The Impact of RFID on Supply Chain Performance

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The Impact of RFID on Supply Chain Performance

Tony Gale, Divakar Rajamani, Chelliah Sriskandarajah The School of Management,

University of Texas at Dallas, Richardson, Texas, USA 75080

Abstract

RFID presents a great opportunity for leaders to take their supply chain performance to a superior level.

However, it does not come without risks which could delay the adoption of this technology. In this paper,

we propose a framework for companies to identify their role, typical pain points and performance metrics

to focus on to maximize impact. In addition, we identify the top ten challenges/risks that companies

should consider and an assessment matrix approach to prioritize the risks followed by an implementation

roadmap for faster adoption. Finally, the paper summarizes the current implementations in progress and

their expected benefits.

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1. Introduction

Radio Frequency Identification (RFID) technology offers the potential to greatly improve supply chain

performance due to its ability to provide rich and timely information that increases visibility and control

over the supply chain. However, many companies are hesitant to integrate this technology due to their

lack of confidence in justifying the Return on Investment (ROI). Numerous sources state that attaining a

short-term ROI from RFID is difficult and that implementation need to focus on longer-term, multi-year

payback periods to achieve ROI objectives (Brandel, 2003; Witt, 2004; Maurno, 2005; Roberti, 2004;

Supply and Demand Chain Executive, 2004). According to Maurno (2005), a recent study showed that 95

percent of suppliers to Wal-Mart didn't expect ROI in less than two years and that many didn't think

they'll see ROI in four or five years (if ever). This illustrates that RFID presents a differing value

proposition depending on the position within the supply chain, e.g., Wal-Mart, as a retailer, sees strategic

value and significant long-term ROI in full RFID implementation particularly from avoiding loss of sales

from out-of-stocks, whereas some of its suppliers think of RFID as a cost of doing business and are

approaching compliance with a “slap-and-ship” mentality without more detailed examination of the

potential long-term term benefits to their own inventory management.

For example, according to Quagliariello (2004), RFID in its early stages will typically add costs to the

Supply Chain. Even Gillette, one of the first to adopt RFID technology, noted a break even with the use

of tags in one of their facilities despite that the RFID tag price they got from their $500 million tag

purchase from Allien was considerably lower than the usual minimum price of 20 cents. However

vendors still expect to see ROI when these trade partners start to share information about their own supply

chains. (Zaragoza, 2005).

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However, some companies cite that there are short-term benefits to be gained such as improved lot

tracking, better recall management and streamlined shipping and receiving (Haley, 2004) if the business

case is assessed beyond merely complying with RFID mandates. The reason for this relates to existing

challenges relating to standards, investment expense and the complexity associated with changing

business processes. However, as standards emerge, and equipment costs decrease, ROI should become

less elusive in the short term, as evidenced from the evolution of barcodes from being compliance-driven

into a critical business process asset.

Also, certain industries are more amenable to ROI than others, for example pharmaceutical

implementation are expected to be able to yield short-term benefits from combating the estimated US$1

billion to US$12 billion loss from counterfeit drugs (Bright, 2004; Harris, 2004). This is encouraged by

U.S. FDA (Food and Drug Administration) guidelines which specifically recommend that pharmaceutical

manufacturers work with their trading partners to improve supply chain visibility by attaching RFID tags

with EPCs at the pallet, case and package level. The goal is to enable "instant verification" and rapid

location of every item in the supply chain. RFID also has had successes with increasing logistics service

levels in the automotive industry; Toyota, Ford and QSC Audio Products have been able to streamline

sourcing and manufacturing (Karkkainen and Holmstrom, 2002).

In addition, ROI could be significant. In an example of ROI from a case study on RFID linked supply

chain cost structure compared to barcode driven supply chain cost structure revealed an overall 55%

average cost reduction from reduced inventory due to visibility in the supply chain and overall 30%

average cost reduction from improved asset utilization including accounting for capital and system

development costs of RFID (Datta, 2001).

A key factor to realizing short-term ROI will result from RFID driving changes of business processes

where ROI will come not from the technology itself, but as a result of the new business processes and

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information sharing (Quagliariello, 2004). To gain the biggest benefits of RFID, companies will have to

reexamine how supply chain decisions are made, and reengineer processes, which will require a deeper

understanding of how RFID impacts supply chain dynamics and decision making (Veeramani, 2005).

