Reality meets radio-frequency identification
Radio tagging the supply chain unfolds slowly, but CHEP and others keep eye on business-case goals
By Roberto Michel, senior contributing editor -- Manufacturing Business Technology, 3/1/2005 12:00:00 AM
Like most every executive involved in logistics management, Brian Beattie knows the theoretical advantages of radio-frequency identification, or RFID. But unlike many of his peers, Beattie's company is live with a program that leverages RFID tagging to track assets and shipments in supply chains.
Beattie is senior VP with CHEP, an international supplier of pallets and containers to manufacturers, distributors, and retailers. For the Orlando-based company, RFID tracking in the supply chain is here today, though not widely rolled out across CHEP's customer base.
CHEP offers a pooled pallet service with reusable RFID tags encased on the pallets. Beattie, executive sponsor of the program, says the benefits are twofold: precise, automated tracking of pooled pallet assets; and unit-load tracking by pallet users.
Beattie acknowledges that benefits will take time to build, though companies can start thinking today about what to do with the data. "The whole idea behind RFID is collaboration around the information," he says. "If you don't have someone who can use the information, tagging isn't going to do your business any good."
ROI not the point
As with any much-hyped technology, industry watchers are anxious to see return-on-investment (ROI) from RFID, and so far, the arrival of the first tagging deadlines hasn't coincided with full compliance, let alone supplier ROI. But such observers are missing an important point: no one promised immediate ROI from RFID. Instead, retail supply chains are following—and at times struggling with—a longer adoption curve.
How can a supplier pick its way along this curve? For one, say experts, be ready to face the hardware complexities of RFID, while keeping an eye on the ultimate prize: better execution and collaboration based on real-time inventory and shipment data.
In retail supply chains, RFID efforts revolve around a collaboration standard known as electronic product code (EPC). By leveraging EPC tagging, reading, and data sharing, major retailers and other powerhouse buyers like the Department of Defense are betting on a range of efficiencies gained by a better grasp of inventory positions at the pallet and case level.
Andrew White, a research director with Stamford, Conn.-based analyst firm Gartner, agrees RFID benefits will take time to reach, but says the potential is such that major buyers aren't about to back down. The bottom line: manufacturers that do business with these buyers should expect the mandates to march on, and thus should build a business case for RFID.
"The fact of life is that most systems are rolled out in a phased approach," White says. "There may be an elbow in the adoption curve where there will be a critical mass of RFID infrastructure, and the value from the resulting visibility begins to grow. However, how all this will unfold isn't exactly known, and may not be totally up to you as a supplier, as far as which products to target first."
What is certain is a growing focus on ROI, says Paul Strezelec, a director for VeriSign's Directory Services organization. Similar to its role with the Internet, VeriSign's technology routes information requests on the EPC Network, the standard means for communicating EPC-related data.
"Before now the focus was on the physics of the tags and readers," says Strezelec. "Now many companies—especially the first ones under mandates—have a feel for data-capture technology, and are focusing on applying this data to business processes to show ROI."
Seeking quick wins
While CHEP customers aren't ready to publicize their forays into RFID-based tracking, Beattie says clients will take aim at areas such as charge-back reductions, fewer out-of-stocks, and better product-recall response. "It's going to take mass adoption before the big benefits start to happen with EPC," Beattie says. "That said, there are going to be areas for quick wins."
For CHEP, the quick wins include reduced administrative overhead in pallet-pooling processes, and precise tracking of individual pallets. For users, says Beattie, the benefits start with a reliable, low-cost approach to pallet tagging, and extend into processes enabled by unit-load tracking.
The benefits for users start with the tagged pallet itself, says Beattie. Rather than print, encode, and apply RFID pallet tags, CHEP's PLUS ID service offers rugged wooden pallets with a reusable RFID chip embedded on each pallet's center block. The 256-byte tags are partitioned, with half the memory allotted to use by CHEP, and half used by clients for unit-load (i.e., pallet) tracking applications.
