Part 1, "RFID Best Practices: Part 1, Addressing Problem Unknown," appeared in the August issue of DM Review.Emerging from the storms of RFID (radio frequency identification) hype, we begin to glimpse the dawn of calm, the telltale signs of best practices. We know this because companies are beginning to achieve great benefit from RFID. However, the seas have not entirely quieted down; it is likely that there are unforeseen perils ahead. Nonetheless, companies can assuredly ride out the storms to come as long as they are following several strict navigational guidelines.
Many suppliers today have complained that RFID, in its role as a supply chain compliance requirement, does not give them any return on investment. Yet, conversely, suppliers small and large are achieving business benefit through RFID today. The reason? Creative internal collaboration between business units, with finance at the head of the ship.
In the best case scenario, each phase of an RFID rollout should be funded from the benefits gained from the phase that came before it. However, RFID is not always going to provide a linear return. There are many factors influencing the gains that can be achieved. One might liken this to the early days of barcodes, or even enterprise resource planning (ERP). Frank Lanza, global RFID director for Hewlett Packard, likens the phenomena of RFID to the cell phone: "If the premise [of linear ROI] had been used for creating the networks for cell phones, no networks would have ever been built. You need the network before you can have the service."
At its core, a synchronized value chain, in which RFID plays a key and beneficial role, requires the collaborative thinking of finance, multiple business units and information technology.
Business Benefit through Lean Process Improvement
RFID can essentially computerize each and every widget that is produced (and all the stages in between, if you choose). This new level of visibility will surprise many because it will identify inefficiencies in production, warehousing, distribution and retail that were not previously known.
We approach RFID projects with a Six Sigma mindset, regardless of whether or not a company is officially affiliated with this specific lean improvement technique. Six Sigma is a valuable weapon with RFID because it begins on the premise that the problem has not necessarily even been identified. Six Sigma, like RFID, can be used to quickly apply RFID solutions to problems unknown and, hence, provide very rapid business benefit.
Cutting the Fat Out of Processes
Much has been said about the need to carefully analyze existing processes and using this as a foundation for understanding requirements of RFID. From there, one can have a very clear picture of the impact that RFID will make to the company. This phase is called the impact analysis, or an understanding of to-be processes. However, as critical as what is to be is the impact a company wants to achieve with RFID.
The technology of RFID is not the first place to look. It is, instead, the objective that RFID presents: total item visibility as it moves through the entire supply chain, from raw goods procurement through process and manufacturing, to storage and transport.
RFID is not just about the sales department meeting the mandates of its trading partners. The input of divisional heads in planning, manufacturing, warehousing and transportation could provide critical insight to overall opportunity.
Processes can be impacted in a variety of ways. The first place to look is the processes that directly impact the CTC components - those "critical to customer" elements. In other words, how can we positively impact how our customer experiences or perceives our services? Perhaps it is through eliminating wrong product shipments (which may have to do with the picking process), reducing back orders (which may have to do with inventory issues) or perhaps a customer could likely benefit from having access to additional information about the item's production (which may require replacing manual record-keeping with automation).
The second area to consider is internal efficiency improvements. Any process that is currently being done manually, and which could benefit from visibility of that process, might indicate an opportunity for RFID. Hewlett-Packard, for example, has deployed RFID successfully at 26 sites worldwide, using RFID to benefit its internal processes far beyond the mere compliance mandates of its customers. Lanza at Hewlett Packard is internally creating efficiencies between its different sites: "We have sites where the incoming material is already RFID tagged as part of the output for another site. We use the tagging to automate the receiving process, which is not just a matter of labor savings, but an advantage of optimizing the timing element of inbound items."
Automated Record Keeping
Another factor is traceability. Food processors, particularly in the meat industry, who have accountability both with their trading partners as well as the USDA and other governmental agencies, must track certain qualities of the production environment, with the ultimate goal being traceability from item level back to the lot number. Today, most food processors are tracking these steps manually, which accounts for an inaccurate, labor-intensive paper trail. If a company collects data manually, it is highly unlikely that proactive decisions can be made on that data. If, however, the food processor has real-time access within a database to processes within the manufacturing environment through RFID, several benefits emerge.
Internally, automated record keeping can provide labor savings as well as faster and more efficient picking capability. It also enables an organization to quickly react to recalls without shutting down the entire production line for days, which also limits liability. Customers can also receive valuable historical or quality information about the item, linking features such as ingredients and environmental transport conditions to the specific item. For example, at the Metro Group RFID Innovation Center in Europe, consumers can scan a bag of chicken which will link the meat back to the animal's date of birth, the farm on which it was raised, the foods it consumed, and even the date and place of slaughter.
In reverse, from a procurement perspective, there may be tremendous value-add if your own suppliers provide quality and historical data about the items being supplied to you.
However, RFID is not always a fit for process improvement; sometimes there are much lower cost alternatives. Matt Ream, senior manager of RFID systems at Zebra Technologies, explains, "Many suppliers have well-oiled supply chains and well-oiled manufacturing processes that use bar coding as the basis of record keeping. In some scenarios, RFID could be applied, but first take a look at the value proposition."
The Power of Information Systems
Without integrating RFID data collection to back-end ERP and business intelligence software, no ROI or business benefit will be found. The problem with integration today has less to do with tags and readers, or even the standards that are still evolving. John Greaves, lead for global RFID technology integration of Deloitte & Touche, explains the biggest challenge today, as "the ability to process 96-bit records as opposed to 32-bit records. A company must reconstruct their data architecture to reflect the increased traffic. There is a vast difference between a truck-lift driver scanning a single box versus 220 boxes simultaneously."
There is a challenge of integration within RFID itself. There are several hundred RFID vendors, each of which provide only one or two parts of the whole solution. Vendor categories that must be analyzed are tags, readers, printers, middleware, hardware and business intelligence software (see Figure 1). It takes integrated expertise to know how to put the pieces of the puzzle together.
Figure 1: RFID Vendor Categories and Functions
Parallel to internal integration considerations are the demands being put forth by the EPCglobal Network. In this network, each participating trading partner collects and houses item data (specific to their own handling of the item) through RFID. This data, describing the movement and activities of that item, then sits in a local server or database partition called EPC Information Services (EPCIS). Each involved trading partner then has access to this item data, similar to a peer-to-peer Internet-based network model, in which EPCglobal acts as the traffic cop and security broker, pointing the trading partner to the location and data as it is requested.
Keep in mind, the Network is still primarily in conceptual phase; as of 2004, only a handful of companies, such as IBM, TIBCO and Procter & Gamble, were participating in prototypes. However, the ultimate objective of EPCglobal can only work if each participating company first integrates RFID data into their back-end systems. Considering the fact that EAN International and Uniform Code Council, which endorse EPCglobal, are composed of more than 1 million member companies, it is not a matter of if this vision will happen; it is only a question of when.
Let Money Dictate
Process improvement and integration must bow to the financial impact of RFID. As the various business units discover areas for process improvement and information services understand the critical components needed for a stable infrastructure, it will be finance that ties together RFID into an implementation package that rolls everything together for the organization. This will assure smooth sailing in even the roughest of environments.
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