The objective of this paper is to provide a framework to understand the role of various entities in the

supply network, identify the potential impact and benefits of RFID on their supply chain performance,

identify the top ten challenges, and provide a challenge assessment matrix approach to minimize the risk

and a suggested implementation roadmap for successful adoption. In addition we also provide a summary

of benefits of RFID from an industry perspective and current implementations in progress and their

expected results.

The paper is organized as follows: Section 1 provides the motivation for this paper. Section 2 provides an

overview of supply chain entities, typical pain points, key metrics, actions and desired outcomes. In

Section 3, we briefly review the history of RFID and provide a primer on how RFID systems work. In

Section 4, the application of RFID to supply chain performance is discussed from both a supply chain

entity and industry perspective. Specific implementation examples are then given in Section 5. In Section

6, we present the top ten challenges facing RFID implementations and offer a matrix based approach to

assessing the magnitude of these challenges. In Section 7, we provide a roadmap for approaching RFID

implementations. The paper then concludes in Section 8 with a summary and discussion of role of RFID

in maximizing supply chain performance.

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2. Supply Chain Performance

The end-to-end supply chain can be defined as the network of entities (retailers, distributors, transporters,

storage facilities and suppliers) that participate directly or indirectly in fulfilling a customer request

(through the production, delivery and sale) of a particular product or service. Supply Chain performance

depends on effective and efficient management of information about inventory (raw materials,

components, finished goods, and replenishment), assets (resource capacity, labor, and tools), and location

of goods in transit and forecasted, actual end user-demand (Figure 1) and movement of finances.

Figure 1: End-to-End Supply Chain Performance

The pain points for various entities across the supply chain are typified by factors such as: Out of stocks

and consequent loss of sales; inventory shrinkage including theft, counterfeit, misplacement and search

costs; overstock holding costs such as inadvertent stock, redundant safeties, obsolescence, expiration;

Insufficient visibility and resultant bull-whip effects; lack of visibility of parts in shelf (e.g. number, type,

history, location incurring additional search costs); lack of responsiveness to product demand shifts,

recalls, customer expectations; insufficient speed of order to delivery and supply chain integration;

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inefficient distribution resulting from factors such as excessive search times; supply chain costs resulting

from claims / charge backs for inaccurate deliveries; product life cycle analysis and inefficient fault

source identification; and asset (resource capacity) management. According to Gromley and Hook (2005)

sources of value can be defined as first order impact which involves reduction of labor in every operation

at the distribution center – receiving, put away, picking, shipping – leading to a reduced inventory

shrinkage and second order impact relating to the use of RFID to drive more shareholder value. At the

highest level, finding value on the cost side means taking into account operating efficiency and asset

utilization. Looking at the revenue side, there is potential for revenue creation through better inventory fill

rates and improved customer service. Gromley and Hook (2005) also maintain that companies should not

seek a single “killer application” for RFID to get the maximum return on investment. Rather, there are

multiple benefits, the magnitude of which does not necessarily correlate to the size or technical

sophistication of the organization.

Supply chain performance is driven by business processes that are used to produce and deliver products

and services that meet customer expectations better than the competition. The effectiveness of business

processes can be quantified using three performance measures; financial, external and internal (Anupindi

et al., 2006). It is the organizational ability to successfully align internal business process measures with

external and financial measures that is critical to achieving superior performance. While the external and

financial metrics are lagging indicator of the supply chain performance, the internal metrics are typically

at an operational level and are more proactive. In this paper, the emphasis is on identifying internal

operational metrics to achieving superior performance.

Knowing what, where and when inventory assets are available in real-time and where and how fast they

can be shipped presents significant opportunities to improve supply chain performance. From an internal

business process perspective this can be achieved by reducing inventory through improving visibility,

control, replenishment, and forecasting; reducing cycle times by improving processes, efficiencies, and

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removing bottlenecks; improving resource utilization by automating, reducing redundancy, increasing

efficiency; increasing service levels and adding repeat customer business and new revenue; and

improving quality by attaining more accurate inventory enabling more rapid product fault tracing and

correction.

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These key operational metrics and the actions related to overcoming typical supply chain pain points to

accomplish them are summarized are summarized in Table 1.