Each tag has an antenna positioned on either side of the tag at 90-degree angles. This orientation, Beattie says, makes for highly reliable reads regardless of pallet direction. What's more, he says, the tag can't leave the pallet, unlike tags placed on the outside of a shrink-wrapped load. "If a pallet is shipped downstream, and someone removes the shrink-wrap to pick from the pallet or split the load, they would have to reapply a new tag to that load, or lose track of it."
Beattie concedes that for some early EPC compliance programs, manually applying smart labels to shrink-wrapped pallets allows cost-effective piloting, but contends that in the long term, reusable tags on pooled pallets promise low cost and fewer technical headaches. "We spent a lot of time figuring out where to put that tag to ensure 100-percent read capability," he says.
The tagged pallets function as self-reporting assets for pooling purposes. For users, this simplifies reporting pallet returns to CHEP's service centers. For CHEP, rather than having only batch-level knowledge of pallet movements, the provider has insight into the whereabouts of pallets.
"Our livelihood depends on asset productivity," says Beattie. "If we can improve it based on better asset management via RFID—and we know we can—that's a savings for us."
Pallet users, Beattie adds, would be able to encode pallet tags with information about the cases and loads on each pallet. This opens up a whole range of business benefits.
"RFID is going to take labor out of the supply chain at different points, because today there is human intervention required to count or scan pallet loads as they enter or leave facilities, and you don't have that with RFID," Beattie says. "From an administrative standpoint, there is reconciliation with shipments to ensure you are getting billed or charging appropriately. Today that requires human intervention, but by using RFID data that has a high degree of accuracy, you could take some of that labor away."
Charge-backs are a big problem in the retail industry, says Gartner's White, but suppliers often have inadequate data to disprove charge-backs, so they end up paying what retailers ask for. Len Erickson, a senior technical consultant with Hewlett-Packard's (HP) Services Consulting & Integration group, says HP sees charge-backs as an area where RFID data might be applied. HP, of course, is both a technology vendor to enterprises, and a supplier of printers and other products to retailers.
"There is interest in using that data to address unwarranted or unnecessary charge-backs," says Erickson. "We'll first have to spend some time examining our own processes for checking on charge-backs, organizing the data we have, comparing that with the data we get from RFID, and seeing how we can supplement the information we have."
Product recalls, says Beattie, will be another area of benefit. "[EPC tagging] will increase the effectiveness of recalls because you can isolate a recall," he says, possibly back to individual cases exiting manufacturing lines.
VeriSign's Strezelec agrees EPC data can improve recalls, and reduce concerns such as counterfeiting and product theft. The bigger goals, however, revolve around better decision-making within retail supply chains.
For instance, making sure inventory is properly staged before promotions or new product launches will become easier. EPC tags also could be used on end-of-aisle displays to ensure placement when and where necessary. "All of this is about a sense-and-respond supply chain," says Strezelec. "How can I sense exactly where my products are in the retail world so I can coordinate activities to respond to changes in the marketplace?"
Beattie agrees EPC eventually should alleviate out-of-stocks. "With the inventory visibility you get with RFID and EPC, you know exactly where shipments are," Beattie says. "Same thing on the retail level: instead of store managers wondering what's in their back rooms, they know exactly what's back there."
Big, hairy goals
Another complexity is that suppliers and retailers must finish ironing out global data synchronization issues involving Global Trade Item Numbers (GTIN) and pricing. Communication around EPC will rely on item data sync as a foundation when looking up GTINs and pricing.
For EPC reads to have the most impact, enterprises should take a "top-down" approach to RFID, says Dr. Christoph Lessmoellmann, RFID business development director with enterprise software giant SAP. This means you should start thinking about the points in the supply chain where tag reads will be useful, and which business processes those reads will support. At the same time, he says, higher-level RFID data "should be tightly integrated with inventory management and supply chain planning applications."
The potential short-term improvements from EPC in areas like charge-back reductions and recalls certainly exist, as well as long-terms goals such as major reductions in out-of-stocks. There are business cases to be found with EPC—just don't expect a flood of rapid, big wins.
"We would have loved to see a big bang in 2005, but we have to work out all the technology issues first," Beattie says. "It makes sense to take this one step at a time."
