RFID still brings more questions than answers for inbound logistics
By David Hannon -- Purchasing, 7/14/2007 2:00:00 AM
Despite its clear value proposition and much talked about benefits, radio frequency identification (RFID) has not yet impacted the inbound manufacturing supply chain as it has other areas. There are pilots underway and research studies galore, but in terms of real-world, useful implementations between OEMs and suppliers, there's still not a lot to benchmark against.
Questions abound when it comes to RFID in the supply chain. First and foremost: who pays for it? There are a variety of models emerging, but no clear-cut winner. Perhaps most well-known is the Wal-Mart/mandate scenario where a large buyer mandates that all of its suppliers tag their outgoing shipments with active or passive RFID tags. While Wal-Mart and the Department of Defense were able to push such a mandate (some analysts question the penalties for noncompliance), there has yet to be a manufacturer willing to step forward and do the same. One of the challenges with such a model, says Matt Ream, senior manager of RFID systems at Zebra Technologies in Vernon Hill, Ill., is that the manufacturer has to go "all in" to get the benefits. "For instance, if there's an automotive OEM that feels RFID will help it reduce cycle time and orders, it has to get RFID rolled out to all its suppliers—it can't just do a few to get the real benefits," Ream points out.
Ream says aerospace giant Boeing has come the closest to RFID use in inbound by developing a plan for suppliers of certain parts to its Dreamliner project to tag shipments with RFID. But the project involves only about 60 suppliers delivering major subsystems to Boeing. Zebra also has a customer in the seafood distribution business working to get its 130 suppliers to tag inbound fish shipments to streamline the receiving and testing process before the seafood is sold and shipped to customers. In that business model, the faster the turnaround, the faster the sale.
Mike Liard, an RFID analyst with ABI Research in Oyster Bay, N.Y., says the Wal-Mart mandate was much more of a supplier "order" while the Department of Defense's RFID program with its suppliers had a much more collaborative, share-the-cost tone to it. But he says, "to date we haven't seen a broad initiative from a manufacturer, like these ones." He says pilot programs at some consumer electronics firms do show promise however. And a retailer in the U.K. recently mandated its suppliers tag shipments with RFID or risk paying a financial penalty per pallet. "Suddenly, the mandate has some teeth," Liard says.
Another financing model emerging for RFID is having the technology delivered as a value-add from logistics providers. Certain third-party logistics providers (3PLs) and ocean carriers are willing to tag containers or pallets for tracking, provided they get the containers or pallets back at some point to spread the cost of the tag out across multiple shipments. Pacific ocean carrier Horizon Lines announced early this year it is in the process of tagging its entire fleet of containers serving the Alaskan trade with RFID tags and installing RFID readers at distribution centers, terminals, and key Alaska highway routes. The project has been driven by Horizon CEO Charles Raymond, who said in a company statement: "Having information on shipments early in the process—who is shipping what, to where, and why—and then integrating that information into a real-time tracking system will streamline the entire shipping process. Shippers will achieve savings from tighter inventory management. Carriers will obtain better asset management and in-transit control. And the by-product of that visibility and efficiency is better security."
There are some RFID pilot projects for inbound supply taking place that supply chain and logistics professionals should be keeping track of. Most recently, the Shanghai International Port Group and the Georgia Ports Authority tapped RFID technology firm Savi Networks to launch an RFID-based network called the "Shanghai-Savannah Express Trade Lane Project" which automatically tracks the location and security of containerized cargo transported between the Port of Shanghai in China and the Port of Savannah in Georgia.
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"Container tracking can deliver supply chain management benefits—both cost reductions and revenue increases—that may add up to thousands of dollars per container. Smaller inventory, fast transportation and routing troubleshooting, lower insurance, greater efficiency and heightened security are all demonstrable advantages that RFID tracking can provide.” —Michael Liard, ABI Research |
A recent EPCglobal pilot project tagged seaborne shipping containers traveling between Hong Kong and Japan and used software from Oracle and Savi to provide real-time tracking information. At the time, Liard said this pilot "represents a significant step towards the practical realization of a truly useful standard. It is the first real-world demonstration among port operators of the potential created when multiple trading partners and service providers can speak the same language."
While not as much interest to supply chain professionals, RFID has gained a much stronger foothold in the manufacturing space for tracking works-in-progress, for several reasons. First off all, the investment made is returned within the four walls—it's not being diluted or shared with suppliers or customers. Secondly, the return is tracked more easily because the RFID tags can be applied to bins or pallets that don't leave the plant floor.
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"The road to RFID adoption has been rocky with abandoned projects littering the wayside. It is generally accepted that the biggest reason for failure is a lack of a clear business case. Companies rushed in with IT-led initiatives to see how this technology could be applied to their business, but they didn’t focus on the real problem they were trying to solve.” –Forrester Research |
Another major question regarding adoption of RFID technology within the supply chain is the skills and expertise within the typical supply chain organization. According to a recent survey by the Computing Technology Industry Association (CompTIA), 68.8% of technology professionals polled believe there is an "insufficient pool of RFID talent to hire from." While that's down from 80% in 2005, it's still a significant percentage that see a lack of expertise. And will that lack of talent impact RFID adoption? Seventy percent of those polled say yes.
"The skills shortage is not the most significant factor in the relatively slow adoption of RFID, but it is a contributing factor," says David Somer, vice president of e-business for CompTIA. "Had RFID adoption taken hold at a higher level, the skills shortage would be even more pronounced."
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