RFID and the Future of Supply Chain Management

August 2004

Biz Life Magazine

By Chad Cheek

2004 marks the 30th anniversary of the introduction of the bar code. Once upon a time, the world needed a universal way of identifying and tracking—on either end of the supply chain—what was happening with goods being manufactured and sold. So, on June 26, 1974, a 10-pack of Wrigley's chewing gum was passed across a scanner at a Marsh Supermarket in Troy, Ohio. It was the first item to be scanned at a checkout, and it would change product tracking, the supply chain and the world of commerce forever.

For thirty years, barcodes have been used to keep track of products—not only as they leave retail stores but as they move about in the manufacturing and shipping process.

Now, a technology is being introduced to supply chain management. While RFID (which stands for radio frequency identification) may be the hot new topic for manufacturers and retailers, it has actually been around for decades to track and identify goods, even livestock. It has most recently gained more visibility, however, due to Wal-Mart's June 2003 announcement that its top 100 suppliers must be RFID compliant by January 2005. Since then, that list has grown and continues to grow. The Department of Defense has made a similar mandate to its top suppliers.

Why all the hullabaloo? RFID technology promises the ability to improve supply chain performance. The opportunity to automate the tracking of goods and assets from "cradle to grave" without human intervention is driving the increased interest in this burgeoning technology.

Why is this different than using bar codes? RFID provides the opportunity to have proactive visibility to the location and unique identity of each item in the supply chain.

While bar code-based systems have worked very well for the last 30 years, these systems must be tended by humans and monitored very closely. RFID technology promises the ability to reduce human capital, substantially reduce pipeline inventories, reduce operating costs and improve customer service. Also, shrinkage can be better managed because better visibility is gained over inventory, in many cases a company's most valuable asset.

How does it Work?

Essentially, RFID is the automatic identification and tracking of items through use of an identification chip or "tag" that sends data to readers through wireless data communication. In other words, these tags enable items to "speak" about their identity, location, activity or history through readers and, ultimately, to application software that will "listen" or process and send this information to other appropriate (financial, inventory or other) systems.

There are five components to an RFID system:

• Tags
• Readers
• Encoders
• Middleware
• Application Software

An RFID tag is comprised of a microchip containing indentifying information and an antenna that transmits this data wirelessly to a reader. The reader sends an RF (radio frequency) signal to tags to request information contained on the chip. As it relates to the supply chain, RFID facilitates tracking of inventory and other assets at multiple points in the supply chain, including the item's history as it passes through multiple owners or processes. Right now, the focus is on the basic identification of an item as it passes through the supply chain. In the future, specific item location, manufacturing origin and other functionality will be necessary.

An encoder is necessary when a company uses a read-only tag. An encoder essentially "writes" data to the tag—a capability that might be necessary to use one or many times depending on the tag chosen. Middleware is a specialty software that sits between the reader network and application software to help process the large amount of data being transmitted from the tags or readers.

For real value to be derived from the usage of RFID, the RFID-enabled software that processes RFID data, controls workflows and business transactions and passes the data on to other systems is required. Application software is even necessary to manage the process flow for RFID compliance requirements.

From a technical perspective, RFID will significantly enhance the supply chain processes by eliminating "line of sight" requirements (bar code scanners have to be in a reasonably close proximity to the actual bar code; RFID tags can be read through materials without line of sight). RFID tags can be read automatically when a tagged product comes past or near a reader. Overall read rates are improved and there is a greater capacity for housing encoded data within the actual label. Another key feature is that RFID tags can be rewritten with new data as supply chain activities occur.

Is This Right For Us?

Let's say that you understand all of the necessary requirements, components and hardware, and can put the right software in place. Do you need it? Some key questions that may need to be asked are:

• Are you a supplier to Wal-Mart, the Department of Defense or other major retailers?
• Do you have fixed assets that are not well-tracked through the supply chain?
• Are your current receiving and shipping processes cumbersome?
• Do inaccuracies and discrepancies in accounting lead to inventory invoice adjustments and manual reconciliation?

If you answer yes to any of these questions, an RFID implementation strategy might be in your future. Implementing RFID does not have to be an enterprise-wide, all-or-nothing strategy. Right now, costs, technology maturity and traditional bar code processing will need to co-exist in most supply chains for quite some time, but it may be time to put a strategy in place.

Now that we've moved far beyond scanning packs of chewing gum, what does the future hold? Soon, you'll fill your shopping cart full of RFID-tagged merchandise, pass your cart through a reader and then be told how much to pay for your groceries—without standing in line. And, that store's inventory levels will automatically be reduced as you leave the store.

Sound cool? It's possible. How soon? Perhaps some time in the next 30 years. Stay tuned.

Chad Cheek is Business Development Manager at Stratapult, a technology development and consulting firm that helps clients with Web and application development, remote systems management and technology integration strategies. Chad can be reached at 336/631-2947. Visit the Stratapult website at www.stratapult.com.