Good summary article on RFIDHere is an article that outlines some of the issues I've alluded to.
Sorting Out the Details
By Jacob Stoller
07/03/04 11:26 AM PT
This is a complex proposition, and to make things even tougher, the standards for RFID codes are still under construction. In addition, the chips, software, and readers that many companies will need have yet to be developed. Suppliers preparing to meet Wal-Mart's 2005 deadline must feel a bit like a coach preparing a hockey team to play the unknown winner of another division.
Last fall, the world's largest retailer stunned the industry by announcing a requirement for RFID compliance by 2005. Wal-Mart's top 100 suppliers are being gently coerced to put RFID tags on pallets of goods delivered to three Wal-Mart distribution centers in Texas. While there are clear limits to what is being called the Wal-Mart mandate, it has the industry scrambling.
The challenge for suppliers is not the technology itself that has been around for a while -- but implementing RFID in an open business-to-business (B2B) environment. Previous applications of RFID have, for the most part, involved closed systems, in which the company installing the tags also collects the information. In an open environment, multiple partners with diverse systems have to play by the same rules.
This is a complex proposition, and to make things even tougher, the standards for RFID codes are still under construction. In addition, the chips, software, and readers that many companies will need have yet to be developed. Suppliers preparing to meet the Wal-Mart deadline must feel a bit like a coach preparing a hockey team to play the unknown winner of another division.
Preparing for the Next Wave
This kind of conditional planning is exactly what Christian Stephan, a partner with Deloitte Consulting, is doing with his clients who are preparing for the next wave of RFID. According to Stephan, the typical business case for RFID "might translate into the fact that at certain volumes, it doesn't make any sense, but if the price of the technology goes down to a certain threshold, or if the volume increases, then it might start to make sense."
Companies that need to comply with Wal-Mart's requirement need to ask an even more fundamental question, according to Stephan: "Do I just comply and minimize my costs, or... look for medium and long-term benefits?"
Most companies are choosing the latter, according to Stephan. Because the implications of the technology are so complex, there are many issues to be considered before companies can really get a handle on a viable business strategy, and this will take time.
So as companies prepare for this "next big thing," there is a flurry of business planning, pilots, and a lot of guesswork. There are also some lessons to be learned from existing closed system uses of RFID.
One example of this earlier generation that is surprisingly relevant is a solution implemented by Montreal-based Scanpak for Air Canada to manage its fleet of 14,000 food trolleys, the wheeled devices that flight attendants use to serve food and drinks on aircraft. Although this is an asset management solution, its implementers had to face many of the challenges RFID adopters have to address in supply-chain applications.
Shrinking the Problem
The overall objective of the Air Canada implementation was very similar to what experts say RFID will do for retail and distribution: increase visibility of items to reduce storage inventories and shrinkage, and avoid shortages at critical points in the supply chain.
But the similarity doesn't end there. Like pallets of goods, trolleys get shipped to multiple locations around the world, pass through traditional loading and shipping areas, and often have to be moved in a timely manner. Last but not least, the tracking system had to be tested and installed in business partner facilities.
Shrinkage was the problem that alerted Air Canada that they needed to act. In the mid 1990s they found some trolleys were missing -- 2,000 in fact, resulting in a very unwelcome US$2 million hit.
Food trolleys disappear for a variety of reasons. They travel to any of 50-plus locations around the world, and in addition to being on planes, pass through caterers, maintenance and repair shops, and various holding areas. Tracking them is a logistical nightmare. Where do they go? They get placed in warehouses and forgotten. They get hoarded by caterers to make their planning a little easier. They get misidentified, and wind up with other airlines. Or they get stolen.
Air Canada wasn't the only airline concerned with this trend. KLM Airlines in Europe was already experimenting with a solution when Air Canada began looking at the issue, and interestingly enough, they were using RFID. Air Canada sent their manager of system design, Barry Wilkins (currently an independent consultant with his own firm, Outsidethebox Solutions) to have a look, and that's where the RFID initiative began.
