RFID: an enabler of supply chain operations - Ingenta Connect

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RFID: an enabler of supply chain operations Mohsen Attaran School of Business and Public Administration, California State University, Bakersfield, California, USA Abstract Purpose – The desire to cut supply chain costs has made RFID technology one of today’s most discussed retail technologies. Given the current implementation pace, the objective of this paper is to go beyond the hype and explore basic issues related to RFID technology, including its promises as well as its pitfalls. Design/methodology/approach – The author provides a conceptual discussion of the evolution of RFID, addresses its capabilities and its application in various industries, discusses implementation challenges, identifies adoption phases, and reviews RFID’s success factors. Findings – RFID is the most recent prolific technology that provides supply chain collaboration and visibility. An RFID systems solution will increase corporate ROI while at the same time improving retail supply chain communication. Handled properly, RFID technology can result in an evolutionary change incorporating legacy systems with the real-time supply chain management of tomorrow. Its stumbling point seems only to be a variety of issues outside the technology itself: marketing problems, false promises, security and privacy considerations, and a lack of standards. Research limitations/implications – The paper was constrained by empirical evidence of, for example, technology deployment, adoption drivers, and success factors. Practical implications – The paper confirms the power of RFID – a technology in its infancy with as yet untapped potential for supply chain collaboration. It also examines some of the popular RFID products and services. Originality/value – The paper discusses implementation challenges, identifies adoption phases, and reviews RFID’s success factors. It identifies the biggest implementation challenge as the challenge for IT experts of determining how to integrate RFID with existing supply chain management (SCM), customer relationship management (CRM), and enterprise resource planning (ERP) applications. Keywords Supply chain management, Universal coding system, Tracking, Barcodes Paper type Conceptual paper

serve as the price tag. Consumers can count on the tag for warranty information after purchase. Mandates from powerhouses such as Wal-Mart, Target Corp., and the US Department of Defense that require suppliers to begin using RFID technology is expanding this technology into supply chain operations. Wal-Mart requires that its top 100 suppliers embed an RFIP chip on all pallets and cases of items delivered to Wal-Mart by January 2005. The next 200 suppliers are required to do the same by January 2006. By October 2005, the company plans to go “RFID live” in six new distribution centers and another 900 stores, as well as Sam’s Club stores (Krivda, 2004). Other retail firms such as Target have also required RFID tags on all cases and pallets that enter their supply chain. This aggressive schedule has pushed RFID technology into the forefront, with the entire industry responding accordingly. In the wake of retail and government mandate, AMR Research recently conducted a survey of 500 companies assessing the RFID market from 2005 to 2007 (Figure 1). Thirty-one percent of respondents surveyed are currently in full deployment or in pilot use, 69 percent are planning to evaluate, pilot, or implement RFID in 2005, with the average budget for RFID at more than $548K increasing to $771K by 2007. Only 18 percent have no plans for RFID implementation (Reilly, 2005). Given the current implementation pace, the objective of this paper is to go beyond the hype and explore basic issues related to RFID technology, including its promises as well as its

1. Introduction The unending cycle of rising supply chain costs impacts the bottom line of all players involved. Manufacturers, retailers and distributors consider supply chain cost reduction as a critical issue to be addressed in their business. This desire to cut supply chain costs has pushed radio frequency identification (RFID) technology – an e-tagging technology that can be used to provide electronic identity to any object. Speculation that a five-cent RFID tag will be available in the near future has made RFID technology one of today’s most discussed retail technologies. RFID is not a new technology. It was first used in the Second World War to identify friendly aircraft. However, the application of RFID to the supply chain is new. For a nominal price, a RFID tag is attached to the product in the initial stages of manufacturing that follows the product down the supply chain all the way to a retail setting, and finally into the hands of the consumer. There, it can again be scanned while in a box or crate, saving labor. In a retail setting, the tag can The current issue and full text archive of this journal is available at www.emeraldinsight.com/1359-8546.htm

Supply Chain Management: An International Journal 12/4 (2007) 249– 257 q Emerald Group Publishing Limited [ISSN 1359-8546] [DOI 10.1108/13598540710759763]

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Figure 1 State of RFID technology deployment

RFID technology originated in the 1940s, when the US Government used transponders to distinguish friendly aircraft from enemy aircraft. Through the 1970s, the federal government primarily used the systems for tracking livestock and nuclear material. Radio tags have been used commercially in so-called “closed loop” systems for delivering packages, handling luggage, tracking food in supermarkets and monitoring highway tolls in the 1980s and 1990s. In 1997, Mobil installed an RFID system called “Speedpass” that lets you wave the tag in front of the gas pump to record your transaction and debit your credit card. In 1980, the Bay Area Rapid Transit (BART) installed a RFID system to provide equal access to the system for disabled individuals. Under the new system disabled people were issued an ID tag at no charge. To operate the system, the disabled person holds the tag close to the reader to activate station elevators (Hackanson, 1991). RFID does not require the tag or label to be seen to read its stored data. RFID uses radio waves to capture data from tags, rather than optically scanning the barcodes on a label. RFID systems have three primary components: 1 the tag or transponder; 2 the reader; and 3 the computer.

pitfalls. Section 2 discusses the evolution of RFID, addresses its capabilities and its application in various industries. Section 3 discusses implementation challenges, identifies adoption phases, and reviews RFID’s success factors. Section 4 surveys the state of RFID’s application in various industries. Section 5 examines some of the popular products and services in this category. Section 6 evaluates the future of RFID technology including its challenges and opportunities. Finally, Section 7 summarizes the paper.

