Information Centre
Discussion Paper
Are You Ready for RFID?
A new technology that promises to have a tremendous impact on the supply chain is looming on the horizon. This new technology is commonly known as Radio Frequency Identification or RFID. The Auto-ID Center has been established at the Massachusetts Institute for Technology (www.autoidcenter.org)for its development. The Center is funded and sponsored by prominent manufacturers, retailers, and solution providers who are interested in accelerating the development and deployment of this technology to address a broad range of business issues.
Although RFID technology is sophisticated and still evolving, it is not really a "new" technology. A number of RFID applications have already become commonplace but the adaptation of RFID technologies to the supply chain is at a relatively early stage. New supply chain applications are one of the hottest areas of interest for the Auto-ID Center today.
Organizations that are involved with perishable products should pay keen attention to developments that are emerging from the Auto-ID Center. RFID technologies will eventually enable retailers with an advanced perishable products system like Periscope DSS to raise the bar on perishable supply chain management to new levels.
How do RFID Applications Work?
Despite the sophistication of the RFID technology, the premise of its operation is fairly straight forward. The base technology consists of three primary components:
- Electronic Product Codes (ePC) and "Smart Tags"
- Wireless radio frequency readers
- Information management and storage devices (servers)
In a typical application, product information is encoded on a tiny memory chip known as a smart tag and affixed to the object. This ePC contains enough information to uniquely identify the object. The information stored on the memory chip is transmitted by radio to a reader that receives the information as the object passes within a defined range. This identifying information is relayed by the reader to a central repository or database server that contains detailed information about the object.
Depending on the application, the server can trigger any number of responses based on updated information about the location of the object. In fact, the information can be relayed over the internet and shared by a wide range of individuals authorized to access the information. Retail security systems use RFID to trigger an alert when product tags that have not been deactivated by a device at the POS, pass through a reader at one of the store exits.
What are Some Examples of RFID Applications?
RFID technology has been integrated into commercial applications to address a broad range of business issues. Some well-known applications that use RFID technology include:
Fast Lane vehicle identification stickers that allow vehicles to pass through highway toll readers without having to stop for payment. The identification sticker is really a smart tag that identifies the vehicle as it passes through a RFID equipped toll booth. The RFID reader relays a notice to the server with the smart tag identification and a precise time. The server is part of an electronic payment system (EPS) that initiates an EPS transaction and eventually transfers the funds.
Mobile Speed Pass systems that allow consumers to refuel at a gas pump equipped with an RFID reader. When consumers finish refueling, they wave a small key-chain device past a designated area on the pump that contains the reader and relays the information to a server. The server updates the EPS system, a replenishment system, or a loyalty system all at the same time.
How Does RFID Apply to the Perishables Supply Chain?
To answer this question, let's envision one potential design of an RFID-enabled perishable supply system. The purpose of this system is to track the inventory and flow of perishables goods in the store.
First we must assume that the retailer has a production and inventory management system similar to PeriScope DSS that can integrate scale production and case inventory information as well as markdown, discard, rework, and sales data.
Then suppose a PC-encoded smart tag is affixed to a filet of fish, a porterhouse steak, a package of hamburger, a loaf of bread or a container of potato salad as it is processed and packaged. The ePC information is integrated with information maintained by the PeriScope server to create a record for each package.
The display case or cooler is equipped with an RFID reader much like the toll booth or gas pump example. As an individual package is placed in or removed from the case, the RFID reader sends a message to the server updating the current location and status of the package. Alternatively, the case could be polled at scheduled intervals to supply perpetual inventory status readings in real time.
When integrated with a system like PeriScope DSS, store personnel could significantly improve their ability to mange case inventories and replenishment activities (production cycles, cutting lists, ordering, etc.). The system could also be adapted to accurately monitor sell-by dates, improve the management of product markdowns, and provide security against pilferage.
How Does This Affect Case Ready Product?
The benefits of an RFID and web enabled supply chain can also extend to case ready processes. Since store level pricing, inventory and demand information is not readily available today, most case ready processes ship cases of mixed product to a distribution center where it is slotted. Eventually, the product is matched to store orders, picked, and shipped to the store. After it arrives at the store, the individual packages must be re-weighed and labeled to ensure that store's pricing and sell-by date information are accurate.
Case ready production often requires sophisticated, controlled-atmospheres to extend the life of the product and accommodate the travel time necessary to get the product through the supply chain. Although this packaging provides a needed safety net, it is costly and has a negative impact on the appearance of the product that arguably reduces its consumer appeal.
When a well designed, web-enabled system like PeriScope DSS is enhanced with the ability to track store level inventories using RFID technology, it can make a quantitative improvement in production that has potential benefits for the processor, retailer and consumer.
If accurate item level pricing, inventory, and demand information is available for each store, the product can be packed by store destination and labeled with the proper store-level data as it is produced. The central processing facility gains better, more detailed and timely information to smooth out production cycles. This shortened cycle can also reduce the need for expensive controlled-atmosphere packaging equipment.
The retailer can realize benefits in both the distribution and inventory process. From the point of production to the actual consumer purchase, the supply chain process can be significantly shortened. This reduces or eliminates the need for slotting and order matching at the retailer distribution center. Stores no longer need to re-weigh and label product. Ordering could evolve to a review and adjustment process.
Consumers would reap the benefit of a shortened supply chain with fresher product, an enhanced appearance and a potentially extended post-purchase shelf life.
What's the Catch?
The old saying "if something appears to be too good to be true than it probably is" may come to mind. The application of RFID technology to supply chain processes faces challenges that must be overcome before applications become economically viable. That said, it would be imprudent to think that these applications are a pipe dream.
The good news is that most of the technological issues have been addressed. The bad news is that there are still significant economic challenges that must be addressed before the cost of the cure outweighs its benefit. The cost of the RFID components, specifically the cost of the smart tags, needs to be significantly reduced to make the systems we have hypothesized practical.
Today, technology providers are estimating smart tag unit costs to be in the twenty-cent range. To be commercially viable, most experts say that smart tag costs need to fall within the two-to-five cent range. The feeling is that costs will reach that threshold as demand for smart tags increase and economies of scale are achieved. Of course, this puts the industry in a classic chicken and egg situation - the cost won't go down until demand increases but demand won't increase until costs go down.
The answer is a graduated approach to supply chain applications. The evaluation of supply chain application economics should also include a rationalization by product type that encompasses differences in product attributes. Most notably, the cost effectiveness equation must take into account:
- The value of individual products to which "smart tags" are affixed (unit cost and retail value).
- The impact of external factors on the supply and demand processes (Does the product spoil? Is it prone to be stolen?).
- The differences in the implications of supply chain breakdowns in existing systems (will somebody die if they eat "old" product?).
For these reasons, most pilot projects have focused on high ticket items such as computer components or shipment tracking between distribution centers rather than store inventory applications. Given high product values, external risk factors and the implications of failure, perishable products should start becoming high on this list. Keep your eyes open!