Key Metric Action and Desired Outcome

Reduce Inventory (I)

• Increase inventory accuracy • Reduce inventory holding costs; inadvertent stock, redundant safety

stock, overstock, miscoded SKUs (stock keeping units) • Reduce inventory shrinkage (theft, gray market counterfeit,

misplacement) • Reduce out-of-stocks and subsequent loss of sales • Reduce reorder quantities and target inventory levels • Reduce bull whip effects by real-time information sharing • Reduce expired time-sensitive or product lifecycle obsolescent goods

Reduce Cycle Time (C)

• Accelerate product velocity (increase speed of order to delivery cycle time and supply chain integration)

• Eliminate distribution bottlenecks • Improve inefficient business processes (automate, streamline) • Improve product life cycle analysis • Improve cash conversion cycles

Improve Resource (R) Utilization

• Reduce labor costs; Automate manual inventory management tasks • More rapid, automated, accurate cycle counts • Reduce search and reconciliation activities for misplaced SKUs • Reduce labor and space requirement due to inadvertent excess stocks

(time-on-floor and quantity) • Improve inventory efficiency (inventory throughput per labor hour)

Improve Quality (Q)

• Reduce inbound mis-shipments, in-coming manual coding errors • Reduce outbound mis-shipments, out-going manual coding errors • Inter-company error reductions • Decrease claims record / charge backs for inaccurate delivery with

better visibility, better fault source identification • Anti-counterfeiting protection • Reduce reverse supply chain costs; claims / charge backs for

inaccurate deliveries and product recalls Improve Service (S)

• Improve defect product, in-store / building tracking and recall management

• Improved In-Store Replenishment / Forecasting / Improved shelf availability

• Accelerated payment transactions • Improved work in progress tracking • Improve responsiveness to product recalls. • Enable mass product customization by integrating customer usage and

product information in adaptive CRM, SCM and PLM applications

Table 1: Key Supply Chain Operational Performance Metrics and Related Objectives

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From an operational perspective supply chain performance stands to benefit most from the ability of

RFID to greatly improve inventory visibility as well as to provide more accurate and timely information

on both the supply and demand side. For the end to end supply chain improvement, it is important for

various entities to be aligned in terms of their metrics. An example of the metrics focus by each entity

and by industry are shown in Figures 2 and 3. While this may not apply universally to all entities or

players in various industries, such an analysis is strongly suggested. The net result of such analysis is the

ability to improve operational and financial performance and to respond more effectively to external

factors including competitors, suppliers, customers, regulatory requirements and compliance mandates.

Figure 2: Differing operational metrics emphasis by supply chain entity

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Figure 3: Differing operational metrics emphasis by industry

3. About RFID

In this section we provide a brief review of the history of RFID technology, and a primer on RFID

systems, their advantages over bar codes, and how they work to provide context for the reader.

3.1 RFID History

Radio Frequency Identification (RFID) was originally used by the military to identify friend or foe

aircraft (IFF) during the Second World War (Glidden et al, 2004; Robertson and Jalaly, 2003; Manhattan

Associates, 2003). Commercially, the technology was applied from the 1980s onwards with increased

acceptance by the mid-1990s for use with keyless entry and smart tickets, document information and

smart stamps, badge readers, automatic highway and bridge toll collection, and offender tags, tracing

livestock movements, tracking and control of nuclear inventories, tracking air freight and automobile

manufacturing through assembly lines (Jones et al, 2004), railroad and military asset tracking (Glidden et

al., 2004), law enforcement, libraries and health care.

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Most recently, compliance mandates by the U.S. Department of Defense and Wal-Mart® requiring

suppliers to use EPC RFID tagging on pallets and cases by January 2005 have provided a strong push to

mainstream the adoption of RFID in the supply chain, especially by manufacturers and distributors.

3.2 RFID Primer

RFID provides a means to automatically identify and track items using tags that provide information in

real-time about their identity, location, activity or history which is then processed and utilized by

application software. RFID systems for the supply chain emphasize tagging of pallets, cases and (in

certain situations) individual items. In contrast to bar codes which are used by over a million firms in over

140 countries and 23 industries (Riga, 2004), RFID employs radio frequencies to transmit data to readers

within a certain distance. RFID also offers several key technological advantages over bar codes (Glidden

et al., 2004; Chen, Y., 2003; Riva, 2004):

• Barcodes require optical line of site, and are blocked by many materials transparent to RF;

• Barcodes are fixed at the time of printing compared to read-write RFID tags;

• RFID tags are more abrasion and heat resistant and readable through dirt, paint and some plastics;

• Barcodes can be spoofed by malicious individuals having access to a laser printer;

• RFID more completely automate data handling and reduce paper with greater overall efficiency;

• RFID has the ability to read multiple tags simultaneously with greater speed and efficiency;

• Identifiers offer no ambiguity with absolute uniqueness many orders of magnitude greater than

the UPC system which enables traceability of goods not otherwise possible; and

• Re-writeable RFID tags can be reused for multiple applications lowering cost of ownership.