2. The evolution of RFID

2.1 The tag RFID tags are the chips that are embedded in the product, pallet, or case that store and transmit information about the specific unit. Tags are made of a hard copper coil consisting of an integrated circuit (IC) attached to an antenna then packaged into a housing device appropriate for the application. RFID tags are very rugged and come in several forms and sizes. Some can be as small as a grain of rice or one-third of a millimeter. Data is stored in the IC and transmitted through the antenna to a reader. RFID tags can be “passive” (no battery) or “active” (self-powered by a battery). Passive tags are more popular, less expensive, with a virtually unlimited life span. They do not have their own power supply but use the radiated energy from RFID readers to transmit information. Cost estimates range from $0.05 per tag to a projected $0.25 per tag. There is speculation that future development might bring the cost of passive tags down to $0.01 or less (Homs, 2004). Less popular and more expensive are active tags. Active tags are self-powered by a battery and act as miniature computers and transmitters that receive, store, and transmit information to the RFID reader about a product. The tag’s life span is limited, unless there is a way to recharge the battery. Active tags are relatively expensive – cost estimates range from $4 to $20 per tag. Tags also can be read-only, where stored data can be read but not changed; read/write, where stored data can be altered or re-written; or a combination, in which some data is permanently stored while other memory is left accessible for later encoding and updates. RFID tags can provide vast amounts of additional information compared to barcodes. Barcodes provide between 12 and 15 information characters, while most RFID chips use a 94-character protocol.

The service sector has been using barcode technology since the mid-1970s. Barcodes are a line-of-sight technology. That is, a scanner has to “see” the barcode to read it. Barcodes appear on almost every purchase, from soft drinks to automobiles. The code itself is made up of a series of wide and narrow parallel lines and spaces and can store as many as 20 to 30 characters per inch of coded information. That is enough space to store the Universal Product Code (UPC) for the item, which tells the computer to respond with the correct price for the item. In the UPS code, only the digits 0-9 are represented. Letters are not allowed. Barcodes are read with the help of a device called a reader or scanner. Over the course of the last 20 years, UPC has become the dominant product-tracking standard for the consumer packaged goods industry. The UPC was created by US manufacturers to negate the lure of much cheaper offshore manufacturing labor and was championed by industry retailing giants. UPC coding has paid off with improved product tracking over multiple retailers, reduced labor costs, and faster product replenishment. Research and development in barcoding technology has led to the development of the new two-dimensional code which contains a stack of as many as 90 one-dimensional barcodes, each just three-hundredths of an inch high. This new barcodes allows the user to maintain a large block of information about each product – manufacturer, cost, price, order size, weight, etc. High-speed laser scanners read the new barcode quickly and retrieve the information for continual monitoring. Barcoding has become very important for all industries, including both manufacturing and services. However some situations have environmental conditions, such as temperature, dirt, or hazardous contamination, that make optically scanning the barcodes on a label ineffective. In those cases a different technology, called radio frequency identification (RFID), is often prefered. RFID does not require the tag or label to be seen to read its stored data.

2.2 The reader RFID readers are radio frequency transmitters and receivers controlled by a microprocessor or digital signal processor that communicates with the tags. Readers using an attached 250



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antenna capture data from tags then pass the data to a computer for processing. In passive systems, readers transmit an energy field that “wakes up” the tag and provides the power for the tag to operate. In active systems, a battery in the tag is used to boost the effective operating range of the tag. Readers can have an effective range of a few centimeters to a few meters depending on the frequency of operation and the type of tags. Readers come in a wide range of sizes, offer different features and start at $500. They can be affixed in a stationary position, integrated into a mobile computer that is used for scanning bar codes, or even embedded in electronic equipment such as label printers (Homs, 2004). The information exchanged between RFID tags and readers is comprehensive, including everything from numeric data that summarizes the contents of a carton to the manufacturing details of complex goods such as pharmaceutical products (Figure 2).

