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The growing pains of RFID

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It is now three years since retailer Wal-Mart announced it would mandate the use of RFID by its suppliers, with the eventual intention of deploying RFID technology throughout its supply chain to improve efficiencies.

And it is not the only firm to have taken such a decision, as retailers such as Metro of Germany and Target in the US have introduced such mandates. The US Department of Defense has also leapt onto the rolling bandwagon.

When Wal-Mart took the RFID decision, it stated to some skepticism, that the benefits would be felt by all, providing suppliers with a better mechanism for controlling inventory and sales velocity, and giving them more demand signals to help them forecasting demand for their products more effectively.

But what do the suppliers really think?

Originally applying to just the largest suppliers, mandates from retailers and government agencies have become more widespread over the past couple of years. For the majority of manufacturers supplying these mega retailers, there is simply no place to hide.

One of the earliest manufacturers to comply with the Wal-Mart mandate was Procter & Gamble. It claims to have achieved many benefits from complying with the retailer's demands, most notably streamlined processes, improved visibility into shipments and fewer errors in distribution. But that success has come at a price; its investment in RFID technology amounted to many millions of dollars. After all, the company at the beginning of the supply chain pays for all the tags.

Hurwitz & Associates recently spoke to manufacturers to gain an insight into the key challenges facing their business. Across the board, all are looking to increase the efficiency of their operations, as well as to reduce operating costs. But a clear pattern emerges - for those manufacturers supplying the large retailers that have imposed RFID mandates on their suppliers, the use of RFID technology is cited as the biggest challenge they face; not only in track and trace functions, but it is seen by some as the biggest overall challenge facing their organisation.

Speaking under conditions of confidentiality, manufacturers state they have not seen any business value from the investments they are being forced to make. Rather, it is just a big cost and one that they see as unreasonable. It cuts into their profitability and hampers their ability to streamline their operating costs.

For them, RFID does not live up to the Wal-Mart promise. Not only that, they grumble that Wal-Mart itself appears to be overwhelmed by RFID, because it is not providing them with RFID information that was supposed to be so valuable. So they have no additional ability to better plan their operations and improve the level of service that they provide.

So what is it that they want?

Well, they want more help and support from retailers such as Wal-Mart. Specifically, they want the retailer to bear some of the costs associated with setting up RFID systems. That, by the way, is something that Wal-Mart has expressly refused to do. They want the costs of the tags to be lowered. For one manufacturer, the cost of $0.15 per tag for its low margin products is simply too high. Because of this, its stated strategy is to go as slowly as possible with its RFID implementation, meeting just the minimum requirements possible.

Manufacturers interviewed want to see a better business case made for the use of RFID in their operations to give them a better reason for wanting to invest in the technology. According to one, the only way that using RFID would benefit them would be if the costs were lower and its use more widespread. Then they'd have an incentive to deploy RFID right across their operations and maybe some of those elusive benefits would emerge.

They are also looking for help in developing systems that will allow them to incorporate RFID into the processes they use throughout their supply chain, such as incorporating checks on RFID tags as orders are being pulled together to ensure that orders are complete, rather than having to go through a separate audit process further down the line.

Manufacturers feel that RFID is a fairly new technology that has yet to prove its worth. They feel that they are being press-ganged into using it, but being left out in the cold as far as sharing the burden. They are forced to develop their own technology systems for handling RFID requirements, whereas many of the processes involved in the supply chain are common across manufacturers, especially those operating in the same vertical sector.

They are looking for someone to develop technology systems for handling those common processes, rather than just imposing mandates that add extra expense to their business operations. Until that happens, RFID's path to adulthood in the manufacturing sector will continue to be a long, painful journey.

Copyright © 2007, IT-Analysis.com

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