The key benefit presented by RFID over bar codes is being made possible by the internet and its

underlying information infrastructure. The richness and timely availability of information about the

location and status of goods worldwide to manufacturers, distributors and retailer (rather than the tag or

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reader) is motivating retailers such as Wal-Mart and the US Department of Defense, to mandate the use of

RFID by top suppliers (Glidden et al., 2004).

HighJump SoftwareTM (2004) described systems as consisting of 5 main components: tags, readers,

encoders, middleware and application software; each of which is briefly summarized below:

(i) Tags (also known as Transponders) - An RFID tag consists of an integrated microchip and an

antenna that transmits data wirelessly to a reader. The chip contains a unique serialized identifier that

contains information such as the manufacturer, batch or lot number, weight, ownership, destination and

history. Tags come in a variety of types, with a variety of capabilities, examples including:

"Read-only" versus "read-write": “Read-only” (class 0) tags contain data such as a serial

number, which is pre-written by the tag manufacturer or distributor and are generally the least

expensive. Updates to that information are maintained in the application software that tracks SKU

(stock keeping unit) movement and activity. "Writeonce" (class 1) tags enable a user to write data

to the tag one time in production or distribution processes. Full "read-write" (class 2, 3, and 4)

tags are the most costly and allow new data to be written to the tag as needed and even written

over the original data. However, they are not currently practical for tracking inexpensive items.

Data capacity can range from 16 bits to as much as several thousand bits. Greater capacity is

associated with higher price.

Form factor (size, shape, sensitivity etc.) of the tag and antenna structure vary and can either be

self-contained or embedded as part of a traditional label structure and depend on the physical

products and operational environment.

Passive versus active “Passive” (class 0, 1 and 2) tags have no battery and "broadcast" their data

only when energized by a reader. "Active" (class 3 and 4) tags are capable of broadcasting their

data using their own battery power. Read ranges are generally much greater for active tags than

passive tags (approximately 100 feet versus less than 15 feet for most passive tags). Active tags

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are more expensive than passive tags are currently more suited for applications where long read

ranges are required and tag costs are low compared to items of high value.

Frequencies There are various RFID ranges: low-frequency (125 KHz or 134 KHz), high

frequency (13-56 MHz) and emerging ultra high frequency (UHF) tags operating between

300MHz to 1GHz and beyond. Most RFID applications have used low-frequency or high-

frequency tags, not UHF (Glidden et al., 2004; Walko, 2004). There are trade-offs between cost,

performance and application requirements. Low-frequency tags are cheaper, use less power, and

are better able to penetrate non metallic substances and more suited for objects with high water

content at close range. UHF tags have better range, use more power, higher data transfer, and are

more suited for use with wood, paper, cardboard or clothing products.

EPC (Electronic Product Code) Tags

The structure of EPC tags was first developed at the Auto-ID Center at the Massachusetts

Institute of Technology, and is now managed by EPCglobal ((www.epcglobalinc.org), a not-for-

profit Joint Venture between EAN International and Uniform Code Council (Chen, 2004). This

body manages UPC (Universal Product Code) information in bar codes and sets the standards for

how basic product information is encoded in RFID chips and how information is passed from

RFID readers to various applications, as well as from application to application. EPC represents a

specific approach to item identification, including an emerging standard for the tags. The current

version of the EPC Tag Data Standard (see Figure 4) specifies the data format for encoding and

reading data from 64- and 96-bit RFID tags with an EPC compliant tag structure consists of a

number made up of a header and three sets of data: The header identifies the EPC's version

number. The second part of the number identifies the EPC Manager (usually the manufacturer of

the product to which the EPC is attached). The third, called object class, refers to the exact type

of product, most often the SKU. The fourth, the serial number, is unique to the item which tells

specifically what is being identified and makes it possible, to rapidly find products nearing their

expiration date or to manage product recalls.

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Figure 4: EPC tag structure

(ii) Readers - Reader/writers send an RF signal to tags to request the information contained on the chip.

Upon receipt, the information is translated to digital form and sent to application software. RFID Reader

technologies include hand-held devices, mobile data collection devices with embedded readers, and fixed

readers which read tags as product passes by or near them. Reader requirements vary depending on the

type of tag and application.

(iii). Encoders - Other than for “read-only” tags, encoders (often the readers themselves) provide the

capability to write data to the tag.

