RFID and Supply Chain Management

Geoffrey Sherman RFID and Supply Chain Management Looking back in history there is evidence of social, economic and personal evolution in daily life...
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Geoffrey Sherman

RFID and Supply Chain Management

Looking back in history there is evidence of social, economic and personal evolution in daily life. The apparent evolution of society can be directly attributed to the technology which is currently available to us, shaping what we do and how we live. Technology is the essential driving force behind the success of businesses of all sizes. The modern corporation is driven to utilize technologies in order to better track their product and to more accurately forecast product sales and demand. What are these corporations doing to further the advance of technology? How will these enhancements improve the life and experience of the consumer? A solution to the increased demand for technological sophistication can be found in the notion of real world awareness. One of the largest contributing factors to real world awareness is the implementation of RFID, or radio frequency identification device’s. RFID is the use of a small microchip to track a product or sense unique characteristics of its design. This key device has placed a great impact on the evolution of supply chain management and will continue to grow and affect it. Real world awareness allows for many enhancements to the efficiency and logistics of modern business. RFID’s are capable of tracking a product from its production to its final point-of-sale, completely in real-time. By tracking products using real world awareness, RFID’s can reduce theft and prevent

improper shipment sizes. This technology ensures that products will arrive at their appropriate destination without fail, as well as better forecasting the arrival time of the products for the consumer. RFID’s can also be used to track employee entry and exit times, as well as discriminating access to certain areas of a building. The implementation of RFID to real world awareness is imperative in modern business. RFID technologies have already shown marked improvements on the businesses which have preempted industry tactics. Industry has not been so vastly influenced by a technology since the inception of barcode technologies. RFID can be implemented in many ways and can take many forms. Passive RFID tags, for example, are devices which consist of some form of solid state memory which holds information about the product, or of the device itself, and an antenna to transmit the signal. This antenna is able to transmit a signal once a powered device, such as a reader, is within a desired proximity. This type of receiver is ideal for a product such as razor blades being sold at a supermarket. As the razor blades leave the factory their quantity is tracked in the palette using this technology. If an employee were to come by and steal one of the items from the palette then the store’s reader would identify the palette as being short. Because of RFID technology the store would not be held accountable for the missing product. Once the product has left the store it is tracked and can be removed from the

store’s inventory. This is all done in real time which allows the store to keep its inventory current automatically at all times. Once again, real world awareness assists the company by reducing theft, enabling better tracking, and providing additional product availability insurance. There are also active RFID Tags which are self powered. They can contain sensors and may monitor certain environmental conditions. At several factories, active RFID Tags now monitor the reliability of machines based on if they are in motion or not, or if they are of needing service. Sensors can also monitor temperature, for example Philadelphia, the cream cheese manufacturer, uses RFID tags to monitor temperature throughout the life of its perishable product. Once the palette arrives, RFID readers can determine the conditions that the palette has encountered to ensure the palette has arrived safely. At Delta Airlines their aircraft fleet is utilizing Active RFID to determine if there are problems with a plane. For example, during a routine flight abnormal vibrations were noticed by an active sensor in an aircraft’s jet engine. Vibrations were caused by a bird that had flown into the engine bending a fin on the engine out of alignment. This event went unnoticed by passengers or pilot and didn’t even hinder the flight. However, if the airplane had continued on future flights the engine may have failed due to the added vibration. Upon arrival after the flight the plane was scanned during maintenance and the conditions were noted. RFID caught the minor mechanical irregularities and the airplane was able to be grounded in a

timely fashion for repairs. In addition, this technology avoided a possible catastrophe and did not hinder their supply chain of aircraft. Every business has a different product or service that they are selling. The more efficiently they sell this product or service the more revenue the company will generate. As with any business, the goal is to maximize the value of the firm. In the case of the razor blades, when an item is always available there is less of a chance of unfavorable brand swapping. The last thing that Gillette would want is for someone to buy another razor because their brand wasn’t in stock. This is how businesses loose customers and revenue. Using real world awareness businesses can ensure that their product will be available and, if advertising matches quality, there will be a good outlook for their product. In the case of Philadelphia, cream cheese customers receive nothing but the best quality product. Since all cream cheeses are not created equal, brand switching is a great concern for Philadelphia. The supply chain of Delta Airlines is the availability of their aircraft and ticket sales. Airplane travel is their service, and in order to stay ahead in the competitive airfare war ragging marketplace, they must be one step ahead. RFID gives Delta an advantage by assuring the safety and availability of their flights, as well as by reducing the loss of business. With the growth of this technology there is certainly a need for standardization at a global level. As of January, 2005, Walmart requires that its top 100 accounts will have RFID tags in each of their products. The development of standards for encoding information on RFID tags will be pivotal in making the technology as intrical to the