the application of RFID technology to the supply chain is new. RFID technology faces implementation challenges. Implementing full-fledged systems in a large manufacturer can cost $13 million to $23 million. Considering the sheer cost of RFID implementation, there is no ROI for the technology if you only pursue compliance. However, there are tremendous cost savings that RFID technology can bring to supply chain operations. According to experts, it is not the compliance driving RFID technology; it is the overall saving opportunities. For example, using RFID technology, retailers can reduce the costs of receiving, inventory, and shrinkage by 11-18 percent, they can decrease the occurrence of out-ofstock merchandise by 9-14 percent, and they can cut logistics delays by up to 5 percent (Krivda, 2004). 3.1 RFID adoption phases Before deploying RFID system in your company, you need to determine where RFID will add business value and plan a scalable deployment approach. The following phases can help (Krivda, 2004): 1 Elementary phase (or slap and ship) – At this stage companies begin to learn about RFID technology and attempt to ensure nominal compliance with customer mandates. They put the RFID tags on a small sample of products and deploy them at a limited number of sites. At this stage, firms buy more time to learn how to manage the technology while they are making “Wal-Mart” happy. 2 Intermediate phase – Companies that have investigated RFID early move into the second stage and use RFID technology as a data collection agent. These companies apply RFID tags during production instead of afterward to streamline processes and decrease labor costs. They also use RFID for receiving goods and processing shipments, and sharing the data collected from these operations with back-office business systems. This creates additional efficiencies and extract value from a variety of supply chain processes. 3 Final phase – At this stage, ideally, all facilities will be RFID-enabled. Companies will uses the massive data generated by the RFID technology to understand customer demand and use the information to shape supply chain decisions. The power of RFID lets companies collect data in real time about how fast something is selling now. This optimizes profit across the supply chain.

2.3 The computer Data collected from tags is then passed through cable or wireless to host computer systems in the same manner that data scanned from barcode labels is captured and passed to computer systems for interpretation, storage, and action. 2.4 The standards ISO/IEC 15693 is a global standard for 13.56 Mhz RFID tags and reader electronics. The ISO/IE C 15693 protocol conforms to FCC (USA), ETSI (Europe) and MPT (Japan) regulations worldwide. The standard allows tags to travel around the world under optimal conditions for operation with region specific RFID readers (RightTag, Inc., 2004).

3. Implementation issues An important promise of RFID technology is to cut costs and deliver a wealth of information that helps firms more effectively understand, predict, and respond to customer demand. RFID is not a solution. It is an enabler that allows firms to change their supply chain processes for the better. As mentioned before, RFID is not a new technology. However, Figure 2 RFID tags identifying a pallet of trade items

3.2 RFID success factors In the past few years, the RFID technology has demonstrated benefits for hundreds of manufacturers and retailers. Some of the critical success factors that could influence RFID adoption for more companies are: . top management involvement; . partnership with competent technology providers; . integrating RFID into a company’s existing IT architecture; . integrating the data collected by RFID systems with a company’s back-office business software, such as enterprise resource planning (ERP) systems; . determining which practices should be incorporated into their RFID systems; 251

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coordinating the receiving, manufacturing, warehousing and shipping operations once information delivered from RFID is shared across the enterprise and plant floor; and proper staff training.

more days. The primary cause is a lack of visibility. The supply chain is all about matching inventory to orders. The RFID infrastructure provides better access to real-time data and enables in-store execution and visibility. This increased visibility can be used to create actionable requests for store personnel (Gruen et al., 2005). Organizations who take the time to understand the technology’s capabilities and limitations can increase their revenue growth, lower costs, reduce inventory, better utilize fixed assets, and gain favor with retailers. Some of the most important benefits that businesses are able to gain by embracing RFID technology include: . enhanced visibility into customer needs; . enhanced visibility along the supply chain; . accurate and timely asset tracking; . smart product recycling; . streamlined or better managed business processes within the company; . improved productivity by generating the fastest and lowest cost method of acquiring the data; . improved velocity by responding to demand signals faster; . better utilization of fixed assets, resulting in lowered capital asset requirements; . reliable and accurate order forecasts; . reduction in inventory costs including stock-out and holding costs; . improved technology return on investment; . improved accuracy by reducing the opportunity for human error; . increased productivity and dramatically reduced operating costs; . improved product quality and reliability including traceability; . improved supply chain management by better tracking transportation and warehousing channels; . improved counterfeiting identification, theft prediction, and faster recalls; and . gaining favor with retailers to better position products on shelves.

3.3 Factors influencing adoption RFID is a powerful technology that offers businesses increased supply chain and inventory visibility for greater operational efficiency, with reduced inventory and out-ofstocks. Supply chain management (SCM) systems are a combination of many applications that are tightly integrated. They automate the planning and coordination of a company’s supply chain from the gathering and tracking of unfinished materials and subcomponents, through manufacturing, inventory, shipment, and receipt of completed products at the customer’s loading docks. SCM systems have the analytical capabilities to produce planning solutions and strategic level decisions. Early adaptors of SCM systems have reported lower procurement costs, smaller inventories, shorter cycle times, faster response to the market, and reduction in forecasting errors. Nabisco and Wagmans, for example, noted over a 50 percent increase in category sales. Wal-Mart and Sara Lee reported an 18 percent reduction in inventory level, up to a 20 percent reduction in replenishment cycle, and a 40 percent more accurate forecast with a 32 percent increase in sales (Attaran and Attaran, 2004). Economic slowdown and the shock of September 11 created major stress for many supply chains. Companies were challenged to keep critical products and supplies moving, manage inventory levels effectively, maintain productivity, and keep emergency transportation costs in check. Despite the unexpected events and slowdown, many companies continue to initiate supply chain improvement initiatives. The reason? The growing recognition that excellent supply chain performance has strategic value that could lead to (Attaran and Attaran, 2004): . rapid financial payback, often within months; . improvements in productivity and profits; . improvements in customer positioning and product quality; and . enhancements in long-term relationships with suppliers.