(iv) Middleware - Middleware is the software between the reader network and application software. It

provides the ability to retrieve data from the readers, filter to reduce and aggregate significant data

volume from multiple transmits and reads, and separate and identify directional movement from different

reader signals. It also monitors tag/reader network performance to generate a real-time view of tags being

read and may capture history of tag-read events for application tuning and optimization. Savant is

EPCglobal's proposed standard for defining how middleware will structure data gathered by an RFID

reader (Caton, 2004).

(v) Application software - The application software processes RFID data, controls workflows and

business transactions, and passes RFID data on to other systems such as Electronic Data Interchange

(EDI) translators or ERP software.

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4. RFID Application to Supply Chain Performance

This section is intended to give a high level perspective of the potential impact of RFID implications on

business performance from both a supply chain entity and industry perspective. It highlights the

differences between RFID and bar codes, assesses specific potential benefits of RFID and emphasizes the

need for alignment between the key business process metrics.

During 2000 alone, US companies spent almost US$1 trillion on supply-related activities including the

movement, storage and control of products across supply networks (12th Annual State of Logistics Report,

2000). In addition, 43% of US companies have the same or higher level of inventory as they had 5 years

ago yet companies that improve their supply chain can generate savings equal to 7% of their annual

revenues (Alnoch, 1997). Furthermore, an average of 30% of information in retailer systems is incorrect

and studies have shown that as much as 63% of product descriptions can diverge in supplier and

wholesaler systems which diverge even more at the single item level (Karkkanen et al., 2003). With

expenditures and savings of these magnitudes there is a compelling need to identify new ways to reduce

costs and to extract a greater return on investment.

Like the impact of bar codes and electronic point of sale on retail buying and supply chain management in

the 1980s (Jones, 2004), RFID also has many features and benefits likely to stimulate and facilitate

substantial change within numerous industry supply chains. Further, the evolution of complementary

technologies of Global Positioning Systems and Geographic Information Systems (GIS) present the

potential for new innovation opportunities and supply chain optimization (Williams, 2004; Saxena, 2005).

However, although RFID based systems have similarities to bar codes they also offer the potential to gain

several additional key business advantages (Glidden et al., 2004) including:

• Labor savings from eliminating manual bar code scanning or keypad entry;

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• Theft and loss prevention capabilities;

• Streamlined inventories and cost reduction;

• Reduced turnaround time and responsiveness;

• Increased efficiency by minimizing unnecessary handling;

• Potential for production adjustment to real-time downstream inventory level reports; and

• On-demand replenishment at the distribution center or retail store level.

Operating costs have the potential to be lowered by RFID through elimination of inaccuracies relating to

human intervention for data collection (via bar codes) and the possibility of using real-time data to refine

retail processes such as cross-docking and trans-shipment. As such it has the potential to significantly

reduce the cost of cycle counting, receiving, picking, packing and delivery. The technology also plays a

critical role in addressing shrinkage (Linster et al., 2004; Datta, 2001)

From a retail perspective there are two significant and expensive operational execution problems –

inaccurate inventory records and misplaced SKUs in stores – which pose a serious barrier to the effective

use of IT in retail operations. Based on studies by Raman (Raman et al., 2001) these problems reduce

profits by more than 10%.

Although each player in the supply chain network; retailers, distributors, transporters, storage facilities

and suppliers, manufacturers has different focus areas, each has the ability to benefit from increased

inventory visibility and management as depicted in Table 2:

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Table 2: Potential RFID benefits from a supply chain entity perspective (adapted from e-force presentation: “RFID Solution Lifecycle Management”, www.eforce.com)

Also, although each industry has different focus areas, each has the ability to benefit from increased

inventory visibility and management as depicted in Table 3:

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Table 3: Potential RFID benefits from an industry perspective

The key area where RFID has the potential for increasing supply chain performance from an internal,

external and financial level perspective is its ability to greatly improve inventory visibility and provide

more accurate and timely information on both the supply and demand side. Knowing what, when, and

where inventory assets are in real-time presents a significant opportunity to improve supply chain control

by reducing cycle time and thus optimize cash-to-cash cycles and reduce inventory carrying costs;

reducing inventory stock-outs, inter-company errors and improving in-store replenishment and

forecasting; improved quality; better asset utilization and increased customer service levels and

responsiveness to the external business environment leading to additional revenue opportunities.

Alignment of these key operational metrics has potentially significant financial implications by achieving

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higher inventory turns, higher asset turns, shorter cash-conversion cycles, higher sales revenue, lower

operating expenses and higher profits.

5. RFID Implementation Examples

In this section we review real world examples to give a perspective on recent RFID implementation

activities, results and anticipated outcomes for companies spanning various industries.

