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Building a Better Business Case: Assessing RFID’s Real-World Impact on Industry

Related Topics:
RFID Tracking Systems - Warehouse RFID - RFID Labels

Author
Jan Svoboda,
Business Development Director, RFID Business
UPM Raflatac, Inc.


 
Reinvention is tough work. As any student of technological innovation knows, the Internet is littered with overly optimistic analyst predictions and cautionary tales of companies who bet it all on the next big thing, only to see it – and their fortunes – fail.

So it is hardly surprising that many companies have taken a “wait and see” approach to the RFID (radio frequency identification) revolution. After all, only a handful of organizations have mandated that their top suppliers implement RFID initiatives. For these companies, the business case is simple: Comply, or else.
 

For others, the business case isn’t quite as straightforward. “Slap and ship” RFID programs add cost and complexity to standard warehouse operations. They may check the compliance box, but benefits accrue primarily to the customer, who can use new data insights to optimize inventory management. While fully integrated RFID initiatives have the potential to transform the supply chain, creating greater efficiencies, reducing costs and increasing productivity for all parties involved, they also require a sizeable investment and careful study of key operational processes by the manufacturer.

While companies may be tempted to sit on the sidelines, waiting for vendor solutions to evolve and prices to drop, they are missing out on a valuable opportunity to streamline critical supply chain management processes. Early movers are already seeing impressive benefits, even though most are still using RFID only at the pallet level. Consider the following:
  • Wal-Mart, the company whose mandates have galvanized this fledgling industry, has released an independent study showing that it was able to reduce out-of-stocks by 16% at RFID-enabled pilot stores. In addition, the stores replenished out-of-stock items three times more often than untagged SKUs.1 While the study didn’t examine labor savings, it appears that RFID also increased employee productivity and effectiveness by creating automatic pick lists and reducing manual ordering.2
  • LEGO, a major supplier to Wal-Mart and Target, designed its RFID initiative to tag by ship-to destination, rather than SKU tag, creating an instantly scalable solution. The company has achieved impressive read results with a customized middleware solution and Rafsec RFID tags by UPM Raflatac, achieving 99% accuracy in tag reads of cases at conveyor and pallet sites and 100% at the dock door. LEGO plans to use data insights to enhance advanced shipping notices, streamlining its distribution processes.3
  • HP has undertaken an enterprise wide initiative to study RFID’s impact on its supply chain. Already, it has used RFID to reduce inventory processing time, and plans to use its own and customer data to reduce excess inventory and optimize other processes. This year, it will ship more than one million RFID-tagged SKUs to customers.4
  • Pfizer is shipping RFID-tagged Viagra to combat global counterfeiting and authenticate its product.5 Other pharmaceutical companies are following suit, whether investing R&D dollars like Merck to create their own innovative tag designs,6 or piloting vendor solutions.

So how can a company implement an effective RFID program that will deliver real ROI? To build a better business case, companies should:

