RFID: The Oncoming Wave

This article will define RFID technology and offer examples of how it could help improve your distribution center operations.

RFID uses radio waves to automatically identify physical items in varying proximity to readers that can uniquely identify them. The identification process entails the following:
- the RF antenna broadcasts a signal;
- the tag enters the RF field;
- the RF signal powers the tag;
- the tag transmits data to the reader; and
- the reader interacts directly with the supply chain execution system.

By now, no doubt, you’ve heard that Wal-Mart is requiring its top 100 suppliers to implement a technology called radio frequency identification (RFID) by January. And other merchants are following suit. All of these organizations issued their RFID mandates to reduce costs and improve operational efficiency.

The question for catalogers is: Should you also look at RFID for your merchandise fulfillment operations? This article will help you make that decision.

First introduced during World War II, RFID technology was used to help identify allied aircraft through radio frequency waves. Since then, RFID has continued to evolve and is used by the railroad industry to track cars, the automotive industry to streamline production and track parts, and the agricultural industry to trace livestock.

More recent advances, such as declining chip and reader prices and the increased ability to inexpensively and efficiently transmit data electronically, have prompted companies to begin using RFID for tracking goods as they travel through the supply chain for greater visibility and competitive advantages.

How the Technology Works

RFID is a thin, low-cost, wireless communication device for transmitting and receiving data. RFID tags use computer chips and antennas to transmit information that’s carried over radio frequency (RF) waves and activated when placed within the transmission field of a reader. (See pg. 38 for an illustration of the transmission process.)

There are active and passive tags that range in capabilities from simple, unique “license plates” to encryption, memory and read/write ability. Passive tags are less complex than active ones, because the reader provides them with their operating power. They’re small, lightweight and inexpensive, and can last more than 10 years. But their range of transmission is shorter, so RFID systems with passive tags require a higher-powered set of readers.

Active RFID tags reduce the power requirements of the reader and can transmit information over farther distances. They’re powered by a battery that typically lasts two to seven years. The downside of active tags are cost and size. Generally speaking, the more functions an RFID tag can perform, the more complex and bigger it will be.

Following are the different types of RFID tags:

• Read-only (R/O) tags have a fixed, factory-set identification code that’s tamper-proof. Each tag’s unique code, known as a license plate, enables the tag to be cross-referenced with a database, thereby allowing the tagged item to be closely followed and monitored.

• Read/Write Once tags can be field programmed through a special process that enables greater flexibility in the application process since the information on a tag can be set after the tag is affixed to the product. Once written, this tag behaves like an R/O tag.

• Read/Write Many tags offer advantages in applications where the identification code must be changed or where variable data is more important than a unique identity. These tags also provide an option when a database lookup may not be available or reliable.

Now that you understand how RFID works, let’s examine why you should consider implementing this technology to remain competitive.

How a Cataloger Could Use RFID

Scanless receiving: Whenever an item, location, pallet or carton is scanned, this costs about $0.05 a scan, according to today’s industry standard. Imagine the cost savings if you could eliminate all scans during the receiving process.

Returns processing: As customers return merchandise, an RFID-enabled distribution center can allow for several cartons to be read and received at once. This compares with most operations today in which returns are handled one shipment at a time.

Automation: Whether you have photo-eyes or scanners in your workflow, RFID can improve your process. Current technologies require cartons to be in a specific orientation for the scanners to read the boxes, but RFID doesn’t require line of sight and can read packages in any physical arrangement.

The Business Case for RFID

The key business drivers for RFID adoption in supply chain and logistics operations include the following:

Cost reduction. As noted above, by automating business processes through technologies such as RFID, you may be able to reduce labor costs while simultaneously improving productivity and efficiency.

Traceability and regulatory compliance. Consumer demand and increasing industry and government regulations now require companies to accurately track their products from raw materials to finished goods. You must know where your items are at all times and monitor where they’ve been in the supply chain. This calls for high visibility and precise date and lot tracking to simplify the process in the event of a product recall, for example.

Supply-chain collaboration. Your ability to synchronize operations with your trading partners is another benefit. To improve margins, companies must increase supply-chain visibility by improving collaborative communication and deploying the latest technology for real-time tracking and monitoring of goods. By achieving seamless integration with partners, every aspect of your supply chain process can improve.

Also paving the way for RFID adoption are advances in the technology itself. Declining chip and reader prices, more reliable hardware, and greater integration of information systems are making RFID implementation economically feasible for companies of every size. These advances, along with evolving electronic product code standards, are key drivers for RFID adoption and implementation.

Aside from the obvious imperatives of real-time product tracking and compliance, RFID can add business value. For example, it can provide security against product counterfeiting and tampering. And it can improve accuracy across your operations, from inventory through distribution.

On the business performance side, RFID can help:

Drive down costs and shrinkage through increased operational and labor efficiency, and productivity, with reduced human error.

Increase revenue by reducing out-of-stocks. With RFID tags, you can capture and track product data much more closely, leading to more accurate forecasting and inventory control.

Improve supply-chain visibility via real-time synchronization and communication with your trading partners. Collaboration is essential to supply-chain optimization. By using RFID to track goods from your manufacturer’s factory to your retail shelves or catalog distribution center’s racks, you can implement totally automated logistics management strategies. In turn, this may streamline replenishment, improve inventory control and reduce your overall costs.

Eventually, RFID will be able to provide critical information on customer demand in real time. For example, if a customer cancels or changes an order, RFID will allow you to locate the order, make adjustments and divert it immediately. The increased visibility and decision-making that RFID enables translates into better customer responsiveness and more accurate supply-chain forecasting and planning.

Costs

You’ll need various components to get your distribution center RFID-enabled. Below is a high-level estimate of the components and their usual costs today:

“naked” tags: $0.20 to $0.33, depending on volume;

smart labels: $0.36 to $0.66 depending on volume;

RFID reader: $2,000 to $3,000;

RFID antenna: $200 to $400;

RFID printer: $4,500 to $9,000;

RFID middleware: $50,000 to $150,000;

RFID services: $50,000 to $150,000; and

RFID server: $5,000 to $10,000.

The First Steps

To be sure, RFID can be an intimidating technology because it changes the way in which you do business. To successfully implement an RFID system, first examine your business model and supply chain, then strategize on how best to leverage the technology for maximum value. Incremental steps to take:
-learn about RFID systems,
-select a vendor,
-complete a pilot program,
-start a small-scale production project, and
- roll out a full-fledged RFID solution.

Initial questions to ask:
- What’s the scope of our operations?
- How many facilities would be involved?
- How many SKUs do we have?
- How do we launch a pilot?
- What kind of equipment will we need, and how much will it cost?

Many companies now deploying RFID solutions are working with experienced partners and consultants who helped them answer these questions and set out a realistic road map for a value-based implementation.

Conclusion

As with any new technology, some companies prefer to take a wait-and-see stance. With RFID, a cautious approach is understandable, but may prove problematic. Why? Given the challenges of RFID, as well as the enormous opportunities it presents, you may need a more proactive role in the decision — sooner rather than later.

Clearly, this is a ground-breaking technology that’s just beginning to make its mark.

Michael Wohlwend, director of RFID sales for Manhattan Associates (www.manh.com), has 11 years of experience in the supply chain industry. He wrote this article at the request of the Catalog Success editors. For more information, contact him at (630) 513-9456, or via e-mail at mwohlwend@manh.com.