Examples of recent initiatives that examine mass applications and their deployment include

pharmaceutical (Caton, 2004), mass retail such as Walmart and it suppliers such as Gillette (Walko, 2004)

and Henkel (Chen, 2004), grocery retail including Sainsburies, Tesco and Marks and Spencer in the UK

(Karkkainen, 2003; Walko, 2004; Jones et al., 2004) and the US Department of Defense (Walko, 2004). A

sample implementation summary, adapted from eForce’s “RFID solution lifecycle management”

(www.eforce.com) is given in Table 4 relating the anticipated key metric impact:

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Industry:

Organization

Item tagged Type of

tag/chip

Read /

Write

Year/stage Result

Semi-Conductor:

Phillips

Boxes of

microprocessors at

manufacturing and

packaging from

Taiwan to Hong

Kong.

Passive

13.56 MHz

Read/Write 2003-2004

trial, 2005

rollout

Trial: Automatic inventory updates,

trial showed use of labor needed

reduced by 25%, reduced inventory

receipt time to take shipments into

inventory and process outbound

shipments by 50 percent each.

Defense:

Raytheon

Warehouse parts

with value greater

than $1,000

Passive Read only 2004-2005 /

Phase 1 pilot

Automatically perform cycle counts,

increase inventory visibility, improve

inventory control

Pharmaceutical:

Purdue Pharma

Track and

authenticate bottles

of OxyContin from

factory to

pharmacy.

Passive

915 MHz

Read only 2004-2005

pilot and

rollout

RFID-tagged and shipped more than

200,000 bottles of OxyContin Nov

2004-March 2005

Recreational

Vehicles:

Harley Davidson

Bins carrying parts

of custom

motorcycles during

assembly

Passive

13.56 MHz

Read/Write 1998/

rollout

Automatically displayed

manufacturing instructions for

employees at each stage of the

assembly process

Auto

Manufacturer:

Toyota Phase 1

Carriers containing

car frames as they

move through

paint stations

during production

Passive

13.56 MHz

Read/Write 2001/

rollout

Streamlined manufacturing and vehicle

tracking; saves on interest charges

Beverage

TrenStar

Beer kegs as they

move through the

supply chain

Passive

125-128

MHz

Read/Write 2001/

rollout

Improved demand forecasts and

increase efficiency; identification of

black-market sales and elimination of

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misdirected shipments

Paper and Paper

Products:

International

Paper

Cores of larger

paper rolls moving

through the

warehouse

Passive

915 MHz

Read Only 2003/

running

Reduction of lost and misdirected

paper rolls

Apparel Stores:

Gap

Denim apparel

through the supply

chain and onto

store shelves

Passive

13.56 MHz

Read/Write 2001/

pilot

Improved customer service through

better inventory management on shop

floor; increase supply chain efficiency

and data accuracy

Packaging and

Containers:

Raxel

Reusable plastic

containers for

carrying

biohazardous

waste

Passive

905-928

MHz

Read/Write 2002/

implemented

Avoid contamination by ensuring

proper cleaning, asset visibility

Rubber and

Plastics:

Michelin

Tires Passive

905-928

MHz

Read/Write 2003/

running

Compliance with the TREAD act and

recall management

N/A:

Las Vegas

Airport

Airline baggage

tags

Passive

905-928

MHz

Read/Write 2003/

deployment

Automated rerouting of baggage and

increased accuracy (99.5% up from 70-

85% accuracy with bar codes) to

ensure that they send each bag back to

the right airline

N/A:

US Department

of Defense

Shipping

containers

Active433

MHz

Read/Write 1994/

rollout

90% reduction in the number of

containers required

Table 4: Examples of implementations, results and anticipated key metric outcomes

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6. RFID Implementation Challenges

The following section prioritizes the major challenges facing RFID implementations and provides a

Likert-like Challenge Assessment Matrix as approach to assessing their magnitude. This is designed to

complement the RFID implementation road map described in Section 7 as an approach for gauging and

maximizing the likelihood of implementation success.

Utilization of RFID for widespread mass commercial applications has been limited primarily due to

challenges arising from several key factors. In the authors’ view the most important implementation

challenges are listed (in order from more significant to less significant) below:

• Management Commitment - The most significant challenge to implementation is the

commitment of management to adopting new technology and having appropriate expectations of

RFID capabilities. Without executive sponsorship implementation will not be likely to succeed.

“Early Adopter” and “Fast Follower” corporate cultures are much more likely to adopt this new

technology into their business environment than “watch-and-wait”.

