If a tree falls in the forest, and no one hears it fall, does it make a sound?
This Zen-like question can be applied to supply chain: If a problem is not known, does the problem exist? EPCglobal, which can be considered the brains behind RFID (radio frequency identification) for current supply chain compliance initiatives, certainly says it does. EPCglobal is a worldwide and joint effort supported by major players such as EAN International, Uniform Code Council, the Healthcare Life Sciences Business Action Group and the FDA. These organizations represent more than one million companies worldwide. Additional groups representing many different industries are certain to join EPCglobal, and that number could likely double in size over the next several years.
RFID, a 60-year-old technology, was not the driving factor for greater and tighter supply chain automation. RFID is the servant of the vision of EPCglobal, whose purpose is to shift supply chain consciousness. In psychology terms, one might use the analogy of moving from total unawareness, or unconscious incompetence, to being aware of the problem and doing something about it: consciously competent.
The vision of EPCglobal is to automate the supply chain in such a way that would significantly reduce the unnecessary and immense costs that are exponentially crippling the supply chain today. Ironically, to many manufacturers, these problems are not obvious in day-to-day operations. Companies have lived with the problem for so long that they hardly notice its existence. Yet, according to some, these inefficiencies cost even small manufacturers as much as millions of dollars per year.
The remedy? A totally networked economy in which there is a perfect synchronicity between supply and demand, such that the moment an item is used, purchased or consumed, an automated trigger produces the right and appropriate action to the supplier all the way back to raw goods procurement. Right product, right place, right time. We call this the synchronized value chain.
How does EPCglobal envision this happening? By essentially computerizing - with an RFID device - all widgets, uniquely and individually, so that an organization can have total visibility of the movement of all goods in real-time synchronicity. This unprecedented micro-level visibility suddenly opens awareness to the dark spots in the supply chain, the "unheard" areas where companies once made generalized assumptions about what was happening without empirical data. Assumptions in supply chain are not good: they create underages and overages of raw goods and inventory, the need for greater storage space, unnecessary transportation costs, customer service issues and lost sales.
And yet, total visibility with RFID throughout the supply chain is only one piece of the puzzle.
Consider the Big Picture
RFID is only one piece of the overall vision of EPCglobal. There are critical implementation needs, both before and after RFID. It is important to be very aware of these needs so that the full benefit and value of the synchronized value chain can be realized.
AT Kearney illustrates a seven-step implementation path. The ultimate purpose is that trading partners become tightly collaborative in the critical integration points between supply and demand (see Figure 1). At the final stages, activities such as collaborative sales and forecasting (CPFR - collaborative planning, forecasting and replenishment) and collaborative management of transport activities (CTM - collaborative transportation management) will create a seamless dynamic in which every move that a company makes is linked synergistically with the demand in the marketplace. Of course, business already operates this way to some degree. But at what cost?
Costs have increased exponentially because of increasingly complex relationships between trading partners, driven largely by globalization. Worldwide sourcing creates entirely new challenges with respect to distribution, starting with basic cultural and communication barriers and culminating in very expensive, nonintegrated data silos. Collaboration comes at the end of this overall vision, and RFID is a mere stepping-stone to this vision. If collaboration comes after RFID, what comes before?
Figure 1: AT Kearny Seven-Step Implementation Path
What to Do Before RFID
To implement RFID with any hope of business benefit, the first step must be to implement the Global Data Synchronization Network (GDSN, formerly known as UCCnet). GDSN is a complementary initiative to RFID, endorsed by the same organizations that support RFID within the supply chain, and players such as Wal-Mart and Albertson's are requiring this of their suppliers. GDSN can be considered the foundation upon which the synchronized value chain will be built.
If RFID is about the movement of data, GDSN is about static data. It concerns itself with making sure that all trading partners are using common data standards.
GDSN enables very structured preparation for RFID. If implemented properly, it will allow a company to clean up its internal data and processes around how item data is managed. Its goal is that the supplier has a single point of entry for its item data and enters that item data only once. This process will solve the pervasive problem that at any given point in time, trading partners have the wrong data about items 30 percent of the time. GDSN is a standard, global single point of entry. Whereas RFID is concerned with a specific, unique item and its movement through the supply chain, GDSN is about communicating static, basic item and company data. See Figure 2.
Figure 2: GDSN vs. RFID
The most exciting part of GDSN is the immediate ROI. At one of our customers, we found a way of achieving a seven-month payback from improvements in a single customer service department, not to mention the opportunity within the rest of the organization. At another manufacturer of less than $200M, we found a way to implement GDSN that will achieve a $1M per year payback once GDSN is fully realized. This alone can pay for RFID many times over.
GDSN provides the infrastructure for collaboration and lays the foundation for RFID. From a process and cost perspective, it is the most practical way to prepare a company for RFID.
Once GDSN is implemented, and the objective of collaboration is understood, one can approach RFID with a clear vision. The next step, then, is to look within. RFID represents significant opportunity for process improvement and, therefore, cost savings. If a company simply implements RFID without using it to improve processes, there will indeed be no benefit from RFID. This is the proverbial "slap and ship" technique, one we call the CYA syndrome (Compliant? Yes! Ain't helping us!).
Process analysis, both as-is and to-be, can enable significant improvements immediately with RFID. It is the key to finding the return on investment. This is not only referring to the compliance requirement of RFID whereby case and pallet-level items are tagged with RFID, but also is referring to the opportunity for RFID within the production and manufacturing process, even back through to raw materials, and using the data captured to more proactively react to market demand.
RFID has been in use for quite a long time in production in closed-loop manufacturing processes for automatically tracking and recording WIP (work in process) for the purpose of automated quality control and efficiency monitoring. And yet, the influence of EPCglobal on RFID compliance initiatives will tilt the scales toward trading partner collaboration.
Matt Ream, senior manager of RFID Systems for Zebra Technologies, explains: "In the future, we will see an eventual merging of RFID for internal production and EPCglobal requirements, where you consider the applications that require operation on the EPC network, but also areas that would benefit from the read/write capability of an automated read/write tag." He also explains that EPC is shifting the opportunity in terms of vendor selection: "By using standardized [EPCglobal/Gen2] technology, your price points might be better from a sourcing perspective."
Change is the Only Certainty
The opportunity for efficiency improvement should drive the requirements and vendor selection, not the other way around. It is never a good idea to marry oneself to a particular vendor or technology. Today, the industry is at a vulnerable point with RFID. There are several hundred vendors providing partial RFID solutions: tags, readers, printers, data collection, middleware and business intelligence software. The dust has not settled as to what companies will become the major players and which standards will change by governing bodies such as EPCglobal, governments worldwide and industry-specific consortiums. Because there is such uncertainty, it is critical not to marry oneself to vendor solutions that require changing the business process to fit the solution. The way to mitigate risk with RFID is to always consider what is in the best interest of the company from a process perspective. This way, your company will be in control, and the visibility that RFID promises will be yours. Should the tree fall in the forest, at least you will know you were not underneath it.
Editor's note: Part 2 of this article, Great Minds Unite, will appear in the September issue.
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