An article by Chopra and Sodhi (WSJ, March 2007) explores the value of Radio Frequency Identification (RFID) tagging and if they have potential to generate substantial savings for businesses. Retail giants, such as Wal Mart, Target and Best Buy, have all begun RFID programs with Wal Mart taking the lead. Wal Mart has required 600 of its largest supplierâs to begin RFID in test areas.
RFID are electronic electronic tags that hold information and emit information via radio frequency and do not have to be physically scanned like older technology (bar codes). This allows for greater speed, allows deployment at multiple locations in the supply chain and enables an real time understanding of status of merchandise. The tags cost between 10 and 20 cents and readers are about $1000.
During the planning phase, RFID can immediately tell inventory levels and reduces human error. It can share data between retailers and suppliers and can give instantaneous information unlike bar codes. This gives a more precise picture of inventory levels to both parties, but the larger the number of suppliers, the most restrictive RFID can be. It can improve accuracy during the receiving and storage phase as well. It allows for a "visual" inventory of multiple items in a single shipment eliminating the need to physically open boxes to verify contents. It can track individual products cutting down on assembly line errors. It also reduces the need of inventory checks at stocking points. However, large shipments of single items might not generate enough savings to justify RFID tagging. It also allows for quicker maintenance and repair operations enabling a company to identify individual parts for repair as opposed to searching parts one by one for failures.
During the manufacturing phase, companies that produce a variety of products can benefit from RFID because companies can track and plan production of items, but bar codes, which are cheaper than RFID tags, can work just as well. In the event of a recall, RFID can identify the exact products that need to be returned saving time and money. It can eliminate counterfeit shipments by verifying the place and time of manufacture.
During shipping, RFID can reduce proof of delivery paperwork allowing for more efficient delivery and control human error. It also reduces time and labor for distributors that receive shipments from multiple suppliers on a single delivery method. It can also track expiration of items allowing companies to move them earlier into the distribution chain.
For large retailers, RFID can alert when items need to be restocked keeping shelves full for customers. Individual item tagging is expensive and might work best for large ticket items. It can also improve check out accuracy, although this might be too expensive to justify. In the same vein, returns by customer can also be more accurate, but this also might be too expensive to justify.
There are a few risk factors associated with RFID. Currently, an industry wide standard for RFID tags is lacking. Smaller manufacturers of tags can consolidate or go out of business. Updates to newer technologies can render parts of the supply chain "invisible" due to outdated technology; companies might have to update the entire supply chain at one time. Collisions with RFID can occur; multiple readers trying to read the same tag at the same time or multiple tags being read at the same time. RFID is a new technology and investment made in it might be lost if a newer version is recognized as a standard. Theft of signals, thus information, by competitors is a reality if they are able to break into encryption used by RFID tags. Privacy concerns after purchase might lead to the destruction of tags once an item is purchased leading to increased cost to "kill" the tags.
The authors conclude that upstream in the supply chain, RFID results in low risks and low rewards when manufacturers slap electronic tags on pallets at their plants. Downstream, they found potentially high rewards, but also high risks and costs, when retailers use the tags to track individual products such as DVDs on store shelves. In between, the authors found that companies can cut receiving, handling and storage expenses, without incurring big costs or risks, when the tags are used to track cases of merchandise moving into stores. The business case for RFID is clearest at this point.
Source: Chopra, Sunil; Sodhi, Manmohan S. 2007. "In Search of RFID's Sweet Spot," Wall Street Journal, 03 March.