4. Applications in various industries Factors such as mandate from major retailers, supplier collaboration, and the pursuit of perfect demand information have spurred the need for technology such as. Numerous case studies provide ample evidence of early success that companies in North America and Europe have had in implementing RFID technology. RFID is gaining broad appeal. RFID provides enhanced visibility into customer needs. Data generated by RFID technology can improve supply chain efficiencies across industries such as retail, manufacturing, distribution, healthcare, and government. According to Venture Development Corp., global shipments of RFID systems, including hardware, software, and services, reached nearly $965 million in 2002 and are expected to reach nearly $2.7 billion by 2007 (Bindra, 2004). Similarly, according to a study by Allied Business Intelligence Inc., the RFID market will jump from $1.4 billion annually last year to as much as $3.8 billion in 2008. By the same token, an International Data Corp.’s study indicates that spending on RFID technology used to track goods in retail supply chains will grow to nearly $1.3 billion in 2008. Last year, about $91.5 million was spent

Many companies have benefited from implementing RFID technology in their organizations. Supply chain cost that includes receiving, inventory, shrinkage, distribution, logistics delays, and out-of-stock merchandise is often cited as a major factor influencing RFID adoption. In addition, RFID has the ability to provide far more information than bar coding. This information can be used to improve inventory management at the retail store and along the supply chain. The result of more accurate and timely information is a much smoother and synchronized allocation of inventory to orders. Shelves stay stocked without increasing inventory levels or safety stock. Information is crucial to supply chain performance because it provides the basis upon which supply chain managers make decisions. The RFID technology enables management in a supply chain to capture and deliver information necessary to make a good decision. According to a recent worldwide study of causes of retail out-of stocks, on average retailers lose nearly 4 percent of sales to out-of-stocks. The out-of-stock impact is 50-100 percent higher for high-velocity items. Additionally, 55 percent of out-of-stocks last one to three or 252



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on chip-based tags and related hardware, software and services, according to IDC. RFID enables trading partners to collaborate more effectively, plan more accurately, and respond more rapidly up and down the value chain. RFID technology can help retailers reduce the cost of receiving, inventory, and shrinkage losses by 11_18 percent. It can also cut logistics delays by up to 5 percent, and can decrease the occurrence of out-of-stock merchandise by 9-14 percent (Krivda, 2004). According to Consultant Accenture, RFID technology could reduce the cost of checking inventory by 65 percent, in part by eliminating the need to physically count boxes (Gogoi, 2005). RFID technology is used in a range of applications, including access control to buildings, document tracking, livestock tracking and identification, vehicle security, pay-atthe-pump gasoline sales, product authentication, retail, sports timing, supply chain, ticketing, and wireless payment. More specifically, it has useful applications in the following industries: . Shipping and distribution – In this industry, RFID technology enables suppliers to accurately determine the location of a pallet, to track its journey through the supply chain, and to make instantaneous routing decisions. At a major trucking and logistics provider company, RFID tags are embedded in the fleet of 2600 trucks. At the service center, the tag automatically determines what loading/ unloading activities are needed and assigns an appropriate crew to service the truck (Intermec, 2004). . Retail industry – RFID technology offers a very significant advantage over bar coding. Wal-Mart’s initiative and move in using the technology was heralded as the most important tech development for retailers since the barcode. RFID tags continually gather information as products move from shelves to the checkout counter. The technology not only helps the retailer to reduce labor and manual costs, it also curbs shoplifting and boosts store productivity (Gogoi, 2005). The tags already help WalMart with reordering, stocking, and keeping track of purchases. According to an estimate, Wal-Mart can save $6.7 billion in labor costs alone from RFID implementation (Rockwell Automation, 2004). . Manufacturing sector – This sector has been finding different ways to derive value out of this technology. For example, manufacturers are using RFID product tracking mechanisms to ensure accuracy. Parts can be individually tagged and tracked throughout the manufacturing process while on the production line. Parts received from the production plant can be tracked throughout the assembly process. This certainly helps manufacturers with their carefully scheduled just-in-time (JIT) assembly lines. Tags containing equipment specifications can be attached to enable easy upgrading. Similarly, tags can be used to keep track of usage, availability, location, and maintenance of material handling equipment. Procter & Gamble (P&G), for example, believes that RFID technology can help the company to track where every item is in the manufacturing process and supply chain. P&G expects the cost saving of up to $1 billion in working capital and $200 million in inventory carrying costs. The savings on inventory will offset the cost of the RFID infrastructure and tags, and other savings will help P&G’s bottom line (Robbins, 2005).

