RFID and Its Impact To Global Logistics
Brief #3: RFID and Its Impact
To Global Logistics
I. What's RFID and how it works?
The acronym RFID stands for radio frequency identification. It's the process of communicating wirelessly with unique identifiers from tags (labels) to a reader (RF device). It allows people to track product as it progresses through a supply chain.
Ultimately, it could mean products can arrive at your docks and not have to be detail-received by a warehouse employee (1). "RFID utilizes a small transmitter to send radio frequencies from pallets and cases that allow those items to be instantaneously located by the customer or the carrier" (2).
There are two parts to an RFID system; the tag (either "active" or "passive"), which is data carrier attached to the object being tracked, and the reader that collects the data from the tag. At a minimum, each RFID tag comprises a small integrated circuit-a computer chip-that stores data and a small copper coil that acts as an antenna for receiving and sending signals to and from the RFID reader.
Tags are typically encoded with Electronic Product Codes (EPC), unique identifiers assigned to companies and products by the standards group EPCgiobal. (EPCglobal, by the way, has trademarked the term "Electronic Product Code.") These codes include details about the product, its size, and case count along with other identifiers, such as point of origin, producing factory, and production batch information. When a tagged case or pallet passes a reader, it transmits the product data to that reader, which then downloads it to a host computer, where it can be merged into a company's inventory management database (3).
One of the key differences between RFID and barcode technology is that RFID eliminates the need for line-of-sight reading, which bar coding depends on. Also, RFID scanning can be done at greater distances than barcode scanning.
According to a recent report by Computerworld.com, more than 300 Wal-Mart suppliers now ship RFID-tagged goods to 500 Wal-Mart facilities. "By January 2007, the company expects 600 of its suppliers to be using RFID technology, with the number of Wal-Mart stores capable of handling RRD-tagged items doubling to about 1,000," said the report (4).
II. RFID and logistic industry changes
In the logistic industry, RFID technology has been used in to increase productivity and reduce errors in retailers' warehouse order-picking operations (2). RFID communications network enables an order picker equipped with a belt mounted portable device and head set to communicate with a warehouse management system that in essence talks the picker through the picking operation, without a picking list.
RFID is also used to track and verify quantities of each logistics unit (pallet, case, box) shipped by suppliers from origins to destinations. Content information and expanded data of each unit is carried by its passive, unchangeable RFID tag, which replaces traditional bar code. Now RFID tag has been gradually applied down at the carton level (2).
The use of RFID technology on the container trailer systems, loading ramps and service stations, it would allow us to track the entire cycle, from storage to transport to the production facilities, raised storage capacity, offer our customers more favorable prices.
RFID to reduce inventory inaccuracies, errors in pallet repacking, man hours associated with warehouse and logistics, employee theft, incomplete deliveries, inefficient stock replenishment and out-of-stocks, and slow velocity.
Indeed, the technology has merit. Results of a University of Arkansas study released in October 2005, for example, indicate that Wal-Mart saw a 16% reduction in out-of-stocks ...
This is a preview of the whole essay
The use of RFID technology on the container trailer systems, loading ramps and service stations, it would allow us to track the entire cycle, from storage to transport to the production facilities, raised storage capacity, offer our customers more favorable prices.
RFID to reduce inventory inaccuracies, errors in pallet repacking, man hours associated with warehouse and logistics, employee theft, incomplete deliveries, inefficient stock replenishment and out-of-stocks, and slow velocity.
Indeed, the technology has merit. Results of a University of Arkansas study released in October 2005, for example, indicate that Wal-Mart saw a 16% reduction in out-of-stocks at RFID-enabled stores. Besides helping Wal-Mart lower over-orders and reduce excess inventory, RFID decreased the chain's manual orders by 10%. These stores were also 63% more effective in replenishing out-of-stock products than control stores not equipped with the technology, according to the study (5).
The long-term goal of RFID is to enable retailers and suppliers to share data that will give them real-time visibility of exactly where products are in the supply chain. Traditional supply chain is where one links to the next, RFID will enable a network where all of the players involved have the information simultaneously, so retailer, manufacturer, supplier - everybody knows the same data at the same time.
III. RFID benefit, costs and problems
Two big advantages RFID holds over bar coding is that an RFID reader doesn't need a direct line of sight to collect data from the tag, and the data capture itself is automated, eliminating the need for manual scanning.