supply chain as bar codes are today. EPCglobal Inc., the standards body that manages UPC (Universal Product Code) information in bar codes, sets the standards for how basic product information is encoded in the RFID chips. The proposed RFID chips are designed to augment bar codes. EPCglobal will establish the standards on how information is passed from RFID readers to various applications, as well as from application to application, in the supply chain. When one company ships goods to another company, these standards will help simplify the electronic transactions that occur between the organizations' ERP (enterprise resource planning) systems. These standards will determine how middleware handles data scanned by an RFID reader as goods enter a warehouse and will pass the data to an enterprise application. Middleware is any application which integrates two applications that would otherwise be separate. The current version of the EPC (electronic product code) Tag Data Standard specifies the data format for encoding and reading data from 64- and 96-bit RFID tags. The data stored in these tags dictates information about a product in UPC terms, including company and product identifiers. Savant is EPCglobal's proposed standard for defining how middleware will structure data gathered by an RFID reader. Savant middleware will perform preprocess routing and storing of data, which includes eliminating duplicate reads. Savant middleware will then pass only requested information to the enterprise application. Savant also provides a framework for creating queries against readers on the network. EPCglobal standards address some of the privacy concerns regarding RFID by

dictating the means by which RFID data stored in a tag can be erased. A larger concern still remains that the retailer will not erase tag data on individual items after purchase. This could lead to the future probability of scanning throughout homes to see what products are there. Rules and regulations will need to continue to be imposed to protect privacy. There will also be increases in storage on the chips themselves, for example 128-bit chips which would allow for a plethora of identification options. The addition of ONS (object name service), similar to the technology used in DNS (domain name system), is also being implemented. ONS allows for the sending of a string of numbers and letters to be received and then interpreted. “Supply chain management (SCM) is the practice of coordinating the flow of goods, services, information and finances as they move from raw materials to parts supplier to manufacturer to wholesaler to retailer to consumer. This process includes order generation, order taking, information feedback and the efficient and timely delivery of goods and services.”i With further analysis, these facts can generate many new outlooks on the implementation advantages of RFID. There exists a direct correlation with supply chain efficiency and appropriate real time awareness. As a result of the implementation of RFID in Gillette’s supply chain, the razor manufacturing giant has seen many positive results. David Simchi-Levi, professor of engineering at the Massachusetts Institute of Technology who has consulted with Gillette, has found a lower number of pallet touch points, which results in

efficiencies, the elimination of scanning of cases and pallets, and elimination of the need to manually count the packages. Furthermore, Simchi-Levi has also seen a decrease in Gillette’s label printing, shorter latency times when checking orders prior to shipping, and improved order accuracies. Gillette now experiences less negotiation of retailers over missing products, as well as a reduction in storage needs at distribution centers and warehouses. These improvements in the supply chain can be contributed mainly to the improvement of forecasting, the need for lower inventory levels, and increased on-shelf availability of products. Gillette supply chain is now more efficient, due to the implementation of RFID, has resulted in an overall improvement of customer service and satisfaction levels. Despite the improvements in quality, management, and assistance of aggregate tracking, there are still some skeptics of RFID. Due to the lack of understanding of RFID, some customers are very much apposed to this technology. They feel it is yet another way to revoke freedom and to track purchase. Yet where should the line be drawn? If a small RFID chip can be put into everyone’s body that would help doctors identify health risks, better treat them, and possibly save a life. If this life was yours wouldn’t you risk the lack of privacy for the benefit of your own life? Most experts say that as technology increases and more security is added to devices we should, with proper training of the public, see an improvement in overall satisfaction with the technology. Some experts believe that in order to fully utilize RFID to its potential, the RFID unit must remain active beyond the domain of the storefront. RFID can be

tracked on products throughout their lifecycle so as they become worn or broken they can be replaced. RFID could possibly track information about products and show whether they have been misused. This technology can also determine where a product may sit during the refurbishing process. For example, cell phones are traded back in and the internal components of them are reused and reconditioned. It could be possible for RFID to track where they stood in their lifecycle process to better forecast the availability of cell phones. Infineon Technologies AG is one of the largest manufacturers of semiconductors in the world employing 35,500 employees. In an interview with Peter Bauer, executive vice president, sales and marketing officer, discusses several ways by which RFID technology is implemented to their supply chain. According to Bauer, there are several factors that will be imperative in the continued success for RFID technology before it will be able to reach its potential. These factors are: reduction of the cost of tags, improvement of their functionality, and development of new business strategies that will properly take advantage of the improved technologies. It should be noted that costs have already begun to decrease and will continue to do so at a rate of roughly 20% per annum. There is quite a bit of speculation as to whether or not drastic improvements in antenna design will yield much better performance and reduce cost. The basic functionality of the device has had much improvement as well. There needs to be more progress made on the conductivity of radio frequency waves within a solution such as a particular chemical. There is also additional