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Agriculture, cattle and food production – Increased government regulation about food traceability in the USA and a mandate from the European Union (EU) for tightened traceability requirements beginning in 2005 has pushed RFID technology into food sourcing. RFID can help these traceability requirements at a reasonable cost. The technology should also reduce recall costs by increasing the ability of the manufacturers to identify and recall only the affected items (Homs, 2003). Similarly, RFID technology is used to secure the identification of cattle by means of inserting a tag into the stomach of an animal, enabling accurate records for automated farm management (Jain and Klastorin, 2004). Health care – RFID technology can be used in health-care industries to improve quality and reliability. In the US Navy, RFID tags, embedded in wristbands, are used to identify patients and update their status automatically. A British firm is using RFID tags to match blood samples to patients (Philips Semiconductors et al., 2004). Jacobi Medical Center is using RFID technology to track and manage assets, such as medical devices, and wheelchairs. Medications and dosages are tagged so doctors and nurses can ensure that the right medicine is given in the right amount at the right time to the right patient (Krivda, 2004). Pharmaceutical – The drug industry uses RFID technology to self-police in the fight against thieves and counterfeiters. For example, Purdu Pharma, the manufacturer of the popular painkiller OXYContin, is using RFID tags to track shipment of its theft-prone drug. Pfizer is planning to put the radio tags on bottles of its widely counterfeited Viagra drug by the end of 2005. With RFID tags, pharmacists will be able to identify counterfeit drugs and law enforcement officers also will be able to quickly check whether bottles they recover have been reported stolen. The US Food and Drug Administration is requiring the drug industry to deploy RFID labels by 2007 (Patton, 2005). Government – This sector is another emerging application area for RFID. Government agencies are using RFID technology for supply chain management, inventory, security, and military strategies. The Army uses tags on supply containers for detecting shock and variances in temperature. These tags have a range of up to a mile to enhance supply management capabilities. The Navy, on the other hand, uses RFID tags for weapon management, with a range of less than six inches to protect sensitive data. Weaponry data collected by RFID tags reveal anything from materials to capabilities and mission details (Aitoro, 2005). The Department of Defense is requiring suppliers to deploy RFID tags on cases and pallets they deliver to the department by January 2005. The department will use the technology to track packaged meals, chemical and biological warfare suits, as well as on supplies moving from military distribution centers to tactical forces (Bacheldor, 2003). Gaming industry – This industry has been finding other ways to derive value out of this technology. For example, the Wynn Las Vegas Casino is using radio tags on betting chips to deter counterfeiting, card-counting and other illegal behavior. Casino executives envision RFID transforming the way they operate table games. The casino is installing RFID readers and PCs at game tables.

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Dealers can take a quick inventory of chips that have been wagered. In addition to monitoring wagers, the technology will let dealers or cashiers see when the value of the chips in front of them does not match the scanners’ tally. The casino industry is also planning to use the technology to help casinos keep tabs on how much players bet and how long or often they play for incentive programs. For example, Hard Rock Hotel plans to use its RFID system to monitor gamblers to reward good customers with free rooms, meals, or other perks based on how much and how often they wager. RFID is giving the casino a more accurate and efficient tool to rate players and allow casinos to be more aggressive (Gilbert, 2005). Security industry – Giant retailers and manufacturers aren’t the only adopters of RFID technology. RFID seems to be moving quietly into the people-tracking realm, especially in the area of monitoring children. Lauren Scott of California, the $2 million-a-year apparel company, will launch a line of pajamas with RFID tags sewn into the hems. RFID readers installed at various points throughout a house will be able to scan the tags within a 30-foot radius, and will trigger an alarm when boundaries are breached. The passive tags that Lauren Scott will insert in the sleepwear collection cost less than 30 cents each. RFID readers required to work with the tags will be priced at about $500. The company will introduce the sleepwear in its spring 2006 collection. An estimated 250,000 pieces will be shipped to various retail stores, including Target Corp., in December and are expected to be available to consumers by February (Sullivan, 2005).

Moreover, in October 2005, Wal-Mart announced that an independent study by the University of Arkansas found the retailer was able to reduce out-of-stocks by 16 percent by tracking cases of goods with RFID tags. The study also showed that out-of-stock items with RFID tags were replenished more quickly than comparable items labeled only with barcodes. This study is the first to compare the impact of RFID tags on merchandise availability in RFIDenabled stores (Roberti, 2005a, b). This was the most indepth analysis of Wal-Mart’s RFID project and it shows that there are benefits. There has been a great anticipation about the success of RFID use for Wal-Mart’s largest suppliers. Recent research published by Incucomm, Inc. painting a positive picture regarding Wal-Mart’s RFID deployment is likely to get the attention of other retailers. Incucomm, Inc. conducted a market research study during the November and December of 2004 to explore preparations by 137 firms that are supposed to ship RFID tagged goods to Wal-Mart in 2005 (Incucomm, Inc., 2004). They found some surprising facts, including: . active resistance was much less common than has been anticipated; . spending per vendor has been far less than projected; . the most promising areas of ROI for Wal-Mart and its suppliers may be achievable by mid-2005; and . the study found many firms achieving 100 percent read rate success. The initial saving of RFID-enabled stores encouraged WalMart to expand its RFID tagging requirements. The company is working with suppliers that are not tagging all of their stockkeeping units and asking suppliers to ship to distribution centers and stores in other parts of the USA that have been RFID-enabled. Wal-Mart is also moving ahead with plans to require an additional 200 suppliers to begin tagging specific items. These requirements will generate significant activity and give a boost to RFID technology and service providers that have been growing frustrated at the slow pace of adoption (Roberti, 2005a, b). Another reason for possible growth of RFID is that the technology can be used as a “closed-loop RFID”. In this approach, RFID technology is used across the enterprise on projects designed to enhance internal corporate applications rather than supply chain operations that share data with other business partners along the supply chains. “Closed-loop RFID” can help streamline a business process, enhance visibility into what customers need, and improve productivity by generating the fastest, lowest cost method of acquiring the data within the boundaries of a company.