• Customer Schedules - Compliance mandates put in place by Wal-Mart and the US Department of

Defense have provided a strong incentive to implement RFID. Even those companies not

currently required by their customers to actively implement the technology will likely lose

customers if they do not start to actively assess the technology. Customer schedules have also led

to recent significant increasing familiarity and experience with the technology and the business

case for RFID integration.

• International Standards - A key challenge is the continually evolving standards in technology,

application, data, conformance, firmware changes, and tracking methods. In addition, different

companies often use different standards making cooperation between suppliers and manufacturers

difficult. China’s direction regarding standards also has potential for significant global impact.

The need for a supporting internet infrastructure and industry based electronic product code

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(EPC) network standards is critical. These standards although helping to simplify the electronic

transactions that occur between organizations' ERP (enterprise resource planning) systems and

improve inter-company supply chain visibility are undergoing change.

• Technology - Continuously and rapidly evolving technology presents unique implementation

challenges to integrating hardware, software and infrastructure due to upgrade management

requirements. Further, read ranges of current tags are still short, and read-logic ability to

distinguish between different pallets is still an issue, and there are operational environment

limitations on read accuracy such as such as liquids, metals and electro-static devices which can

distort, absorb, scatter or reflect signals. Middleware is immature and rapidly changing (Shor,

2005).

• Availability of Resources - Resource availability is also limited due to the lack of sufficiently

trained, skilled personnel which is complicated by the aforementioned rapidly evolving standards

and technologies. There is also a lack of public domain reference case studies that

comprehensively document failures and lessons learned. The shortage of existing skilled

resources and lack of comprehensive, accessible information has cost implications for training

and presents potential implementation problems.

• Security - For certain implementations, illicit tracking of RFID tags presents problems. This is

particularly relevant for military installations but security challenges are relevant also for

corporations and individuals. For example, scanning and cloning of RFID tags can potentially

provide undesired access to important facilities or use for payment in commercial transactions.

• Change Management - RFID implementation poses challenges of managing change associated

with integrating RFID and of reengineering work process. This requires strong management

commitment and support. For example “Slap and ship” often doesn’t provide a return on

investment as the real benefit typically comes from back-end integration. Because most back-end

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systems are not designed for the level of detail that RFID provides, enterprise applications

currently often cannot specifically retain meaningful information (Hotchkiss’s, 2005).

• Government Regulations - Implementations are complicated by varying specifications and

regulatory requirements, for example operational frequencies and power specifications vary from

country to country.

• Privacy –This presents more of a challenge than technology in Europe where it has a much higher

priority over the technology or benefits of RFID than in the USA (MacSweeney, 2005). The

impact of public interest groups is certainly significant, especially on the mass retail industry.

Recent notable backlashes and boycotting campaigns from privacy protection groups such as the

UK’s Liberty and U.S. Consumers Against Supermarket Privacy Invasion and Numbering

(CASPIAN) to Benetton’s, Tesco’s and Gillette’s RFID initiatives (Jones et al., 2004) have

caused companies to more carefully examine their approach and be more sensitive to privacy.

The concern is that information recorded for one purpose is being used for another, and the need

for clear legal guidelines as to what information organizations are allowed to gather and what

they can do with the information. To this end CASPIAN has proposed legislation, The RFID

Right to Know Act of 2003, which would require mandatory labeling to inform consumers when

an item contains an RFID tag. It would also prohibit companies from linking the chips with

personally identifying information.

• Cost – Currently, higher priced assets and items are more suited to RFID implementations based

on existing price points. However, since 2000, price reductions have opened the door to

application by various industries with the cost of a [non-UHF] tag dropping from about $1/unit to

around $0.25 over a period of 3 years. In addition, costs of data communications, tag readers and

related equipment have also fallen dramatically to reflect the increased interest in the use of this

technology (Jones at al.,2004; Niemeyer et al., 2003; Manhattan Associates, 2003). Although the

cost of tags and readers is going down, overall implementation costs of RFID solutions go beyond

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hardware, software and personnel as they also have to account for the cost of changing business

process.

To assess the overall challenge presented to the organization the authors propose the use of a simple,

“Challenge Assessment Matrix” (CAM) based on a Likert-like approach (Likert, 1932). Through

answering a questionnaire each challenge is assigned a score whereby if the answer the question is “true

to a very great extent” a score of 5 is assigned, conversely if the answer is that the issue has an impact

likely only to be “true to a very slight extent” a score of 1 is assigned. Once the matrix has been

completed the total score is determined by summing the total for each column; in the example the sum

total is 24. If the result of the shows that the total score is tending toward the maximum of 50 (i.e. high)

this indicates that the implementation will be fraught by numerous challenges and be unlikely to succeed.

