Is RFID ready to jump into the pool?
With its unmatched track-and-trace capabilities, RFID would seem a natural for use in pallet pools. So why is it taking so long to catch on?
At the ripe old age of 60, the pallet—a supply chain staple since 1947—is going high-tech. Or at least it's trying to. What's changed isn't the platform's design—the pallet looks pretty much the same as it did in the post-World War II years. The difference lies in what's attached to some pallets: A growing number now sport RFID tags that make them easy to track and trace.
The idea of using RFID to keep tabs on pallets may not seem particularly revolutionary. After all, the technology has been around for years. But if the experience of iGPS, a pallet pooling company that uses RFID tags on all of its plastic pallets, is any indication, the practice is just starting to gain traction.
When the company's founders ordered 35 million RFID tags in 2006, they were surprised to learn that iGPS was the first private-sector company—as opposed to the military—to receive global reusable asset identifier (GRAI) numbers. (A GRAI is a unique identifier for reusable packages and other pieces of transportation equipment assigned by the standards organization EAN.UCC.) "[The industry] first started experimenting with the technology in the mid-1990s in test facilities," observes Bob Moore, chief executive officer of iGPS. "So I was surprised to find that 10 years later, retail manufacturers had yet to make much headway with it, even though RFID was being heavily sponsored by some of the largest retailers."
It's not hard to see RFID's appeal for pallet pool operators, which rent out usable pallets to clients (typically manufacturers and retailers) on a round-trip basis. Like all rental companies, pallet poolers have much gain from any technology that allows them to track and trace their assets in real time.
Yet their customers have sometimes been slow to warm up RFID. Take the case of HEB, a San Antonio, Texas-based grocery retailer that participated in iGPS's pilot. Moore reports that at the beginning of the elationship, HEB executives were not particularly enthusiastic about the technology, although they were willing to test it during trials.
As the company's IT department started working with the technology, however, it began coming up with more and more ideas for potential applications. A year and a half later, HEB has seen significant system-wide savings and cites RFID as a major reason for its continued participation in the pallet pool. The distributor now scans all plastic pallets entering and leaving its depot, so that it knows precisely how many have come in and how many have left the building.
As for why RFID-enhanced pallets have been slow to catch on with users, the answer seems to be largely a matter of cost. An RFID tag represents only a small portion of the total RFID infrastructure expense, says Puneet Sawhney, RFID program director for CHEP, the largest pallet pooling company in North America. The big-ticket items are the hardware—like portal readers or handheld readers— and the software and middleware needed to collect and process the RFID data and pass it along to other supply chain systems.
Right now, most companies are still in the pilot phase of their RFID programs, says Brian Beattie, CHEP's senior vice president of marketing. In many cases, those companies are tagging pallets of a handful of products that are being shipped to a limited number of customers. For the most part, that means that they've invested in RFID readers for, say, one or two dock doors rather than outfitting the entire distribution center.
That approach may go a long way toward holding down costs, but it also keeps companies from reaping the full benefits of RFID-enabled pallets, says Beattie. "Pooling requires mass to be efficient," he says, "and RFID takes mass to be efficient as well." It also requires participation from players throughout the supply chain. "You don't get value from just tagging one lane," he says. "You need to be able to use the data and to see the entire supply chain."
Though CHEP executives don't see that happening anytime soon, they're certainly not backing away from the technology. Far from it. CHEP is committed to RFID, says Beattie. Not only was the company one of the founders of the Massachusetts Institute of Technology's Auto ID Lab, he says, but it also remains an active supporter of the electronic product code (EPC) standard. "We have 10 years invested in this technology," he says.
Unlike iGPS, CHEP has not installed tags on all of its pallets, which number in the hundreds of millions. But it does use RFID-enabled pallets for its premium Plus ID service. Pallets used in that program feature a single tag in a plastic casing that's attached to the center of the company's signature blue wooden pallets. CHEP reports that it has achieved a 100-percent read rate with those tags.
The company has other RFID initiatives under way as well. Recognizing that its clients are at different stages of their RFID journeys, CHEP has designed (and patented) a "three-in-one" tag that can accommodate everyone's needs. This tag can be used by companies that are already using RFID, those using bar codes, and those that are still manually inputting information. "It doesn't matter what type of infrastructure you have in place," says Beattie. "You can still input the data into your software package, and you will still get the benefits of that tracking and tracing information."