  • Understand industry trends: RFID’s impact varies by industry. In retail, it’s remaking the supply chain, as suppliers and retailers collaborate to optimize justin- time manufacturing and inventory management. It’s also allowing makers of high-end goods to control counterfeiting and the gray market: A high-end snowboard manufacturer has used Rafsec RFID tags by UPM Raflatac to authenticate its boards and ensure that only authorized retailers are selling its products. In pharmaceuticals, RFID has the potential to deliver a lethal blow to counterfeiting and the gray market, improve product security and enhance consumer usage and safety. Numerous companies are studying how to create electronic pedigrees, using tagged bottles which can be paired with reader enabled cell phones to educate patients about side effects and contraindications, schedule dosages and authenticate drugs. In homeland security, RFID is being used to secure ports and safeguard shipments. Meanwhile, the technology has potential as a tracking and authentication tool in industries as various as library science, document management, air travel and trucking. Will RFID be a weapon of competitive differentiation for your industry, or an important, niche application? Only by studying industry trends, competitor actions and customer demands can you make that crucial determination and create a winning strategy that will optimize the value you deliver to the marketplace.
  • Study inventory management processes: Break down your key processes, to understand how inventory is processed, tagged, shipped and managed. Are there ways you can strip inefficiency out of the process to accelerate processing and reduce inventory on-hand? Can you exploit chip data to obtain better, faster information about product sales, spoilage and theft? Can you use customer provided inventory intelligence to optimize just-in-time manufacturing, cutting  costs and improving product availability and quality? Make sure to involve key inventory management staff in the selection, design and implementation of a solution to ensure that it will solve current problems, without creating new ones.
  • Choose the right partners: While some of the marketplace hype has subsided, exposing substandard product offerings for what they are, it’s still important to do due diligence on your shortlist of solution and tag providers. Can your vendor deliver and customize a fully automated solution to meet your operational needs and enhance key processes? What results have they achieved for other clients? Does your tag provider deliver reliable products with 99% or greater read reliability in different operating conditions? Creating the right partnership can make or break your initiative, so it’s important to select providers who have delivered success, not empty promises, to your industry and will be able to deliver when RFID moves from the pilot stage to the enterprise deployment level.
  • Use the right solutions: While cost is an important driver, tag size, versatility and chip capabilities can prove equally critical. Companies seeking to tag nonstandard products, such as unconventionally sized or high-density items, liquids, or metals, typically need performance above all else. Make sure you select a tag provider who has invested in creating high-quality tags and will continually innovate solutions, to offer you the full range of tag sizes and types you will need for your evolving product portfolio. Study their performance data and talk to their customers: Are they really delivering promised performance and quality? If not, applied tag costs will greatly exceed advertised material costs. Item-level tracking for high-value goods will soon become a reality, so it’s important to deploy a scalable, high-quality solution, or current challenges – and costs – could skyrocket.
  • Maximize data: RFID data is only valuable if it’s fully utilized. Evaluate your program on an ongoing basis to look for ways you can optimize its usage. Use the results of your pilot study to refine your approach before deploying it on a larger scale. Offer best practices and data insights to valued partners and customers. And use insights to wring concessions from suppliers, consolidate operations and continuously improve processes.

Like many an emerging technology, RFID has had some growing pains as it navigated a perfect storm of industry hype and hubris. However, one thing is certain: RFID is here to stay. Its far-reaching potential and backing from industry giants such as Wal-Mart, the U.S. Department of Defense and the U.S. Food and Drug Administration guarantee that the technology will mature—and quickly. What’s less certain is how well companies will claim this game-changing technology and make it their own. Will they continue to sit on the sidelines, allowing competitors to outpace them operationally? Will they implement simple “slap and ship” initiatives, meeting customer mandates but deriving no real value from their investment? Or will they work from inside out, streamlining processes with RFID and using new data insights to create marketplace change and competitive advantage? The next few years will prove telling, and the manufacturing titans trumpeted in tomorrow’s online technology journals may very well be the RFID innovators of today.

Author
Jan Svoboda,
Business Development Director,
RFID Business
UPM Raflatac, Inc.
267 Cane Creek Road
Fletcher, NC 28732 USA
Tel. +1-704-644-0877
jan.svoboda@upmraflatac.com
www.upmraflatac.com

1 Mark Roberti, “EPC Reduces Out-of-Stocks at Wal-Mart,” RFID Journal, October 14, 2005, http://www.rfidjournal.com/article/articleview/1927/1/1/, (accessed January 31, 2006).

2 John Johnson, “How They Did It,” RFIDWatch Weekly, DCVelocity.com, January 2006, http://www.dcvelocity.com/articles/20060101/rfidwatch.cfm, (accessed January 31, 2006).

3 Khristen Chapin, “RFID Required: LEGO’s Integrated RFID System,” Integrated Solutions, February 2006, http://www.integratedsolutionsmag.com/Articles/2006_02/060201.html, (accessed January 30, 2006).

4 Khristen Chapin, “HP’s $150 Million RFID Venture,” Integrated Solutions, August 2005, http://www.integratedsolutionsmag.com/Articles/2005_08/050801.htm, (accessed January 31, 2006).

5 “Pfizer Shipping RFID-tagged Viagra,” RFIDUpdate.com, January 9, 2006, http://www.rfidupdate.com/articles/index.php?id=1027, (accessed February 1, 2006).

6 “Merck Invests in Advancing RFID Technology,” RFIDUpdate.com, January 26, 2006, http://www.rfidupdate.com/articles/index.php?id=1039, (accessed February 1, 2006).

 

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