What you need to know about RFID for inbound logistics
Tracking towels and golf balls is not what shippers and buyers in manufacturing want
David Hannon, Senior Editor -- Purchasing, 3/3/2005 2:00:00 AM
No doubt most supply chain professionals have heard about radio frequency identification (RFID) technology and are aware that it has a wide variety of potential supply chain applications. Recent mandates in the defense and retail industries, for example, are pushing suppliers in those industries to tag their outbound finished goods with RFID chips so buyers like Wal-Mart and the Department of Defense can track the flow of products into their retail outlets or other facilities.
But purchasing and inbound supply managers in the manufacturing sector are not concerned with how RFID will be used to track finished goods to retail outlets or how RFID will help track stray balls on the golf course. Amidst this deluge of hype, inbound supply managers want to know when—and how—this technology will impact their function and organization. That is, how will RFID improve the flow and visibility of inbound materials to production facilities?
The use of RFID on the inbound supply chain is currently in its infancy, but its eventual impact is expected to be significant. Industries that bring production materials from overseas or that use contract manufacturers between the supplier and the OEM can clearly benefit from the closer material tracking that is possible with RFID. And companies and industries looking to streamline inventory will benefit from clearer lead time and consumption data.
But with little infrastructure in place at this point to read RFID tags during transit, supply chain managers are in the luxurious position of being able to indulge in some thorough research. And a good way to prepare for the move to RFID down the road is making sure that you currently use a mature bar coding system on inbound shipments.
"If you are not yet using bar codes, then you are probably going to have to go through that evolution," says Jon Chorley, senior director of inventory and warehouse management systems at software giant Oracle in Redwood Shores, Calif. "In short, if you're a company that is not yet even thinking about bar coding, then you're probably not ready to think about RFID."
Morris Brown, materials management product manager for the Automotive Industry Action Group (AIAG), sees RFID not as a progression from bar coding, but as a complementary technology, at least for the near future.
"I don't see RFID as a replacement for bar codes any time soon," he says. "There are applications where you have a pallet [bar code] shipping label and an RFID tag as well. You can combine the two for backup."
But having multiple technologies or processes in place at the same time can create more inefficiency on a receiving dock, potentially offsetting the intended benefits of RFID. Each company has to evaluate how much RFID experimenting and piloting they can afford to do without becoming too bogged down.
In addition, finding the right person within an organization to drive research and interest in RFID is critical to implementing a technology-driven process change like RFID. Most experts say that it is a mistake to leave the project solely in the hands of the IT department, as members of that organization may not fully visualize the potential supply chain benefits of the technology and/or how it integrates with existing supply chain processes.
What's more, different units in the company need to communicate on the use of RFID to ensure standardized data and processes are implemented. If purchasing is using one RFID technology or provider or process, while distribution uses another and inventory yet another, some major benefits could be missed. Much like the dotcom boom, the RFID boom is spawning a massive number of technology and service providers. Being able to match the company's needs with the right partner can play a big role in the success of an RFID implementation.
In-house tagging
The biggest obstacle to the use of RFID for tracking shipments from suppliers to buyer/manufacturers is the lack of infrastructure currently in place to read the tags along the journey. While the growth of that infrastructure may take some time, some manufacturers are using RFID internally at their plants to track inventory and consumption rates with the idea of moving the tagging back to suppliers for transportation visibility when the opportunity arises.
Aerospace giant Boeing Co. in Chicago is one of the leaders in this area. Steve Georgevitch, supply chain manager at Boeing, says the company is seeing success in a couple of pilot projects that are paving the way for further growth.
For example, Boeing buys and uses a large amount of expensive specialized paint that costs as much as $200 per gallon. Historically, the company has had a difficult time tracking the paint's consumption which made it difficult to order. And because the paint has a limited shelf life, it cannot be ordered in too large a quantity because any paint that expires before its use is a total loss. To get a better view of that consumption, Boeing is using RFID tags to track the cases of paint inside its factories.
"Our suppliers told us if we can get better consumption data through RFID , they would be more willing to take ownership of the inventory inside the factory," says Georgevitch. "If they can get consumption data, they can ask their suppliers to mix things more efficiently and buy more on-demand. So there is a net supply chain cost benefit that is pretty substantial when it is integrated across trading partners. That is where I see most opportunities, as a supply chain person."
While the use of the RFID tags does not begin until the shipments are received in their factories, Boeing is thinking long-term and having suppliers tag the paint cases before being they are shipped in preparation for the day when RFID infrastructure is in place to track shipments in transport. "We believe that the RFID infrastructure will build out on its own, so we do not want to build the entire infrastructure for that right now," Georgevitch says.
Boeing is also working to streamline receipt of parts by applying RFID tags to some reusable totes. The totes are tagged and filled by the supplier and sent to Boeing. The RFID data on that tote is read and Boeing gets a data record that says what is in the tote and when it was received at the factory so Boeing can bring the parts into its inventory system directly. When the totes are empty, they are sent back to the supplier for reuse, which amortizes the cost of the tags over many uses.
Boeing is reporting current RFID read rates for the tags in the mid-90% range and is doing some preliminary work to incorporate RFID compatibility into its main e-commerce tool, the Exostar marketplace.
Cost concerns
Most supply chain professionals agree that RFID can bring benefits, but the cost of beginning research or pilots can be cause for concern. Boeing currently fronts the money for all RFID hardware and equipment for suppliers in its pilot projects, but feels long-term, the return-on-investment (ROI) for the technology will be strong enough that suppliers will be more willing to absorb the costs.
"My objective is to work with suppliers so they can realize some benefits and economies through RFID and then long-term they will not have to pass the costs on to us," Georgevitch says. "So the closer we can work with them to better understand the technology and capabilities, the better we'll be to direct their use of this technology and [get] economies."
Other buyers want to get a better feeling for when RFID technology will come down in price to the point where suppliers are willing to absorb the tags and associated technology as a cost of doing business. Unfortunately, there is no magic number, according to experts, that will set RFID off on an explosion for supply chain managers. Instead, each company needs to evaluate its priorities, finances and potential benefits. "Some companies are ready to tackle it right now and it makes sense for them now," says Mischa Reis, director of marketing for RFID and security products at Avery Dennison's Retail Information Services in Westlake Village, Calif.
The level of tagging under consideration varies by industry and may impact the cost and adoption rates down the road.
In retail, there is more interest in tagging at the item level to track from supplier to retail and beyond. Brown points out that the issue of defective tires in the automotive industry a couple years ago drove the industry to develop processes to put RFID tags in the individual tires themselves to allow better traceability through the supply chain. But in manufacturing there is more interest in tagging at larger quantity levels to reduce costs.
Chorley says many manufacturers are looking at container-level tagging for major shipments. "They are looking at how they can tag containers and not lose them in Customs or along the route," he says. In that scenario, the cost of the individual tag may be higher than the smaller ones used in retail, but it is tagging a container worth as much as $20,000 or more. And more expensive tags can provide more data and have more functionality, such as monitoring the temperature, humidity, and tampering of shipments en route.
But the real answer on cost may depend on what suppliers get involved in the market, Georgevitch says. "As bigger companies like Microsoft and Texas Instruments get more involved, it will make our heads spin in terms of cost reduction."
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