The growing pains of RFID
Manufacturers issue call for help
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
The Y2K (and now RFID) Acid Test
Back in 1999, I used a customer's (ie, company's) Y2K preparedness as an indicator as to the state of their IT management - and, consequently, the problems that I as a consultant would have in implementing "new" technology at their facilities. The less that they had prepared for Y2K (meaning how many out-source coders I found stuffed into corners and lunch rooms) the worse I knew MY projects were going to fare. I used this to properly configure project plans and pricing - and was pretty much dead-on with the estimates.
Fast-forward 8 years. Today, examining a producer/retailer embracing or resisting RFID is filling the same benchmark for me. RFID provides immense benefit to a company -IF- they have a proper appreciation and preparation of the support components - and business process re-engineering - that is required to USE this information. Few outside of Wal*Mart, P&G, etc. have made the necessary preparation to use the flood of data that RFID provides.
The real cost to a company that is required to implement RFID tagging in their products is the support infrastructure to give them benefit from the technology. Many do not understand how RFID in every individual produce can help them in managing their business in real-time: they are still in the "batch mentality" that says "well, monthly reports are good enough". It takes not only the sensors, communications and tracking systems, but a thorough re-work of the back-ends and the entire production and inventory management process - as well as a GOOD data warehouse - to truly benefit from this technology.
I mention all this together as the resistance to RFID from a corporate stand point is an indicator that the company's systems are still probably at a 1980's level of sophistication. Current industry best practices usually perscribe near-real-time tracking of inventory, WIP and materials stock in order to support flexible manufacturing, JIT delivery to manufacturing, WIP control and short-medium term ERP to name a few. If you're not doing these things WELL today, you're going to get your lunch eaten by other companies that are.
So for the next two years RFID will be my benchmark for deciding to take on a new client. If they ain't "got it" then I ain't going!
problems with traditional RFID chips...
traditional RFID chips don't work in proximity to metals or liquids - a nightmare in supermarket supply chains where a lot of product packaging contains foil or the product is itself liquid (milk, water, juice etc etc)
However, Qinetiq have recently announced their Omni-ID chip, which _does_ work in proximity to metal or liquids...
Who's Really Surprised?
Since the invention of the mega-retailer (Woolworth, Sears, etc...) suppliers have always complained that the retailers issued difficult mandates that often threatened to put them out of business (Sears actually did murder several of it's big name suppliers), why is anyone surprised about Wal-Mart? Just like dealing with the devil, dealing with the uber-god of retail is going to have some consequences.
If the suppliers want to do business with Wal-Mart/Target they have to comply. Doing big retail screws margins so badly that most suppliers can't get away from mega-retail after they jump in. I feel no sympathy for the junk/disposable culture being driven by the mega-retailers. They have killed boutique shopping and I hope they choke on the bones of those they have eaten.