RFID benefits include:
- Efficiency
- A reduction of data-entry errors
- The ability to free up staff
RFID has the ability to provide:
* Reduced shrinkage.
* Full visibility of returned items.
* Reduced labor costs.
* Enhanced customer service.
* Increased inventory accuracy.
RFID is not yet a lOO-percent solution. That's because limited read ranges and interference with radio signals caused by metals and liquids have presented barriers to accurate reading of all tags.
Passive tags for a 12-case pallet with six items in each case can cost anywhere from $3.00 to more than $6.00, which is an added cost of 4 to 8 cents per item--and that's just for the tags. If a company is wiring each dock door with a high-quality reader installation and running power for that reader, it could be as much as $10,000 a door. Equipping a forklift is less than $5,000. A hand-held reader only costs about $1,000 (3).
There are also incalculable costs associated with preparing for the flood of additional information that will one day be available via RFID. Given the technology works as intended, capture and transmission of what becomes a fire hose's worth of data in a timely manner is going to be a big challenge.
If your company's revenue depends very heavily on organizations that are requiring suppliers to use RFID. then the answer probably is yes. 13ut to figure a return on your RFID investment,you'll need to take a longer-term view. The first companies that efare putting contracts out to bid, people are going to be including the costs of RFID right now," he says. "But those that figure out how to manage it effectively in all parts of their business are going to eventually be able to offer their goods at a better price, and that will offer them a great competitive advantage."
Passive tags can
be used to replace barcodes as a means of gathering and sharing
information within the supply chain. Compared with barcodes,
passive tags are much more information intensive because every
tag includes a digital memory chip. RFID can be used to track
the movement of products through the supply chain from
production to the retail point of sale in real-time which will
provide higher visibility for inventory and assets in the supply
chain (42) and facilitate better management of inventory and
logistics (22). RFID technology can also be used across the
supply chain to improve reverse logistics for reusable assets and
for the recycling of products. RFID improves the safety and
security ofthe supply chain through improved track and trace,
more efficient recall management, better expiration date
management and reductions in shrinkage. The implementation
of RFID will facilitate better planning in the supply chain
through reductions in inventory, working capital, stockouts and
expediting costs (1), and lead to improved information sharing
and tighter connection with business partners which can lead to
more efficient business processes (16). Moreover, RFID
provides both more information and more timely information on
supply chain performance than barcode technology, thus a
higher level of detailed analysis can be done to guide the
management and synchronization of the supply chain. The
adoption of passive RFID technology will improve the speed,
efficiency and security of information sharing across supply
chain. Early adopters of RFID have experienced significant
benefits- anywhere from a 3% to 5% reduction in supply chain
costs, and 2% to 7% increases in revenue as a result of greater
inventory visibility (25).
Regardless ofthe potential benefits of passive RFID tags in
SCM, the low cost of the passive tags limits the security
technologies that can be applied (49), which makes passive
RFID tags susceptible to both passive attacks (such as
eavesdropping and tracking) and active attacks (such as fraud
tag/fTaud reader, physical tamper attacks and Denial of Service
(DoS) attacks)
IV. Summary
The January 1, 2005, deadline for suppliers to put RFID tags on case and pallet loads as a condition of doing business with Wal-Mart and the U.S. Department of Defense (DoD) is just the starting point. The truth is, these two organizations, along with the other companies such as Albertson's and Target, are not forging into RFID because it will save them money today, or even in a few years.
Tiying tofigure out ways to save on transportation, since oil prices have risen to record levels, will become critical Manufacturers and distributors will seek to save by improving their shipment consolidation and pooling opportunities.
Wal-Mart's announcement that it was going to require its top 100 + suppliers to start applying RFID tags to cases and pallets by January 2005. This announcement took the supply chain world by storm. Wal-Mart was followed by similar initiatives by DoD, Target, Best Buy and others.
