RFID—Coming Soon to a Tube of Tooth Paste Near You

by John A. Caltagirone

Radio frequency identification (RFID) is one of the hottest topics in today’s supply chain discussions.  You might wonder what all the fuss is about.  What does it mean to my suppliers?  What about my customers? 

What is RFID?
According to the Association for Automatic Identification and Data Capture Technologies (AIM, Inc.), an RFID system is one that carries data in transponders generally known as “tags.”  These tags retrieve the data by machine-readable means.  Data contained in a tag provides identification on manufactured items, goods-in-transit, physical locations, vehicle identities, animals, and even individuals.

An RFID system not only requires “tags,” but also a way of reading, or interrogating, the tags.  It then needs a way of communicating the data to a host computer or information management system.  A system includes a facility for entering or programming data into the tags.  Oftentimes, an antenna is distinguished as if it were a separate part of an RFID system.  This is a feature that is present in both readers and tags, and is essential for communication between the two.

History of RFID 
Utilizing RFID dates back to World War II days, when the British military needed a way of identifying aircraft as either friend or foe.  Even today, with the use of more sophisticated navigation technology, we read about the United States military using various forms of RFID.  Since this technology has been around for over a half of a century, why all the fuss now? 

RFID—Why now?
One of the reasons that companies are scrambling today, investing in research and trying to learn all they can about RFID, is because at least one large retailer has laid down the law.  It’s mandating that its top 100 suppliers must be utilizing RFID tags on all product deliveries by 2005.

Besides edicts coming from the corporate behemoths and research analysts predicting  RFID will be bigger than Y2K, let’s talk about the real reason for using RFID:  we need to change the way we’re conducting business!  We know we must do things better, faster, and cheaper.  This is what RFID has to offer.  It’s time for another paradigm shift and to break what isn’t broken.  According to AMR Research, RFID will be a $20 billion market by 2013.  That’s a lot of potatoes.

How will RFID be used?
This question is still in the process of being answered.  Let’s take a look at some of the potential scenarios:

• an RFID tag may be attached to a pallet to monitor and track product from receipt to storage to distribution
• an RFID tag may be attached to the outer package
• an RFID tag may be attached to an item itself, and tracked all the way to the consumer’s home

(I wonder how that last scenario will make the consumer feel, with Big Brother sleeping in his or her medicine cabinet.)

You say you want a revolution…
RFID will completely revolutionize the way we view the supply chain.  It will provide us with:

• instantaneous inventory updates
• real-time tracking with 24/7 visibility at the item, case, or pallet-level
• a reduction in administrative costs
• unforeseen inventory accuracy that will allow the elimination of physical inventories and (eventually) the need to conduct cycle counts
• reduced pilferage
• productivity improvements throughout a facility (which translates into fewer workers needed)
• a reduction of operational costs

It also provides supply chain partners a look at where the materials and finished products are at any point in time.

Years ago, we talked about the importance of substituting information for inventory. RFID is the technology that will allow us to leverage the power of information, and then some.  Today, we’re using RFID to track containers and trailers.  Tomorrow, we’re looking at leveraging RFID at the pallet and case-level, and, down the road, at the item-level (if there’s a decent ROI).

The vision is to deploy RFID technology globally, which will push an efficient and cohesive supply chain to a higher level.  In order to take advantage of this technology in North America and around the world, standards for electronic product codes will need to be agreed upon and included in the tags.  Some day, in the not too distant future, when every item is tagged, the shelf that it is sitting on will signal when it’s time to replenish the inventory.

One of the areas that RFID should be able to make a dramatic impact on is the whole arena of the value stream.  When we talk about lean manufacturing, lean logistics, the war on waste, and inefficient supply chain processes, the added value that RFID can provide each step of the way should bring a decent ROI to companies willing to invest in this technology.

I have said it many times and will say it again, that, we, as business people and academics, who work in the logistics and supply chain professions, need to think differently and continue to look at better ways of doing things.  Chances are, the technology that we need to enable us to do things more efficiently and effectively, is already out there…somewhere.  We just have not figured out how to best leverage it yet.

John A. Caltagirone is the Vice President Supply Chain Management of The Revere Group and member of the 2003-2004 Education Strategies Committee.

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