When Air Canada initially approved the project, they set the following objectives:
* 80 percent reduction in shrinkage;
* 20 to 50 percent reduction in the cost of shipping the trolleys by truck to adjust inventory levels;
* 5 percent reduction in maintenance;
* 2 percent reduction in inventory; and
* 100 percent reduction in annual inventory counts.
These goals are very similar to those that companies are looking for in upcoming supply-chain RFID projects. According to Steve Convey, a partner with Accenture specializing in supply-chain issues, the key payback areas for implementing RFID technology in the supply chain will be from reducing "just in case inventory" -- the inventory that sits around for contingency reasons -- and improved customer service through the prevention of shortages.
Air Canada's initial intention was to use a barcode-based solution, and they turned to Scanpak, their barcode provider. While the technology was much less expensive than RFID, they discovered that there were hidden costs.
As Wilkins points out, "The high volume of employee turnover, the constant movement of carts within a facility, the need to ensure the scanners were fully charged and the data downloaded on a regular basis to a central computer system would require many more employees to be hired and trained than expected."
Initially, they emulated KLM and experimented with passive tags. These don't have a battery, but are powered by the electromagnetic waves sent by the reader. Therefore, they cost less, but have a shorter read range than their active counterpart.
However, Air Canada wanted much more from the system than what KLM had achieved, and their early test results showed that passive tags couldn't cut it. For one thing, they had to pass within a meter of a reader, which often required manual intervention. Requiring the human element meant that there wasn't much improvement over the bar code option.
Furthermore, there were problems with reading through the metal in the carts, and with water, which was an issue because the carts have to be washed after every flight.
Pricing out the Details
Wilkins was about to give up on RFID and go back to bar code when Scanpak discovered a semi-passive tag that was available from a supplier in Europe. This tag provided the best of both worlds of active and passive by providing on-off capabilities; the tag was passive, and didn't consume power until it was "awakened" by a signal from the reader.
Therefore, the tag was readable from approximately 100 meters, allowing considerable flexibility in the location of readers and data collectors. Ultimately, exciting the tags with the reader proved deficient, so Scanpak developed a unique solution of installing motion sensitive devices on the trolleys, which would switch on the tag when the trolley was moved.
Tag technology is, according to Accenture's Convey, developing at an astounding rate, mainly due to the Wal-Mart mandate. As prices continue to drop and manufacturing volume levels continue to rise, adoption will move down from the pallet level to the carton level and, eventually, to the item level. Conventional wisdom is that tag prices will level off at about $.05, but time frames are uncertain.
Ted Wychocki, an independent RFID consultant who was also involved in the Air Canada food trolley project as their manager of commissary, believes that tag prices will cause resistance to adoption for some time. "If you can't get a chip at a certain price, then it's not going to work", says Wychocki. To protect a $1,000 asset, however, the $20 cost of the tags in this case was a no-brainer.
The longer range of the semi-passive tag allowed readers and collection equipment to be installed out of the way of the work areas, and this turned out to be essential. Air Canada had been warned by caterers that they would be back charged for the extra cost if the system caused disruption to their workflow.
Furthermore, there was some employee resistance from line workers who felt the system was being used to spy on them. "We would go to sites and find that the antenna had been ripped off the ceiling, somebody cut the leads...this is what we had to deal with, " says Tue Hoang, manager of R&D for Scanpak. Putting the readers and data collectors on ceilings or embedding them in walls solved these problems.
GETS to the Heart
Scanpak named their system GETS, an acronym for Galley Equipment Tracking System. The heart of the system is in the gathering and consolidation of data. Each trolley reports its presence dozens of times a day through readers located at the entrance and exits of catering and other facilities, in work areas, and on the aircraft themselves. Each location has a black box that consolidates the data and sends it via dial-up or network connection to Scanpak's hosted application center in Montreal. The data is stored on an Oracle database.
