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October 30, 2003

Receiving Loud And Clear

Distribution centers and warehouses can reap the benefits of RFID technology

by Ram Reddy

Radio frequency identification (RFID) technology seems to have caught everyone's attention since Wal-Mart Stores Inc.'s announcement that it would require suppliers to use this technology for inventory tracking — from the distribution centers to the store shelves and ultimately to the check-out lanes. Wal-Mart's apparent objectives behind RFID adoption were to improve customer service, but concerns over privacy caused it to back away from the technology. But RFID can still offer significant benefits to a company's distribution center (DC) and warehouse operations when these privacy issues aren't a factor.

RFID's Promise

RFID technology was supposed to give shelf-level visibility to the supply chain, so that customers never found empty shelves. After loading the shopping cart, customers could zip through the checkout lane without having to go through the traditional process of unloading items, scanning them, and then reloading the cart. Any consumer who has been trapped in the weekend checkout lane queues, anxiously waiting to get back to watching a sporting event, would embrace the RFID technology!

The ongoing debate about the potential misuse of technology caused Wal-Mart to temporarily pull back from this technology. Consumer groups were concerned about privacy issues involved with products tagged with RFID. The biggest privacy concern was that products tagged with RFID could be used to collect information and spy on consumers without their knowledge. As with all emerging technologies, legal issues concerning proper use need to be resolved before RFID technology can make the "checkout lane blues" disappear.

In the meantime, RFID was frequently mentioned in journal articles as a technology that would revolutionize supply chains and retailing. Companies that I interact with were initially enthused about RFID technology, but put their plans on hold after the public debate about consumer privacy started. Another hurdle to adoption is the lack of common interoperability standards among different RFID technology vendors.

Despite my skepticism about RFID's ability to "revolutionize" the supply chain, I do believe that RFID technology in its current form can improve DC operations. The seemingly small benefits from deploying RFID technology in DCs become significant when measured over time.

Beyond Barcodes

A brief overview of RFID technologies is necessary to explore its applications in the distribution network. RFID falls within the family of automatic identification technologies, such as barcodes. Scanning a barcode tag on a package automatically identifies its contents. RFID tags serve a similar function. What makes them superior to a barcode is their ability to communicate information in the RFID tag without going through a conventional line-of-sight scanning process.

RFID tags range in functionality and features based on cost. The cheapest RFID tags are passive tags that have no power source, store read-only data, and can send that data when interrogated by an RFID reader. A key Wal-Mart objective was that consumers could wheel their shopping carts through RFID readers at the checkout counter, which automatically scan the articles in the carts and generate itemized bills in a matter of seconds. With the existing bar code system, each item would need to be removed from the shopping cart, scanned, and then reloaded into the cart.

The more expensive RFID tags have added functionality in that they can store information in the tags as directed by a RFID reader. Higher-end RFID tags have been used in the manufacturing process for many years. In certain automotive and heavy manufacturing plants, RFID tags are used for tracking and reporting the progress of a vehicle as it makes its way through the assembly line process.

Although previously restricted to the assembly line to optimize manufacturing processes, recent advances in RFID technology, from a price and features perspective, have opened up the possibilities for applications in a whole range of activities. If nothing else, we owe Wal-Mart thanks for bringing this technology to the attention of the business world. A particular area of supply chain operations — namely DC operations — can benefit significantly from RFID technology today. Even though this isn't a particularly glamorous area of supply chain operations, RFID technology can pay for itself in a matter of months and contribute to an enterprise's bottom line.