Tiny chips may cause a revolution in all areas of supply chain management * The supermarket shelf will itself transmit to the manufacturer when the stock needs to be replenished
David M. Yolett, InformationWeek
A revolutionary technology - about the size of a grain of sugar and the price of any candy in a kiosk - promises to revolutionize supply chain management, allowing companies to track products from the early stages of production until they are taken off the store shelf by the customer, and at every stage in between. Radio Frequency ID (RFID) tags, which include a tiny chip, are approaching a price tag that may propel them from the realm of specialty applications into mainstream manufacturing, distribution and retail environments. World-renowned consumer goods companies, including Procter & Gamble, Target, Unilever and Wal-Mart, are ready to use these devices.
When attached to pallets, containers or even individual items, RFID tags can give manufacturers, distributors and retailers unprecedented control and control over inventory, shipping and other areas of logistics. The real-time data generated by the tags as the products move along their path may help businesses make faster decisions, and improve efficiency and work productivity in many areas, including the way invoicing and payments are handled. For example, when a pallet with products on it is put into a retailer's warehouse, signals from the RFID tag can trigger an electronic payment to the trucking company, completely eliminating the need for shipping notes, says Simon Ellis, supply chain futurist at Unilever.
This idea has been around for decades, but so far its implementation has been avoided, among other things due to the cost of the tags, which in the past ranged from less than one dollar to twenty dollars. Now the potential cost has dropped to about five cents, as the commercially funded Auto-ID Center at MIT (Massachusetts Institute of Technology) has found ways to produce cheap chips in bulk, based on development standards. "There is a need for large quantities," says Kevin Ashton, CEO of the Auto-ID Center. "If you make billions of units, they won't cost more than 5 cents." Ashton unveiled at last week's InformationWeek conference in Tucson, Arizona, one of the first low-cost chips recently developed by Alien Technology Corp.
With the businesses behind the project, mass production will not be long in coming. Since the Auto-ID Center was established three years ago, the number of member businesses has grown to 67. In addition to the four companies mentioned above, sponsors include Coca-Cola, the US Department of Defense, Kraft, Johnson & Johnson and Pfizer. If Procter & Gamble fully embraces the idea, it alone could use two billion chips a year, according to an article to be published in the October issue of Optimize magazine, the sister magazine of InformationWeek.
Retail giants, such as Wal-Mart, will create increasing demand for RFID tags and the hardware and software needed to use them, if these companies push their business partners to adopt the technology in order to improve supply chain collaboration. "If they implement RFID and have good results, it will really open up the market," says Deepak Shetty, an analyst at Frost and Sullivan.
Home Depot Inc. says that depending on the results of an upcoming test, the company may attach RFID tags to all 50,000 products it sells. If this happens, the store chain expects that manufacturers and distributors will be asked to join the initiative, says Vice President of Information Systems Gary Cochran. The pilot program calls for adding RFID tags to special-order merchandise in Boston-area stores so they can be more easily located when a customer comes to pick them up, Cochran says.
Unilever performs a three-step test of RFID technology, which is based on the Auto-ID Center's development standards. The inspection includes an examination of the tags on transport surfaces, containers, and eventually on individual items. Unilever also participated in the experiment of the supermarket chain Safeway Inc, which ended a few months ago in England. "I can easily see us investing in conveyor belt level applications late next year or early 2004," says Ellis.
In order to reach a full launch of the solution, in addition to the RFID tags, scanners are needed to work with the tags, and services for companies that need help with integration, Ellis says. The Auto-ID Center should publish a full and complete standard in the second half of next year. "In order for this technology to provide the expected benefits, a uniform approach will be needed, and this is not what we have today," says Ellis.
Unilever is working with pallet rental company CHEP International on the development of reusable pallets that include built-in RFID tags and with RedPrairie Corp on warehouse management applications that work with RFID tags. But there is still much work to be done. Unilever has yet to examine how the RFID data will be managed in its SAP applications or how new sources of data will affect its databases. "It is still not entirely clear how the whole system will work," says Ellis.
Software companies also need to decide how their systems will process the massive amounts of data that will potentially be generated by RFID technology. "These are huge amounts of transactions, and data in volumes of tens or hundreds of terabytes," says John Chorley, senior development manager of warehouse and inventory management products at Oracle. Oracle, SAP and other companies are improving their applications to support RFID.
One potential benefit of the technology, the ability to track items after they've been purchased, could make it easier for manufacturers to identify defective products or provide services. For example, a spray-on RFID tag being developed by Marshall, NASA's Aerospace Center, will be available for commercial use within three to five years, and automakers could use it to monitor parts on the assembly line and, later, to Service those parts, says Fred Schram, director of high-risk research at Marshall. However, such capabilities could cause reluctance among consumers who would fear that they are being followed or that their portrait will be recorded for marketing purposes. Experts claim that these devices, which transmit signals over short distances to RFID readers, can be turned off, so there is no reason to worry. Still, due to possible privacy concerns, Unilever is not yet ready to use tags on individual products. "We need to have a much clearer idea of what consumers are thinking," Ellis says.
And the cost remains an issue to be decided in the garden, regarding certain products. An RFID tag "is not economically viable for chewing gum," says Jeff Martin, director of Wm's Global Center of Excellence. Wrigley Jr. Co. "Even at the box or pallet level, it's just not in our plans right now." To be practical for some retail applications, RFID tags need to cost one cent or even less, says Christian Noll, vice president of global supply chain at SAP.
In contrast, other companies do not wait. Old Dominion Freight Line Inc. uses RFID tags on 12,000 pieces of transportation equipment to monitor yard inventory, track shipments, and monitor employee productivity. The result: reimbursement of expenses within one year. "It saves time in clerical work and helps us manage the merchandise lot," says David Congdon, president and CEO.
The cost of RFID tags is dropping from dollars to cents, and more and more business technology professionals will pull out their notebooks and start calculating when and where to use these devices. "It's very easy to mess with the cost of the chip," says Unilever's Ellis. "In the end, what matters is what you save."
-John Foley, Robin Garris, Mary Hayes and Cheryl Rosen participated in the preparation of the article.
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