The GETS application uses Java-based services to create a number of specific reports, which are generated on an as-needed basis to serve a variety of purposes. For example, a caterer can log into the application through a Web browser and run a report on how many trolleys are on the way. An Air Canada employee responsible for logistics can monitor the inventory levels in real time, and make adjustments as required.
This system also allows allotment levels to be set, and specific notification, such as an email to a manager, to be sent if a shortage is anticipated at a critical point. This is known as event management in the supply-chain context, and it can prevent some difficult situations from cropping up. For example, the system can warn of a potential shortage of trolleys that could delay a flight.
Setting Standards
As RFID is adopted in supply-chain scenarios, this kind of data collection and management will take place for many companies on a much larger scale. Convey sees this as perhaps the biggest challenge. "When people think about RFID, they think about tags, antennas, and readers, but what they forget is that there's middleware, and actual business applications that this equipment has to hook into."
This challenge is not unlike what companies have to face in other applications that involve collecting and managing data from the supply chain. Convey continues: "Not all companies have addressed integrating their supply chains in the first place. So they may have a mishmash supporting the company's supply chain today, and connecting RFID technology to that mishmash can be a bit of a challenge."
The IT industry is moving quickly to fill this void. SAP and Oracle have recently announced RFID offerings, which will help integrate RFID into host systems, and handle some of the heavy lifting around data management and business intelligence.
Not all companies will need these solutions, however. Deloitte's Stephan points out that many companies are already tracking large amounts of bar code data. Ironically, he says, companies that are already doing a good job of this, and have their supply chain well integrated, might see less incremental benefit from RFID adoption.
Development of Standards No Guarantee
Another requirement for the open partner scenario to work is the development of standards. This task is being taken on in earnest by a non-profit standards group called EPC Global. As a joint venture between the European organization EAN International and the American UCC, this organization is positioned to develop a global standard.
In addition to specifications for the product codes themselves, the standards will include the prescription for what the body is calling the EPC Network: a multi-tiered architecture for collecting RFID data and relaying it to host systems. The next EPC global standard is expected in the fourth quarter of 2004, and this is expected to set the stage for B2B deployment.
The adoption of standards, however, is no guarantee that RFID will immediately take off. As Wychocki and others have pointed out, the road to adoption will be bumpy as individual business cases get sorted out. But once the initial barriers are overcome, things could happen very quickly.
Collaborative technologies don't work unless there is general buy in. For example, if you are a retailer, RFID equipment doesn't do anything for you unless your suppliers are putting RFID tags on their goods. And unless there is 100-percent compliance from your suppliers, you can't remove your manual systems and receive the full ROI benefit of the technology. So there's going to be a lot of arm-twisting, and Wal-Mart is likely only the tip of the iceberg.
The Good News
But the good news is that the cost of RFID will go down, and the value will go up. As suppliers and implementers get a better handle on the technology, there will be all kinds of benefits for companies large and small. At the end of the day, RFID produces a high visibility of goods in the supply chain. Access to this kind of information benefits everybody in the supply chain, large and small.
Not all experts see RFID as a near term proposition. Kevin Keeler, a VP of store systems at grocery giant Loblaw Companies of Toronto, has been involved with some preliminary item-level testing.
Loblaws is already looking at the ultimate vision, in which the consumer fills up a grocery cart and simply wheels it out into the parking lot without having to check out. Tests on scanning carts full of goods have not gone very well to date, but Keeler feels that compliance is the issue that puts this kind of scenario at least eight years away. With thousands of suppliers to work with, this is a huge task.
Keeler recalls how long compliance took in the early days of die bar code. "I was in this business for the introduction of UPCs (Universal Product Codes), and it took five or six years from when we first started scanning to get the vendors to be in the high 90-percent compliance range as far as coding."
Nevertheless, he is very enthusiastic about the technology because of its enormous potential. "I certainly hope it's around during my career, because I would love to implement that in the stores. But there are a number of obstacles to getting there," he says.