consideration of security as a key factor due to the use of RFID in the food and drug industry for proper identification of drugs. Further research in cryptography as well as self destructing memory circuits which would eliminate the ability to track a product after it leaves the store, will be needed as well. According to Bauer the main reasons why RFID works for them is their close relationship with software providers which ensures the most robust integration with their business’ supply chain. Lastly, the utilization of RFID within the supply chain and manufacturing of semi-conductor products has proven to be quite effective. This technology has eliminated the need for human interaction with the actual product and improved manufacturing accuracy. Proctor and Gamble, with 110,000 employees and sales in 2003 of 51.4 billion, is the largest maker of household products and leads the sector in market share with 16 million dollar brands. According to R. Keith Harrison, Jr, Global product supply officer, there is an increase in the level of complexity of supply chains due to the immense rise in innovation. There are now many types of supply channels that are in use and responding to the channels using traditional methods would prove ineffective. One of the main problems presented is the growth of different products at multifaceted levels. Due to these differences, the methods of dealing with supply chain management may differ as well. RFID presents an interesting solution for this. Migration of the organization from the notion of predicting and forecasting to utilization of real world awareness is no

small task. This key concept of using actual customer demand to drive manufacturing and supply is a key factor that RFID provides. Dell Inc. is one of the largest computer and electronics manufacturers in the world. Dell employs over 50,000 employees throughout its 6 manufacturing plants and operations worldwide. Dell uses the notion of supply and demand based on the customer’s orders to determine sales. According to Michael Dell, chairman and founder, the reason why RFID is so successful is due to the efficiency of the information that it provides leading to much better real time data. Dell plans for the retirement and decommission of old technologies as a forecasting technique as well. By using RFID at the Dell plants, customers are able to track the progress of their computers and determine the shipping dates automatically with very little human involvement. Due to the fact that Dell now manufacturers almost all of the products that they sell, there can be little to no problems with excessive storage in warehouses. The benefits of RFID and real world awareness aid in keeping Dell’s supply chain extremely successful. The DOD (Department of Defense) has made the decision to utilize the benefits of RFID technology in the tracking of items they manage, such as military rations, weapons, and ammunitions. “Implementation of RFID minimizes time spent through the normal means of inventory processing. This technology allows the improvement of data quality, items management, asset visibility, and maintenance of materiel. Further, RFID will enable DOD to improve

business functions and facilitate all aspects of the DOD supply chain.”ii IBM is the main supplier to the information and processes they will be following to roll out this technology. E-ZPass lends RFID technology to road tolls so cars can enter a bridge, road, or highway. The key factor to their supply chain is that they are able to efficiently track the use or misuse of their product. They utilize RFID tags in a small device in a user’s car to track use and link the reader systems to a sophisticated computer system that bills accounts the amount of the toll. This service has reduced traffic and come up with a service that people have grown to depend upon. Some may be concerned that companies like E-ZPass are tracking where we travel. RFID technology enables us to be notified when a product will expire, breaks, or are due for maintenance. A new cell phone could be received in the mail with a letter saying, “we noticed a problem with your cell phone when you walked by the bus stop station reader, we sent you a new one to replace it.” This would eliminate downtime and improve sales. Unfortunately, the need for privacy cannot be eliminated even if it hinders us from having certain luxuries. RFID is already in use in medical technologies. Equipping medical tools with RFID tags, a doctor can scan the patient and see if they have accidentally left a tool inside of them. The technology could also be used to scan a patient and see if they are having problems with a heart monitor. The uses of RFID in the medical field can be extensive and there is talk of using a tag placed on a

persons’ wallet or on a card that will immediately alert doctors to the potential allergies to medication right as a patient enters the hospital. The linking of RFID readers to medicine bottles for fast tracking and improved availability of drugs will be beneficial. There is seemingly no limit to the reaches of RFID technology there is a “store of the future” concept that uses RFID to target ads at shoppers based on the contents of their cart. Even better is the concept of the smart carts, shopping carts with personal data assistants that provide the shopper with product information while they purchase. There can even be smart shelves which are aware when they are empty of product. RFID is the next big step in advanced management of supply chains. By utilizing this technology, improvements can be seen in all scales of business. Whether it is a retail chain giant like Walmart or a small business tracking inventory when it walks out the door, RFID is involved. As RFID technology pushes ahead we can expect computer technology of analysis of data from companies such as SAP and Oracle to lead the way. Through providing real world awareness based on feedback of the reading of RFID devices we can expect a substantial growth in business revenue in hand with an increase of speed, availability, and profitability in all types of supply chains.

Works Cited Heinrich, Claus E. RFID and Beyond. Indianapolis: Wiley, 2005.

i ii

http://www.computerworld.com/softwaretopics/erp/story/0,10801,66625,00.html http://www.dod.mil/releases/2003/nr20031023-0568.html