A catalyst for supply chain re-engineering

Truth is, I don't find many directors of manufacturing companies bothering themselves too much about RFID (radio frequency identification). Seems the general feeling is best summed up as cynicism – another Y2k-like scare – and the fact of the matter is that most, understandably, have got more pressing issues and more immediate improvement projects demanding their attention and money. It's also true that a very large number have still to be convinced of the value of barcoding systems, let alone RFID, as anything other than a cost to their businesses – even though the evidence from their peers implementing supply chain and shopfloor automation, for example, is to the contrary (see MCS, May and June 2004, Microsoft-sponsored RFID Essentials for Manufacturing supplements). So it's more than simply interesting to note that, despite all that, last month's big independent RFID Forum talking shop at Heathrow – the RFID community's version of speed dating – was a sell-out, with 430 paying delegates each spending £500, albeit half-and-half wannabe users and RFID technology and consultancy firms trying to sell to one another. At the very least, that demonstrates the hunger for information. And that's very much what they got: for the record, the mix of keynotes, seminars, workshops, round tables and exhibition was one of the best focused compressed learning events I've seen. Ed Cowley, director of the RFID Forum and also now of the independent RFID Centre being set up in NW London, described it, fairly accurately as: "two days content compressed into one." Detail versus issues What became abundantly clear was the extent to which the detail of the technology clouds the potential for business benefit understanding. Plainly, there have been, and still are, concerns with RFID around the tag types, chips, attachment methods and positioning, reader systems, read rates, distances, standards and data handling. But what speakers at the event – admittedly some with figurative axes to grind – were trying to get across was the nature and scale of the business cases founded particularly (but not only) on the potential value of knowledge about where product is in a supply chain (internal, or external or both), and its status. That's not to say it fell on deaf ears. But education is holding back useful adoption – even consideration – and hence business leaders' ignorance and cynicism. There's a Catch 22 here: without education, few are likely to think, for example, of their supply chains as having problems, let alone potentially solvable by RFID – they're just the way business is done. So here are some useful thoughts. Lawrence Hutter, European head of consumer business at Deloitte, delivered one of the keynotes at the forum, whistling through the technical pros and cons of RFID: not line of sight, fast, automatic, robust, global standards emerging, but different tag types and bandwidths and performance issues around certain materials etc, so definitely not plug-and-play. He also said that although we're not down at the 5 cent passive EPC tag yet, there's plenty of opportunity for prices to come down in time, particularly with proliferation. But moving on to the business case, he observed that while it looks good for retailers – where reducing currently high handling costs, improving efficiencies, driving shelf availability and handling traceability are all big pluses – when it comes to manufacturers, "they're wrestling with the ideas and can't get the numbers to add up. Thinking of the efficiencies and availability on the shelf figures, manufacturers are asking, 'How much of that can I expect to see?'." And from the supply chain perspective, that's the nub of it. The issue then is what to do? Which can be nothing, or, if you're in the unfortunate position of being forced to tag product, 'slap and ship' – simply stick on the tags at or near the dock door – on an as-required basis. Hutter is not alone in urging manufacturers not to do that unless they absolutely have to, since it's clearly all cost for no gain – other than keeping the business. "Re-engineering the business using the technology is what does make sense," he insisted. "RFID enablement needs to be seen as an opportunity for supply chain efficiency improvement – and when you think of it that way, the numbers can be considerably more compelling." Can be: but to understand the numbers, Hutter suggested looking at four potential levers: revenue improvement through product availability, for example; operating margin through reducing costs and time of handling; asset utilisation; and quality. Those are on top of regulatory and legislative requirements. "You've got to look at things in the round. It isn't just about handling efficiencies: there may also be reduced waste from poor handling. Asset utilisation maybe reduces inventory. Think there about re-usable transport packaging. Look at early deployments of the technology to see what can be done in closed cycle supply chains: the UK is the most advanced in terms of RFID deployment in this context." And he also talked of issues like the value of branding and the associated and additional costs of counterfeiting, which RFID can halt. As for mid size companies, Hutter expects a solution to come, with packages of integration and provision of the tags and readers more as a service. That and bundled finance, linking payment to usage, are among the keys to adoption there – rather along the lines currently being offered by consultancy and system integrator Seeburger. And there can be significant tax benefits that can help the business case. Hutter: "Our advice is not to 'slap and ship', but to start to think about the business case – what can be done – and design pilots to test that… RFID needs to be a catalyst for supply chain re-engineering." And Tony Hodgson, head of RFID at Deloitte, added: "It should also be planned and implemented across multiple organisations, throughout the end-to-end supply chain, not just inside your four walls. Although there are benefits there too, you have to work with others." Interestingly, several companies already on the RFID journey confirmed that adivce. Staged, you might think, but John Rider, managing director of Linpac Materials Handling, which has been working with World Wide Fruit (WWF), among others, in what has been a successful Marks & Spencer RFID trial for all parties, said simply: "If you don't think you've got a business case, don't do it. On the other hand, if you don't think you've got problems, look again: it's a technology that can touch every part of your organisation." Not quite so onerous Certainly for WWF, benefits included customer service, also resulting in fewer delivery penalties, internal efficiencies and a better working environment. "WWF's experience shows that what, at first sight, looks like an onerous cost being put upon your business can change several aspects for the better," commented Cowley. Steve Walker, IS director for Excel Logistics, added the caveat: "There hasn't been enough collaboration: this could trigger collaboration – truly sharing data across all parties. But until they all do that, manufacturers will struggle to make the business case from their own point of view." Make no mistake: as Steve Cousins, chairman of e-centre, the UK authority for the international EAN product identification infrastructure, currently adding RFID to its existing barcodes and data synchronisation roles, said: "It may take many years, but EPC Global RFID will be as ubiquitous as barcodes are today." And it certainly won't take the 20 years it took barcodes. For suppliers into retail, heed the warning of Simon Palinkas, RFID programme manager at Tesco, which has delayed its demands while awaiting hardware. "Our message is 'use this extra time wisely'. Look at the opportunities and the problems. Start projects and pilots. Only by trials can you see what opportunities there are. And for manufacturers, look at how you manufacture, pack and stack: you can't just stick RFID tags on the boxes, but you can design out most RF problems. The only question for me is will you be ready?"