Supply Chain Frontiers issue #23. Read all articles in this issue
In many supply chain applications of radio frequency identification (RFID), the costs have exceeded the savings, one reason why the technology’s growth has failed to meet early expectations. But companies might be asking the wrong questions when evaluating RFID. As attendees of a recent symposium on RFID organized jointly by the MIT Center for Transportation & Logistics and the Stanford Global Supply Chain Management Forum heard, some users are looking beyond the data and finding untapped value in the technology.
It is not just the up-front cost of RFID that inhibits its growth; the prospect of replacing established technologies such as sophisticated bar codes also deters companies from committing to the tagging technology. Even if the price of a tag fell to a fraction of a penny, some enterprises would still have a hard time justifying the return. As one symposium attendee put it, RFID is a hammer looking for the right nail.
But finding the nail requires more than focusing on ROI. At the MIT-CTL event Lukas Ruecker, Vice President of Strategy, Staples Inc., described how his company takes a business-needs view of RFID; Ryo Imura, Global Business Director, IT Systems and Corporate Officer at Hitachi, Ltd., talked about the many novel applications that the chip maker is finding for the technology; and a number of attendees described how they are discovering returns other than those commonly used to evaluate RFID. Here are some examples:
Brand booster
A multinational consumer product company pointed out that RFID tagging reassures consumers that an enterprise is serious about product safety – an important plus in light of recent product recalls and the damage done to well-known brands.
Emerging enlightenment
Companies often hesitate to deploy RFID technology in emerging markets owing to problems such as the unreliability of electric power supplies. But it pays to gain a deeper understanding of such deployments. To illustrate how easy it is to misconstrue implementation issues, an attendee related a story about a retailer in India that was achieving good dock door read rates except when it rained. People speculated that high humidity levels or the actions of insects were causing the fall off in performance. The solution proved elusive until someone drove past one of the stores during a downpour. People were huddled in the doorway trying to stay dry, and since they were in front of the RFID scanner they were blocking the signal.
Improving transportation
Tagged shipments can provide secondary benefits such as more efficient transportation. A major manufacturer is using the technology to monitor the performance of truck carriers. It found, for instance, that although vehicle locations were tracked electronically, drivers were indicating that they had arrived at their destinations before they had actually pulled into the dock. RFID technology gave the manufacturer a truer picture of on-time arrivals.
Leasing options
As RFID technology matures some users envisage a growing market for leased systems for temporary installations. For example, a manufacturer put an RFID system in place solely to track the movement of drums as part of an effort to find out why the containers were corroding and subject to damage.
Mobile integration
Sanjay Sarma, Associate Professor of Mechanical Engineering and former Chairman of Research and Co-Founder of MIT’s Auto-ID Center, provided an overview of the numerous wireless technologies that implement, augment, or extend RFID. For example, a $10 WiFi puck is now available that functions like an RFID tag in a building’s WiFi network. Cell phones are de facto RFID tags, and a combined cell phone/RFID reader device has been developed.
Product verification
A consumer electronics company attaches RFID tags to product chassis at the beginning of the manufacturing process. The tags store vital information such as product serial numbers. Being able to read the “DNA” of each item makes it much easier to locate product, for example when a manufacturing problem requires the company to find specific units. Tagging also ensures that product returned for repair is sent back to the right customer; individuals sometimes return items in the wrong box.
Shopping experience
Retailers are looking to increase sales by enhancing the shopping experience for loyal customers, and RFID technology offers ways to do this. One retailer uses in-store kiosks to provide information on a customer’s recent purchases and what supplies they may need to replenish. The kiosks can deliver discount coupons tailored to the customer’s buying patterns. Another innovation is shopping carts wired to provide special information on in-store promotions and product locations.
Supply Chain Visibility
The improved supply chain visibility possible with RFID opens up new asset tracking possibilities. A chemical company uses the technology to keep a constant check on the location of dangerous chemicals. By equipping the rail tank cars that carry these noxious substances with sensors, it can also detect whether a tank has been opened. The information is sent to the US Department of Homeland Security when the national terrorist threat condition is elevated. Another company embedded tags in the caps of vintage wine bottles as part of a program to prevent the bottles being filled with counterfeit product.
Tracking promotions
Retailers are using RFID to track the whereabouts of promotional displays in stores. Knowing that displays are where they should be instead of languishing in back rooms or distribution centers cuts costs by increasing the effectiveness of promotions and providing valuable data on which campaigns generate the most sales. Studies show that more than one-third of stores fail to comply with instructions about promotions, and that only 41% of promotional goods reach the retail floor in time for campaigns. Manufacturers at the symposium reported sales increases of 22% to 140% as a result of promotional tagging operations.
There is still much skepticism about RFID’s ultimate potential. However, the case for wider adoption becomes stronger when the technology is evaluated on the basis of its competitive advantages as well as the likely ROI.
The RFID Beyond Data Acquisition: Innovative Applications Beyond the Value Chain symposium was held at MIT on October 10, 2007. For more information contact Jim Rice.