RFID Technology Poised to Replace Traditional Supply Chain

New report sponsored by North of England Inward Investment Agency shows that RFID can serve as a catalyst for greater collaboration between companies

Dallas — March 7, 2006 — A report sponsored by the North of England Inward Investment Agency (NEIIA), the organization responsible for promoting direct business investment from North America, concluded that radio frequency identification (RFID) technology may well become a catalyst for much deeper collaboration between companies, and lead to the formation of supplier networks that could replace today's linear supply chains.

Titled RFID Comes of Age, the report — which was released at the RFID World Conference in Dallas last week and written by The Economist magazine's Intelligence Unit — explores what some of the problems will be for companies looking to exploit RFID technology for commercial advantage.

Additionally, the paper looks at where RFID is likely to have the greatest impact over the next few years, and the broader challenges confronting the burgeoning RFID industry.

As one of the top technology clusters in the world, North England is attracting both RFID providers and end users, including companies like Sun Microsystems and Wal-Mart, said Himanshu Bhatt, Practice manager for RFID Solutions in the U.S. at Sun Microsystems and co-author of the book RFID Essentials. The fact that North England commissioned this report is evidence of their commitment to the growth and development of the RFID industry, and an example of the collaboration the region offers businesses in successfully penetrating the European market.

Obsolete Supply Chains

A key trend that surfaced in the report is RFID's role as a catalyst for much greater collaboration between companies along the supply chain. For example, a retailer referring to a specific product with one numbering system and a department store that refers to that same product — but with a different numbering system — have no idea that each is selling the same item. By utilizing RFID technology the two companies could change that situation by sharing consistent data that would allow collaboration through purchasing, development and promotion of the product.

According to MIT's Auto-ID Center, this flow of information will accelerate the pace of collaboration and development, with companies ultimately forming supply networks and rendering obsolete the notion of a linear supply chain.

Product Safety, Healthcare and Privacy

The report identified product safety and healthcare as other areas where RFID could play an important role. The paper referenced items with a high cost of failure or confusion where embedded RFID or smart tags could help.

For example, the technology could help motorists manage auto maintenance by transmitting data to them about the physical condition of their tires. It could also allow healthcare professionals to verify patients' identity and medical details in hospital operating rooms.

The report also suggested that legislatures regulating the use of RFID tags should require them to be de-activated at point-of-sale to remove privacy concerns rather than require the permanent killing of stored data. This way, users could have the opportunity to opt-in to post-sales uses that benefit them as well as the businesses using the technology.

Ahead of the Curve

According to David Allison, chairman of The North England Inward Investment Agency, The Logistics Institute at the University of Hull has already been working with a variety of businesses in the region to help them integrate RFID technology into their supply chains.

Allison added that many RFID companies investing in North England are attracted by the region's labor pool. Of our 20,000 university graduates each year, 60 percent have a degree in science, technology or business," he stated.

Additionally, there is the availability of tax credits to businesses conducting any type of R&D in the UK market (i.e. feasibility studies, beta testing, clinical trials, prototyping, etc.). If a U.S. company has less than 250 employees worldwide it can claim back 150 percent of the UK-related R&D expenses as a tax credit, while if there are more than 251 employees worldwide the company can claim 125 percent. Should the business be unprofitable, it can roll the credit over for up to three years or claim a one-time, cash-in-hand advance on the exact amount of that tax credit.

Unlike the recent outsourcing phenomenon, technology companies aren't shutting down offices or plants in the U.S. to reduce costs, commented Ed Pennington, vice president of business development of NEIIA's Chicago office. Instead, their motivation for opening additional operations in North England is to tap into the European market and ultimately generate positive growth for the whole organization.



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