<!--skip--><!--skip date-->More than a bar code replacement

AMR Research says RFID will play a substantial role in the next generation of supply chain execution but the transformation will take time.
Written by Staff , Contributor

More than a bar code replacement

By John Fontanella, Matt Bilodeau and Scott Lundstrom, Special to CNETAsia
June 14, 2004

Don’t paint all Radio Frequency Identification (RFID) projects with the same brush.

The Wal-Mart mandate that its top 100 suppliers attach RFID tags to cases and pallets by 2005 has thrown the entire technology of Automatic Identification (Auto-ID) into the spotlight.

RFID market forecast

In some ways, it’s a boon for the industry. Data collection technologies like RFID have invariably taken a back seat in interest to their more glamorous high-tech counterparts. But awareness is a double-edged sword, particularly when market perception is shaped by a single, complex, and hugely ambitious undertaking.

Viewing RFID only in the context of an industry-transforming initiative does a disservice to the technology. AMR Research finds that the companies that take a more simplified and focused approach to the use of RFID technology incur much less risk in implementation, receive tangible value, and build capabilities that give them significant differentiation from their competitors.

RFID is part of the larger Auto-ID technology family, a growing but constant part of our business and personal lives. Smart cards, automated toll collection devices, and sensors that track the condition of anything from tires to consumer electronics all fall into this category.

The RFID tag itself is a microchip, millimeters thick, with an attached antenna that transmits information to a remote reader. Because radio waves can pass through most solid objects, gathering or disseminating information does not require the tag to be visible. This is a radical departure from other technologies, such as the bar code, and opens a whole new way to view a business process. Tags can be active or passive, meaning that they can broadcast information or just transmit when queried by a reader. They can also be designed to be reused, or serve only as a one-time ID device.

The technology is already quite flexible. Information such as a serial number can be burned into a tag in a one-time operation for the simple purpose of providing identification throughout a process, much like the bar code is used today. Other, more sophisticated uses include using the tag as a mobile database, recording and directing workflow along an assembly line, for instance. The technology can also be used to sense, monitor, and record environmental changes, such as temperature, moisture, and exposure to light. Some of the capabilities of the technology have been used for years while others are newly emerging.

RFID's value lies in enabling companies to reach a level of process discipline that is beyond the reach of human interaction or alternative technologies.

New value
RFID's value lies in enabling companies to reach a level of process discipline that is beyond the reach of human interaction or alternative technologies. Process discipline provides accuracy and predictability, which in turn reduces cost, optimizes the use of assets, and enables a company to deliver consistent, and sometimes unique, service levels to its customers.

The use of RFID eliminates the waste and inefficiency created from process noncompliance There are business processes in every company in which the level of process discipline required is not achievable by humans working in tandem with technology. Overcoming these limitations is difficult and expensive. While the option to create a totally automated process may be available, the normal course of action is to accept the waste and inefficiency created by noncompliance to process as a cost of doing business. This is where applying RFID has proven most effective--not by marginally improving an already well-disciplined and well-performing process, but by delivering a unique capability that overcomes the barriers commonly caused by an operating environment or material characteristics.

Much of the RFID technology used to drive process compliance is mature and represents little implementation risk.

Potential users have to differentiate between low-cost, disposable tags, which are not ready for industrial use, and more expensive, proprietary RFID technology that has proven itself in an industrial environment. RFID also doesn’t need a complex problem to solve before it can add value.

With an investment of £200,000 (US$364,697), a UK distributor cut energy charges by almost 25 percent by using RFID to synchronize the opening and closing of doors in its refrigerated warehouse with the arrival and departure of trucks. The savings are a result of a dedicated and precise monitoring system, more efficient than a dock worker already distracted by stock handling and administrative tasks that are part of the receiving or shipping process. Short implementation time with proven technology yielded a return on investment that surpassed expectations.

View the potential of RFID as an automation technology, not just a data collection method Manufacturing companies with highly automated assembly processes have been early adopters of RFID. They view it not only as a data collection technology, but a way to further streamline the production flow. Process steps that create an interrupted flow because of manual scanning and data entry at each step have been prime targets for the technology. This concept of interrupted flow applies not only to a manufacturing process but also to a distribution environment for a streamlined cross-docking process or a postponement operation that adds value to a product per the customer order.

Show me the money
RFID fuels a technology replacement cycle in manufacturing, supply chain, transportation, retail, service, and support. The RFID market will develop in three distinct phases--pilots, supply chain infrastructure and item-level tagging:

RFID fuels a technology replacement cycle

  • The pilot phase (2003–2005)--This phase is characterized by widespread testing and prototyping. During this phase, the infrastructure market grows slowly. Service providers and integrators do well. Application, analytics, and storage vendors look toward supporting upcoming supply chain infrastructure deployments. Software vendors begin to address the significant development effort required to completely support RFID at the application level.

  • The supply chain infrastructure phase (2005–2009)--This phase will be characterized by the wide-scale deployment of RFID at the pallet and case level. RFID investments will focus on supply chain execution, inventory management, transportation, MRO, and post-sales service and support. RFID hardware vendors face rapid growth and consolidation. Economies of scale in tags and readers will allow hardware and tag prices to drop. Supply chain execution software upgrades will drive new growth in this market and generate significant implementation service revenue. Most applications that support supply chain execution, inventory management, and post-sales service and support will need to be replaced or upgraded to support RFID. This also creates new opportunities for outsourced providers of these applications to win a percentage of the replacement business.

  • The item-level tagging phase (2009–2013)--This phase will see substantial growth across the board. Broad adoption of the technology coupled with significant increases in the number of deployed tags and readers should drive 70 percent to 80 percent market growth rates for several years. Retail will experience rapid change as new racks, Point of Sale (POS) systems, and planning and replenishment applications move to RFID-based technologies. Growth in storage and analytics will take off to capture the huge volumes of data generated by the tagging of most consumer and industrial goods.

Ultimately, RFID will be a core technology deployed across the supply chain in most industries. While we see this as a 10-year progression, leading world-class supply chain companies are already beginning to pilot implementations to gain a more complete understanding of the benefits and challenges that RFID presents. The advantages that improved information availability generates and the likely supply chain cost savings that RFID creates make it an essential technology for companies looking to remain competitive. Vendors and service providers need to move quickly to provide products that allow early adopters to pilot the use of RFID in the supply chain.

John Fontanella, Matt Bilodeau and Scott Lundstrom are analysts with AMR Research.

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