5. RFID products Recently, there has been a significant growth in demand for the chips used in product tagging. Companies are beginning to emerge with products supporting RFID technology. The endorsement of giant retailers and growing awareness of RFID benefits will continue to persuade more companies to explore the opportunities. Some innovative companies, including Intel, along with SAP and IBM, are working with academic and industry leaders to develop the IT processes and applications to improve efficiency in the retail supply chain, with a particular focus on RFID applications (Intel, 2004b). Table I summarizes some popular products in this category.

6. A look ahead 6.1 Opportunities With mandates from powerhouses such as Wal-Mart, METRO Group, Target, the US Department of Defense and others that require near-term RFID use for their largest suppliers, the future of RFID is arriving fast. In addition, recent technology advances and a strong industry-wide commitment to standards and investment point to a bright future. Furthermore, the large companies that are among the early adopters have experienced some positive results. For instance, Wal-Mart expects to achieve $8.4 billion in annual savings. This is greater than the total revenue of half of Fortune 500 companies combined (Rockwell Automation, 2004). Table II summarizes the benefits and initial savings estimates to WalMart.

6.2 Challenges Although RFID has enormous potential for reducing the total costs of the supply chain, there are also a number of reasons at the fundamental and technical levels for its delayed acceptance: . Fundamental – The business benefits RFID technology promises will not arrive with a big bang. There must be incentive for retailers and manufacturers to adopt the technology. Similarly, there is the question of the “drivers” for adaptation. In a recent AMR Research survey of 500 companies, a majority of survey respondents cite significant challenges in finding the return on investment (ROI) to justify their RFID spending. Twenty-eight 254



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Table I RFID products for supply chain Name/company

Features

Texas Instruments (www.ti.com/)

The Sensors & Controls segment of TI designs and manufactures sensors, electrical and electronic controls, and radio frequency identification (RFID) systems. Its RFID systems consist of a transponder, receiver, and other components, such as antennas Zebra has long been helping companies with barcode printers and smart label compliance solutions. Now, Zebra offers RFID printer/encoders and smart labels to users in a variety of industries, including manufacturing, healthcare, hospitality, retail, security, and warehousing Printronix, Inc. has been providing intelligent industrial and back-office enterprise printing solutions for the industrial marketplace and distribution supply chain for 30 years. Recently, Printronix has adapted new technologies to create SmartLineTM: RFID printers enable encoding and printing of various label sizes and antenna designs for a variety of uses in different industries Datamax is headquartered in Orlando, FL, and specializes in the design, manufacture, and marketing of products for barcode and RFID labeling including thermal demand printers, label, ticket and tag materials, and thermal transfer ribbons. Datamax markets its products exclusively through a network of resellers in more than 100 countries world-wide ThingMagic LLC is a leading developer of radio frequency identification (RFID), sensing and embedded computing technologies. Its new product, Mercury4, launched in June, is an RFID reader technology that supports both multiple protocols and multiple antennas, and uses advanced software-defined radio technology to read any tag, with no compromise in performance M/A-COM, Inc., is a business unit of Tyco Electronics and a leading provider of wireless radio frequency (RF), microwave and millimeter wave components. Holding hundreds of patents in the field, M/A-COM currently serves wireless telecommunications, aerospace and defense, and automotive markets Intel’s microprocessors power the systems and networks that gather and manage RFID data. Intel is deeply involved in driving open standards and distributed computing architecture that will make RFID an affordable, reliable and fully interoperable technology

Zebra (www.zebra.com) Printronix, Inc. (www.printronix.com)

Datamax (www.datamax.com)

ThingMagic LLC (www.thingmagic.com)

M/A-COM, Inc. (www.macom.com) Intel Corporation (www.intel.com/)

Table II Initial saving estimates to Wal-Mart Process Labor costs reduction (no barcode scanning required) Out-of-stock supply chain cost reduction Theft reduction Improved tracking through warehousing and distribution centers Reduced inventory holding and carrying costs Grand total

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Total saving ($) 6.7bn 600m 575m 300m 180m 8.4bn

