For most of us who work with some aspect of the supply chain, 2003 was like being a contestant on Survivor Island—you had to scramble like mad just to stay in the game. The months passed, but the pressure never let up. Every time you thought you'd managed to hang on for another round, a new threat emerged.
Take the tidal wave that threatened to swamp the island last June. At a trade show early that month, Wal-Mart stunned the industry by announcing that it would require its top 100 suppliers to attach radio-frequency identification (RFID) tags to their cases and pallets by 2005. Though reluctant to raise public objections, many suppliers have privately expressed dismay. The technology's largely untested, they worry. Worse yet, it's expensive. With startup costs running into the millions of dollars, most companies believe they can expect only marginal returns.
While Wal-Mart's shot across the bow served as a warning signal, its shot was a mere BB compared to the one fired off by the Department of Defense (DOD) last fall. In October, the DOD also handed down an edict that its suppliers be RFID-compliant by 2005—an announcement that will have a more immediate impact than Wal-Mart's. Unlike the retailer, the DOD, which measures return on investment in lives saved and victories won, can afford to implement the technology now and subsidize the costs incurred by its suppliers. Thus, if the DOD says 2005, it can do it. Even Wal-Mart doesn't have that kind of clout. For this and other reasons, item-level implementation in the commercial sector will likely lag behind the DOD's initiative.
Yet the RFID juggernaut is not to be ignored. Our advice for companies hoping to unlock the benefits of RFID technology is to proceed practically, but by all means to proceed. Admittedly, for most logistics operations right now, an RFID tag represents little more than a bar code on steroids—it may be able to encode 60 times as much data, but it still fills the same basic identification function.Yet the technology holds staggering implications for the entire supply chain. An RFID chip can tell you not just that it's attached to a box of granola, but also that the cereal was made in Minneapolis at 1: 54 last Thursday (and that it expires next April). It can tell you where it is at any stage of the supply chain—at a dock, on a truck, or in a DC. And if used at the item level, it can even tell the retailer exactly when it's removed from the shelf—all without the need for manual scanning.
Although widespread implementation of RFID at the item level is still some years away, it's not too early to begin integrating RFID into your operations. We're already seeing container-level RFID implementations for in-transit tracking and yard management. And we expect to see fairly wide testing and implementation of hybrid RFID tag/bar-code labeling at the pallet level this year.
But where do you start? The first step is to define your requirements by looking at your supply chain processes. When was the last time you "stapled yourself to an order"? You might be surprised by what you find.Many retailers (and manufacturers), for example, experience real bottlenecks in their receiving operations. Some have boosted productivity by requesting that shippers send advance shipment notices and apply bar-code labels, but that's not enough. By requiring the highest-volume shippers to apply an RFID tag to each pallet, however, they could automatically receive, allocate and route component parts to the appropriate work centers accurately and without delay, saving millions of dollars annually.
Regardless of their position in the supply chain, companies that map their processes, define requirements, and invest in technology will create value and gain a competitive advantage. Those that don't could find themselves voted off the island.