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The two biggest questions revolving around radio frequency identification (also known as auto-ID) for industries today focus on if and when. But the interest in RFID technology is particularly acute for retail, consumer packaged goods, and packaging companies for one reason: Wal-Mart. Wal-Mart CIO Linda Dillman announced in June that the retailer will require its top 100 suppliers to comply with its RFID/electronic product code program by January 2005. Specifically, its top suppliers will be asked to embed an RFID chip on all pallets and cases traveling to a Wal-Mart facility. And thats not all. Wal-Mart recently suggested that it would extend the requirement to all of its suppliers by 2006. This has three far-ranging implications for the retail and
WalMart
FACTOR
consumer goods supply chain: Wal-Marts top 100 suppliers are the worlds largest nonautomotive consumer goods manufacturers. They will be forced to develop and deploy RFID infrastructure to support their biggest customer. Wal-Marts key competitors recently told AMR Research that they cannot afford to let Wal-Mart get too far ahead in RFID and develop further cost advantages. Therefore, expect Wal-Marts retailing competitors to follow its lead. Key suppliers to leading consumer product goods manufacturers will likely be asked to help facilitate these initiatives.
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Industrial Engineer
The retail conglomerate is poised to revolutionize the supply chain with RFID
by bret kinsella
Do not be misled by Wal-Marts announcement in July that it canceled its RFID-enabled smart-shelf initiative with Gillette. That effort represented only one of Wal-Marts RFID trials and was canceled primarily so that Wal-Mart could focus its resources on aggressive adoption of RFID in its supply chain.
What is RFID?
RFID is simple technology that has been in use since World War II. It allows machines to share information wirelessly. The information may simply indicate presence with a unique identifier or can contain more complex data such as history, temperature, age, or manufacturing lot number. Key components of an RFID system include tags, readers, and software. The tags are affixed to items to be tracked. The
readers are placed at strategic locations to capture the signal of the tags. The software aggregates the data being read from the tags, cleanses it for errors or duplication, and forwards it to the appropriate enterprise systems or databases. While the technology is not complex, it can present unique challenges for high-volume consumer goods and retail operations: Readers must be installed close enough to where the tags will be to recognize and record the signal. Many large consumer goods manufacturers produce billions of products annually,leading to a high cost for tags and material handling complexity associated with affixing tags to products. Those billions of items will yield an avalanche of new data.
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Marks & Spencer is tagging all 3.5 million of its food services trays for less money than standard bar code labels require.
High-speed conveyor belts and state-of-the-art technology help move merchandise efficiently through distribution centers, keeping Wal-Marts nearly 3,000 stores in stock.
Most of the benefits from RFID can be captured only through a combination of technology and process changes. Leading retailers and consumer product goods manufacturers are willing to tackle these challenges because RFID presents several advantages over traditional bar codes.It can enable the storage and relay of more item-level data associated with a specific products lifecycle. It can provide item-level inventory visibility in real time with higher accuracy. And RFID can dramatically reduce manual efforts associated with material handling and management. The costs of employing RFID will clearly exceed bar code technology for many years. However, many retailers and consumer product goods manufacturers are betting that the benefits of RFID will more than pay for the investment.
Business benefits
Why are companies such as Wal-Mart,Proctor & Gamble,and Gillette willing to invest so much as early adopters of this technology? The drivers cited by most early-RFID proponents are theft reduction and better supply chain visibility. Theft reduction. For P&G, theft reduction has two components: shrink and counterfeiting. Shrink or product theft is typically estimated to account for about 2 percent of revenue for consumer goods. Woolworths estimates that 55 percent of all product theft occurs in the supply chain prior to goods reaching the retail store. While electronic article surveillance technologies such as Sensormatic have helped reduce shrink at the store level,theft-reduction techniques in the supply chain have not received as much attention. RFID can reduce this type of theft by tracking goods more
effectively through the supply chain all the way to the retail shelf. This provides better inventory visibility that reduces the opportunity for theft to go undetected. It also provides valuable information to track down theft and deters future theft. P&G estimates that counterfeiting costs the company $500 million annually.RFID provides an opportunity to embed unique product identifiers in all products that can quickly establish authenticity or fraud. P&G has identified counterfeit items all over the world, even in a store within 10 miles of its corporate headquarters.Moreover,the company estimates that the annual cost of counterfeit products even exceeds that of traditional shrink.Therefore,a small reduction in counterfeiting can quickly defray the cost of P&Gs RFID installation. Supply chain visibility. For supply chain visibility,the two main benefits that RFID proponents cite are reduction in outof-stock items and lower inventory. Out-of-stock reduction is driven by more efficient replenishment and therefore product availability. Kevin Ashton is on loan from P&G serving as executive director of MITs Auto-ID Center, the leading industry consortium promoting RFID adoption.Ashton oversaw the launch of a new cosmetics product for P&G that quickly experienced stock-outs at 40 percent of the stores. This occurred while P&G warehouses held 200 days of inventory. Soon after this experience, Ashton started to push P&G to investigate RFID technology to help address these situations. The consumer product goods and retail industries try to avoid out-of-stock situations by piling up inventory at various stages of the supply chain. However, having the right amount of inventory is necessary but often insufficient. The
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DEFINING CHARACTERISTICS
Bar code: A standard method of identifying the manufacturer and product category of a particular item. The bar code was adopted in the 1970s because the bars were easier than optical characters for machines to read. The main drawbacks of bar codes are that they dont identify unique items and they must be in a scanners line of sight to be read. Electronic product code: A 96-bit code created by the Auto-ID Center that will one day replace bar codes. The EPC has digits to identify the manufacturer, product category, and individual item. It is backed by the United Code Council and EAN International, the two main overseers of bar code standards. Radio frequency identification: A method of identifying unique items using radio waves. Typically, a reader communicates with a tag, which holds digital information in a microchip. But there are chipless forms of RFID tags that use material to reflect a portion of the radio waves beamed at them.
RFID Journal Web site
inventory must also be in the right place at the right time. If manufacturers could better align product distribution with actual shelf-specific demand, they could reduce safety stock inventory, product trans-shipments, inventory obsolescence, material handling costs, and stock-outs.
initial RFID trials on pallet-level tagging. This significantly reduces the cost and material handling complexity and provides many of the same benefits targeted for unit-level tracking.Early Wal-Mart trials have focused on pallet-level tagging, while Gillette is tagging its new Venus razors at the pallet and case level. However, Gillettes early success has convinced it to go even further. It intends to start with fullpallet and case-level tracking of its razors in 2004 but to expand RFID tagging to a unit level in 2005. Gillette estimates that the opportunity to reduce theft will more than offset the added cost of unit-level tagging for its high-margin razors. Readers. RFID tag readers can cost $300 to $2,500 depending on the capabilities, complexity, and volume. Considering that readers are typically required for each facility dock door, pallet rack, conveyer, or check-out lane, the cost can be substantial. However, the cost is typically considered a one-time expense that can be capitalized; therefore, the benefits can be generated over many years while the cost is amortized. Data integration. Data integration costs vary widely among
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Industrial Engineer