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percent cite it specifically as their biggest obstacle with regard to RFID adoption (Reilly, 2005). A return on investment (ROI) is not always a straightforward calculation. What promotes a desire on part of buyers and suppliers to collaborate using RFID? From a supplychain, manufacturing, or warehouse standpoint, RFID technology still has limited applications. Uncertainty around standards (a lack of standards maturity) and high capital costs will also need to be addressed before retailers can adopt and benefit from the technology. Technical – Among the technical problems are imperfect read rates, unproven systems, and conflicting problems with assembling low-cost tags. Given that tag prices are now half what they were a year ago, RFID is still more expensive than barcodes, and there are problems using the tags on metal objects. To reduce tag cost is to reduce the size of the chip. However, reductions in the size of the chip make assembly more expensive. Another problem is that

RFID creates huge volumes of data that are difficult to manage. According to an estimate an RFID system could generate 10-100 times the data of conventional barcode systems, causing a huge increase in the daily volume of data on the corporate IT system. Recently, RFID retailers have made a great deal of noise about the massive hardware costs required to deal with the mountains of data created by RFID systems. The solution lies in implementing a proper data-management system that can analyze huge amounts of data quickly (Winans, 2005). Organizational – Handled properly, a RFID system can result in an evolutionary change incorporating legacy systems with the real-time supply chain management of tomorrow. IT experts must determine how to integrate RFID with existing supply chain management (SCM), customer relationship management (CRM), and enterprise resource planning (ERP) applications with the entire system. Proper integration will increase corporate ROI while at the same time improving retail supply chain communication.

Despite the above challenges, the future of RFID technology will hold exciting opportunities for almost every business. It is expected that over the next ten years, retailers will continue to use barcodes and gradually introduce RFID tagging. When the price of tags becomes economical enough, it is expected that RFID will take off in other venues. For an ultimate example: if the tag cost only a penny or two, it could be placed on supermarket products, and everything in the shopping cart, except produce, could be read at once. On the technical front, several companies are collaborating to develop an active tag that can transmit signals up to 600 feet. These active tags have numerous applications in the 255



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retail industry and will move fast into the people-tracking realm. They are being considered in the case of body recovery for identification purposes. For example, these tags would be inserted into vests, jackets, and leg-wraps for hikers, bikers, and skiers, as well as law enforcement and government personnel. If clothing were separated from the individual, the RFID tag would give law enforcement information as to whom it belonged (Sullivan, 2005). Some innovative companies are also working with academic and industry leaders and are using hardware and software to develop powerful integrated RFID solutions. For example, Intel, along with SAP and IBM, are the primary technology leaders in Future Store Initiative, which has piloted the use of RFID-based inventory management and “smart shelf”-based replenishment. Intel is also working with Procter & Gamble to implement RFID throughout its supply chain and explore ways RFID can enhance the shopping experience by reducing the number of out-of-stock items, ensuring products are on the shelf when consumers want to buy them (Intel, 2004a). Finally, without a set of global RFID standards, companies such as Wal-Mart, Target, and Home Depot cannot fully reap the benefits of RFID technology. Many large US and European companies have already embraced a set of RFID standards. However, China has not yet adopted the “international” standards and has indicated that it intends to chart its own course. Nonconformity by China or other Asian countries may lead to a proliferation of regional standards that ultimately limit the potential benefits of RFID (Harmon and Downey, 2005).

individual’s movements and profiling an individual’s habits, among others. Important security concerns include data confidentiality, integrity, and availability. RFID technology can be a useful tool in supply chain management system. Organizations who take the time to understand the technology’s capabilities and limitations can increase their inventory visibility while streamlining their operations. The key is to go beyond the first level of elementary phase or “slap and ship” implementations to systems that intelligently use the information supplied by RFID tags. According to Joe Owen, RFID program manager, Rockwell Automation, “RFID is less an issue of technology and more an issue of information flows and business process change” (Robbins, 2005). Industry members, however, have become painfully aware of these problems and are trying to do something to remedy the mistakes of the past. If they are able to successfully unify the industry with standards, deliver on future promises, combine RFID with existing manufacturing information systems, and convince end users of the technology’s benefits, then RFID’s future looks favorable. At the current stage, this RFID industry needs to focus on a team effort between integrators, end users, and manufacturers.

References Aitoro, J. (2005), “Govt. gets in on RFID action”, VARBusiness, March 21, p. 24. Attaran, M. and Attaran, S. (2004), “The rebirth of reengineering: x-engineering”, Business Process Management Journal, Vol. 10 No. 4. Bacheldor, B. (2003), “Defense Department schedule RFID pilots”, Information Week, December 22, p. 24. Bindra, A. (2004), “Accelerating the adoption of radiofrequency identification or RFID”, RFDESIGN, available at: http://rfdesign.com/mag/radio_accelerating_adoption_ radiofrequency/ Gilbert, A. (2005), “Vegas casino bets on RFID”, CNET Networks, Inc., San Francisco, CA. Gogoi, P. (2005), “Retailing, the high-tech way”, Business Week, July 6. Gruen, T., Corsten, D. and Bharadwaj, S. (2005), “Retail out-of-stocks: a worldwide examination of extent, causes and consumer responses”, available at: www.ecr-academics. org/pdf_uploads/50_GruenCorstenBharadwaj2002.pdf Hackanson, W. (1991), “Automatic identification for the disabled”, Mass Transit, May/June, pp. 45-7. Harmon, C. and Downey, L. (2005), “RFID: will China throw a monkey wrench?”, Business Week, September 12. Homs, C. (2003), “Regulations means RFID tags for tracing food”, Forester Research, Inc., Cambridge, MA. Homs, C. (2004), “Exposing the myth of the 5-cent RFID tag”, Forrester Research, Inc., Cambridge, MA. Incucomm, Inc. (2004), “Wal-Mart’s RFID deployment – how is it going?”, available at: www.mindbranch.com/ catalog/product.jsp?partner ¼ 110&code ¼ R627-0002 Intel (2004a), “RFID: what does it mean? What should I do?”, available at: http://intel.com/business/bss/industry/ government/rfid_pov.pdf Intel (2004b), “Intel in RFID technology”, online at: http:// intel.com/business/bss/technologies/rfid/rfid_backgrounder. pdf

