RFID technology has the potential to change the way supply chains are managed, but in order to be effective businesses need to take a holistic look at the deployment.
In spite of billions of dollars of existing investments in supply chain operations, industry practitioners confirm that pallets of goods still get lost or go to the wrong destination, and stock-outs still happen for popular and presumably more profitable items due to limited visibility into supply chain processes. Combine that with the razor thin margins on some of the consumer goods products, and you have many companies and supply chain professionals across industries striving to have the ability to know exactly where all the goods are in a supply chain and verify their authenticity — a daunting task if you ask any industry practitioner.
It is equally interesting that the technology that holds the promise to resolve this problem is based on something as common as radio waves — a phenomenon we all take for granted. The anticipation of Radio Frequency Identification (RFID) technology solving the problem of effective tracking of goods in the supply chain has many customers, suppliers and vendors quite excited. Large investments are happening in this field.
While one could argue that all the hype — and money — surrounding RFID hides the practical difficulties of its implementation, it is a fact that giants such as Wal-Mart and Gillette are investing heavily in RFID technology, implementing it into their operations to solve the complex problems surrounding supply chain tracking, reporting and decision making. And both Wal-Mart and the Department of Defense (DoD) have mandated that their suppliers start using RFID to track pallets of goods in order to continue to do business with them. The sheer amount of goods these two giants order from suppliers, and the number of suppliers with which they interact, means that the mandate will most certainly have a ripple effect throughout the entire supply chain.
What is RFID?
At a very high level, an RFID system uses radio frequency to detect the presence of an object. A typical system includes a tag that is attached to an object, a reader that picks up the presence of the tag and a set of computers known as the "Savant." The Savant aggregates data from different readers, filters it and passes it on to other supply chain systems that make decisions based on the data. The tags themselves are of three types — active, passive and semi-active. Active tags have on-board battery to broadcast their presence when prompted. Passive tags don't have such battery, but rely on the reader's energy to broadcast their presence. Semi-active tags tend to act like passive tags, but may use on-board battery for other functions such as collection of environmental data the object is exposed to.
While the RFID system may not seem very different from the Universal Product Code (UPC) — bar code — system currently used to track objects, there are actually three fundamental differences. First, bar codes require a line of sight in order to be correctly read, whereas RFID tags can be read without line of sight due to radio frequency. How often have you seen a grocery clerk scan a package more than once before the bar code is properly aligned with the scanner and the price registers? Conversely, with RFID every box in a pallet full of razors or cereal, for instance, can be read at once as the pallet goes by the reader in a warehouse, allowing for more granular, item-level tracking at speeds fast enough to make the process practical. Then, the data collected from different points in the supply chain can be fed into the decision support system for better forecasting and business decision-making.