaceable role RFID can play in SCM? Using RFID, it becomes possible to identify every point and person that made contact with a specific item (for example manufacturing or logistics). If you know components by serial number and where they were used, it becomes infinitely simpler to isolate problems in the supply chain and either find the defective point in the process, fix the problem or do a quick product recall. In short, RFID effortlessly adds traceability.
The sluggish adoption of RFID over the last decade or so can also be attributed to the fact that the amount of data that RFID throws up is far beyond the needs of SCM. But, that’s exactly why it is about to make a comeback: data has become invaluable. Modern analytical engines can slice and dice it in real time to ensure that relevant chunks of information are passed along to the SCM application to make operations more efficient. The rest of the data can be used to drive quality, predict and prevent defects, create business insights and so on.
RFID’s role cannot be ignored, especially in its ability to track products that need to meet stringent regulatory norms. A good example of this is the pharmaceuticals industry, which needs to track a vast variety of finished products and reduce human error. The industry is hemmed in by state and country specific regulations. It cannot afford to have untracked shipments, nor can it afford to slow down the pace of shipment using manual tracking technology, as it adds to costs. While the shipment is in batches, bar code technology can be used to track pallets, containers and lots. But once the prescription drug shipment reaches the retail level, RFID becomes the only accurate and reliable method to track individual bottles (beyond this, if the bottle is broken up into individual pills or capsules for end users, serialization is the answer). What applies to the pharmaceutical industry is applicable to several other industries where safety and regulation are prime concerns.
There are several ways in which RFID enhances SCM (see Figure 1), making it more efficient (as opposed to adding new capabilities as discussed above). RFID can assist in more accurate pick-and-pack operations resulting in improved packaging quality, reduced costs in returns management, faster shipment, fewer bottlenecks in custom clearances, etc. RFID can actually bring down operating costs as it reduces cycle time at practically every step in a SCM process. It can also potentially reduce shrinkage and loss.
However, there are also a few concerns that companies face while adopting RFID in SCM.
- Cost of the technology. Investments in RFID are admittedly costly. But there is increasing evidence to support its use in improving inventory and supply chain management. Earlier this month, Grupo Exito, a major retail chain in Colombia, reported that during a three-month trial with RFID, it reduced inventory costs by 93% and inventory loss by 60% . The retailer launched a pilot with EPC Gen 2 to improve traceability of products moving through the supply chain as well as address shrinkage between the distribution center and point of sale. The chain reported that for an identical mix of goods that were not tagged by RFID, inventory levels had to be adjusted by US$ 45,867 because of shrinkage while on RFID tagged products the loss was a mere US$ 18,834.
- Having the right tools. Another key concern is having the right tools and methodologies at the backend to track the big data generated through this technology and converting this data into insights that can enable better business outcomes.
It is no more a question of “Will RFID become a default component of SCM?” There is no doubt that RFID technology enables superior data acquisition and information exchange for accurate tracking, sorting and distribution. It is now only a question of uncovering the ROI that RFID is capable of delivering to your business.