7. Conclusions RFID technology is firmly establishing itself as the way forward for successful and sustainable supply chain operations. The promise of RFID technology is to help companies succeed in moving goods around efficiently, to cut costs and deliver a wealth of information that helps companies more efficiently predict and respond to customer demand. RFID is the most recent prolific technology that provides supply chain collaboration and visibility. Order visibility is the touchstone of concurrency. The opportunity to concurrently have many people acting on problems has tremendous benefit not only for the planned order, but also for the unplanned order. An RFID systems solution will increase corporate ROI while at the same time improving retail supply chain communication. Handled properly, RFID technology can result in an evolutionary change incorporating legacy systems with the real-time supply chain management of tomorrow. The challenge for IT experts today is to determine how to integrate RFID with existing supply chain management (SCM), customer relationship management (CRM), and enterprise resource planning (ERP) applications with the entire system. Today, many companies have embraced RFID and are beginning to generate real business benefits from the technology. Many regard RFID as a technology in its infancy with as yet untapped potential. This assessment seems true. The technology has many benefits to offer. Its stumbling point seems only to be a variety of issues outside the technology itself: marketing problems, false promises, poor management and execution of RFID efforts at the plant level, security and privacy considerations, and a lack of standards. Key privacy concerns include tracking an 256



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Intermec (2004), “RFID tags for trucking pallets and reusable containers”, white paper, December, Intermec, Everett, WA. Jain, A. and Klastorin, T. (2004), “RFID: management’s latest headache or miracle cure?”, E-Business Review, Fall. Krivda, C. (2004), “RFID after compliance: integration and payback”, Business Week, December 20. Patton, S. (2005), “The drug industry self-policing with RFIDs”, CIO Magazine, February 1. Philips Semiconductors, Tagsys and Texas Instruments, Inc. (2004), “Item-level visibility in the pharmaceutical supply chain: a comparison of HF and UHF RFID technologies”, white paper, July. Reilly, K. (2005), “AMR research survey finds 69% of respondents plan to evaluate, pilot, or implement RFID in 2005”, press release, AMR Research, available at: www. amrresearch.com/Content/View.asp?pmillid ¼ 18470&docid ¼ 12731 RightTag, Inc. (2004), “RFID FAQ”, available at: www. righttag.com/RFIDInfo.html Robbins, R. (2005), “The business benefits of RFID”, A-B Journal, June. Roberti, M. (2005a), “EPC reduces out-of-stocks at WalMart”, RFID Journal,, October 14. Roberti, M. (2005b), “EPC’s momentum is about to pick up”, RFID Journal,, October 17. Rockwell Automation (2004), “RFID in manufacturing”, white paper, March, Rockwell Automation, Inc., Milwaukee, WI. Sullivan, L. (2005), “Apparel maker tags RFID for kids’ sleepwear”, Information Week, July 13.

Winans, A. (2005), “Sink or swim?”, RFID Journal, December 12.

About the author Mohsen Attaran is a Millie Ablin Outstanding Professor of Management at California State University, Bakersfield. He obtained his PhD in Systems Science with a specialization in Operations Management and Business Forecasting from Portland State University. He is the author/co-author of three books, over 80 papers, and ten commercial software packages. He has taught in the USA, Europe, Mexico, and the Middle East, and was a three-time recipient of the MPPP (Meritorious Performance and Professional Promise) award for outstanding performance in teaching, research and community services. He has been involved in professional designation programs with a few companies including the Industrial Management Institute, where he designed five courses in their Project Management certificate program. Professor Attaran has been a consultant for public and private organizations and has conducted numerous in-house workshops and seminars for Caltrans Environmental Branch Managers, Chevron Western Business Unit, Shell Oil Co., Texaco USA, Bakersfield Division, Arco Oil and Gas, Contel, Computer Science Corp., Phillips Laboratory, Mission Energy, Bechtel, Corps of Engineers, and Edwards Air Force Base. His research interests include global manufacturing, management of technology, operations strategy, project management, continuous quality improvement, and managing the total quality transformation. Mohsen Attaran can be contacted at: [email protected]

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