Winning them over
If CHEP is taking the middle road when it comes to RFID implementation, iGPS is staying the RFID course. Part of it is simple economics, says Moore, who is a former CEO of CHEP International. "CHEP has a $20 asset; our asset costs $62 and can run to $65 or $66 depending on resin costs," he says. "Internally, for very selfish reasons, we can't afford to lose [our pallets]." In fact, the company has invested in not one, but four tags for every pallet in its pool. It attaches one tag to each corner of the platform in order to ensure 100 percent read rates.
But there's more to the company's commitment to RFID than just self interest, Moore says. Its customers—even those not using RFID in their internal operations—benefit from iGPS's ability to track and trace its pallets as well. If an iGPS pallet's tag is not read for 20 days, the company contacts the site where the last read took place to try to track it down. If it's still unable to locate the pallet, it charges the customer for the lost unit. But Moore reports that most of the time, the pallet will eventually be read by a scanner somewhere. Once that happens, the customer automatically receives a refund.
Though iGPS hasn't strayed from its commitment to using radio-frequency technology, Moore admits that the company has had to tweak its business model along the way. Its original business plan called for it to target industries like pharmaceuticals and consumer electronics, where traceability represents a prime concern. But Moore reports that interest has turned out to be much stronger in parts of the grocery industry, particularly among distributors of beverages and bagged products like pet food and sugar.
The slow uptake in the pharmaceutical and consumer electronics industries may be more a reflection of their attitudes toward pallet pooling than to any hesitations about RFID. Those sectors have proved somewhat reluctant to join pallet pools in the past. According to CHEP, these industries continue to prefer to use one-way pallets to eliminate concerns like sanitation.
A foot in the door
Moore acknowledges that what gets his company in the door many times is not RFID but its lightweight plastic pallets. Once clients get a chance to see what RFID can do, however, they're usually won over.
Martori Farms is a case in point. Initially, the Scottsdale, Ariz.-based company, which is one of the nation's largest growers of melons and broccoli, was drawn to the iGPS pool by the prospect of using plastic pallets. For produce companies, plastic pallets offer a number of advantages over their wooden counterparts, says Paul Fleming, Martori's vice president of marketing and business development. To begin with, plastic platforms eliminate problems associated with broken boards, loose pieces of wood, and loose or protruding nails. In addition, the lightweight pallets reduce strain on workers' backs and allow the company to load more produce onto each truck. And for food-industry companies like Martori, the plastic pallet has the edge over wood when it comes to sanitation. Plastic pallets are not only impervious to contamination, but they can also be thoroughly cleaned.
At first, Martori saw RFID simply as a bonus. But the company soon came to look upon the technology as more than a frill. Right now, it is only using RFID data to reconcile its shipment and usage records with those of iGPS, but it's looking to expand the technology's use into other business areas. For example, Martori is working with the vendor to integrate RFID readers with its warehouse management system. "This will be helpful for inventory control, shipping, and product traceability—a critical issue in the food business," says Fleming.
As Martori Farms' case illustrates, iGPS is willing to give its clients a hand when it comes to getting their RFID infrastructure in place. "Some of them need equipment, and we install it and charge for it," says Moore. But he adds that many of the company's other clients have taken care of their RFID reader and middleware needs themselves. PepsiCo, for example, has integrated the RFID technology with its warehouse management system and is now tying stockkeeping units (SKUs) to specific pallets.
Not ready for prime time
As for what the future holds, CHEP executives believe that it will take time for demand for RFID-enabled pallets to develop. In their view, the adoption of RFID in pallet pools will follow a similar path to the adoption of bar codes some three decades earlier. In short, they expect something that's more evolution than revolution as the technology matures and is incorporated into the distribution infrastructure.
When all is said and done, however, both CHEP and iGPS agree that RFID will provide a host of long-term benefits for pallet poolers. In fact, Moore goes so far as to suggest that the results will be revolutionary. Says the iGPS CEO: "I think what we are doing now will change the entire supply chain."
About the Author
Editor at Large
Susan Lacefield has been working for supply chain publications since 1999. Before joining DC VELOCITY, she was an associate editor for Supply Chain Management Review and wrote for Logistics Management magazine. She holds a master's degree in English.
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