Conversely if the CAM total score tends towards the minimum of 10 (i.e. low) the implementation is

much more likely to succeed. A more sophisticated version can be used whereby each challenge is

weighted according to the perceived level of importance of each challenge.

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SUM TOTAL CAM SCORE = 24 (i.e. 15 + 3+ 6)

Table 5: Challenge Assessment Matrix (CAM) for RFID implementations

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7. RFID Implementation Roadmap

This section provides a road map to approaching RFID implementation. In conjunction with recognizing

the challenges involved in executing RFID solutions mentioned in the previous section, it is important to

keep implementations simple and phased, keep the scope tight but be prepared to be flexible, and to be

aware of change management requirements to traditional business processes.

The likelihood of successful implementation can be accentuated by taking the following steps:

• (i) Study The As-Is System Process

This requires collecting and mapping out data on the current system state of the business process relating

to supply chain performance within the company.

• (ii) Identify Pain Points and Opportunities In The Supply Chain.

Because the pain points and opportunities differ by industry and supply chain entity involved, these need

to be examined carefully. Examples of pain points and opportunities are described and summarized in

Section 1 and Table 1.

• (iii) Study As-Is Technology and Standards Roadmap

Because many of the implementation challenges identified in the previous section are undergoing change

these should be reviewed to understand current limitations and potential workarounds and to appreciate

the need for a flexible implementation.

• (iv) Propose Future System State

Having understood the as-is process, pain points and opportunities and recognizing the as-is technology, a

hypotheses for the desired future system state should be developed.

• (v) Evaluate Opportunities & Implications Of RFID to Future State

The role of RFID in achieving the future state can now be evaluated in the context of the existing pain

points and opportunities within the supply chain to determine what activities have the potential to be

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successful. This proof of concept should test if project is viable within the enterprise and check

compatibility with company infrastructure and integration issues with trading partners.

• (vi) Conduct Cost / Benefit Analysis

A business case analysis should be conducted to define project scope, costs, potential application

solutions, ROI, hurdles and the timeframe based on the RFID implementation activities. According to

Raman et al. (2001) performance should initially be measured along dimensions of operational execution

that are important to the business. For example, retailers that are interested in improving inventory record

inaccuracy should measure the absolute difference between system and actual inventory levels at the SKU

level. Second these measures should be used to create awareness of the problem. Third, measurements

should be used to setup a process for continuous improvement, fourth retailers should deliver advantages

of economies of scale, fifth retailers can improve performance by using operational data for decision

making e.g., performance of automatic replenishment systems is compromised by inaccurate inventory

records.

• (vii) Define Pilots And Implementation Plan

Key pilot projects should be identified and prioritized as to the anticipated level of benefit and pay back

period. These should be associated with anticipated resources and implementation timelines.

Implementation should test the RFID technology one step at a time and focus on applications for which

the technology is ready.

• (viii) Develop and Implement Adoption Roadmap

Based on lessons learned during the pilot projects, the implementation should be adapted and refined for

full-scale implementation including clear definition of goals and objectives, required management

support, resources, and timeframes while minimizing disruption to existing operations and customer

relationships. Deployment should be sequential and guided by expected ROI, technology availability and

customer requirements. The ultimate goal should be to transform current supply chain processes to more

efficient processes as well as defining the new technology and software that might be required to support

the transformation.

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8. Summary

RFID presents a tremendous opportunity in improving the overall performance of supply chains. It can

not only elevate the pains of various entities and industries, it also presents an opportunity for the leaders

to drive their supply chain performance to a superior level. The ROI from RFID implementations is

likely to be primarily long-term and requires a more strategic perspective to align business processes and

key financial, internal and external metrics. Although shorter-term benefits can be achieved through

customer retention by meeting RFID compliance mandates and refining existing processes (e.g., faster

more accurate identification of items) the main benefit comes from business process redesign that focus

on reducing inventory, reducing cycle times, improving resource utilization, ; increasing service levels

and improving quality. In this paper, we provided a framework to understand the role of various entities

in the supply network, identified the potential impact and benefits of RFID on supply chain performance.

Considering that the technology and standards are evolving we identified the top ten challenges that a

enterprise should account for in their implementation plan, followed by an implementation roadmap for

successful adoption. In addition we also provided a summary of benefits of RFID from an industry

perspective and current implementations in progress and their expected results.

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