References:
. Jones, Rene: "RFID is the "American Idol" of the warehousing and logistics industry. How will you cast your vote?", Electrical Wholesaling , JULY 2006
2. Gourdin, Kent: 2006, Global Logistics Management - A Competitive Advantage for the 21st Century, Blackwell Publishing, Malden, MA
3. Anderson, Chris: "Everything you always want to know but afraid to ask about RFID", Logistics Management, September 2004
4. Pruitt, Scarlet: "Wal-mart Begins RFID Trial in Texas ", http://www.computerworld.com/mobiletopics/mobile/technology/story/0,10801,92806,00.html, accessed 04/30/07
5. Kilcourse, Brian: "The Need for Speed", Chain Store Age, 10870601, Jul2006 Supplement, Vol. 82, http://web.ebscohost.com.proxy.lib.pdx.edu/bsi/detail?vid=8&hid=107&sid=6c1cad97-d699-4513-9bf7-daa49feac12f%40sessionmgr104, accessed 04/30/07
6.
7.
.
. Accenture Report. "High Performance Enabled Through
Radio Frequency Identification-Accenture Research on
Maufacturer Perspectives," April 2004. http://www.
accenture.com/xdoc/en/services/rfid/insights/, accessed 04/30/07
42. Seidman, T. "The Race for RFID," Journal of Commerce,
4:48, 2004, pp. 16-18. '
6. Emery, G.R. "IT Execs Prepare for an RFID Revolution,"
Washington Technology, June 29, 2004. http://www.washingtontechnology.CQm/news/l_l/industry/23875l.html , accessed 04/30/07
22. Jones, P., C. Clarke-Hill, P. Shears, D. Comfort, and D.
Hillier. "Radio Frequency Identification in the UK:
Opportunities and Challenges," International Journal of
Retail & Distribution Management, 32:3, 2004, pp. 164171.
25. Kay, E. "What's the Next Step for RFID?" Frontline Summer 2006 Journal of Computer Information Systems 23 Solutions, March 2003, pp. 21-25
49. Weis, S.A. "Security and Privacy in Radio-Frequency Identification Devices," M.S. Thesis, MIT, 2003. http://theory.les.mit.edu/~cis/theses/weis-maters.pdf , accessed 04/30/07
http://web.ebscohost.com.proxy.lib.pdx.edu/bsi/detail?vid=9&hid=107&sid=6c1cad97-d699-4513-9bf7-daa49feac12f%40sessionmgr104
Title: RFID Aids Inventory Control at Wal-Mart., By: Power, Denise, WWD: Women's Wear Daily, 01495380, 5/26/2006, Vol. 191, Issue 113
Dateline: CHICAGO
Wal-Mart reduced out-of-stocks by 62 percent in some product categories through the use of radio frequency identification technology, according to Randy Salley, vice president, supply chain.
Salley gave a peek into new research findings during a sparsely attended session at the Retail Systems conference here Wednesday. The study, results of which are due out in the next two weeks, examined RFID's ability to reduce out-of-stocks on products that sell at different rates of speed. Initial test results released in October 2005 estimated RFID could reduce out-of-stocks by 16 percent on average, a figure Wal-Mart and the researchers are now calling conservative.
RFID tracking technology has virtually no impact on in-stock levels for products selling at a rate of more than 15 items daily, because store associates already monitor those fast sellers and replenish shelves as needed, Salley said. Low-velocity merchandise -- items selling at a rate of one unit every three days, for example -- also are not affected much by RFID, because there's no major out-of-stock problem there.
However, for items selling at a rate of seven to 15 units daily, RFID reduced out-of-stocks by 62 percent, William Hardgrave, executive director of the Information Technology Research Institute at the Sam M. Walton College of Business, University of Arkansas, told WWD. Hardgrave supervised the research, commissioned by Wal-Mart, which was based on a 29-week study of 12 Wal-Mart test stores equipped with RFID for tracking merchandise movement and 12 Wal-Mart "control" stores not using RFID.
Salley said the latest study results are important because they identify specific opportunities to combat the out-of-stock problem. He also noted that the 300 Wal-Mart suppliers already tagging cases and pallets are expected to begin using the new type of RFID tags, called Generation 2, by the end of June.
Wal-Mart receives about 3 million RFID-tagged cases each week, "and that number keeps growing week by week," Salley said. "This is no longer a pilot," he added. "We are in active rollout." Salley noted that the company will double the number of Wal-Mart stores and distribution centers using RFID -- from the current 500 to 1,000 -- by the end of this year. In January 2007, another 300 suppliers will be expected to apply RFID tags to their shipments, he said.
~~~~~~~~
By Denise Power
5
