RFID in the supply chain—the promise, future and reality

—Sponsored article by SYSPRO

Radio Frequency Identification, or RFID, has been the next big thing in supply chain management for a while now.

When the business consultants first started talking about the technology, they envisioned a fully integrated supply chain where retail sales trigger a chain reaction up the supply chain. But adoption has lagged, and managers up and down the supply chain should be justified in their skepticism that RFID will ever deliver the promised benefits.

RFID is the next generation replacement for barcodes in the supply chain. By tagging each individual item with an RFID tag, individual items are automatically scanned as they enter your warehouse.

RFID gives you an exact count of merchandise in your warehouse. Incoming and outgoing shipments are tracked, giving an enterprise-level view of inventory at the item level.

The promise of RFID
The promise of RFID is a fully-integrated supply chain that automatically pulls inventory based on actual sales. With RFID:

• Security systems scan RFID tags on shoppers as they leave, ensuring the merchandise they have with them has been paid for, reducing theft and making cashiers—who no longer have to remove security tags—more efficient.
• Incoming shipments are automatically scanned, checked for accuracy and entered into inventory. The retailer’s distribution center is automatically notified that goods have been received.
• Inventory at the retail location is tracked at the item level, which improves picking efficiency.
• When the shelves are empty, the retailer’s business systems automatically notify workers to restock items, ensuring they don’t lose sales from items that are in stock, but not on the shelves.
• When stock gets low, the retailer’s distribution center is notified and the items are sent off with the next shipment.
• In the distribution center, outgoing shipments are automatically tracked, checked for accuracy and removed from inventory.
• Inventory locations are tracked at the item level and the precise location of an item is given to pickers, who also use scanners to detect items when they are nearby.
• When items get low, orders are automatically sent to distributors, which operate in a similar fashion as the distribution center.
• Distributors then automatically notify manufacturers, which in turn notify their suppliers.

The reality (so far) of RFID
The reality has so far fallen short. By way of an example, Walmart’s attempt to have every supplier on RFID by 2007 stalled beyond only their largest suppliers. Part of the problem is the benefits of RFID are unequally distributed.

Retailers gain the most, as having item-level visibility increases sales by keeping inventory on the shelves while maintaining lower overall inventory levels. RFID alerts them to shortages on the shelves before an item sells out, prompting restocking and re-ordering as appropriate.

If you’re a distributor or manufacturer, you can get most of the promised RFID benefits with barcoding. The expense of implementing RFID—which can be substantial—can exceed the benefits of slightly improved inventory controls and slightly improved order accuracy. And RFID only really shines when it’s adopted throughout the supply chain.

Because RFID is expensive to implement, it’s important to establish proper specifications for an RFID project in advance. Compare the net benefits relative to a standard barcoding deployment.

The future of RFID in the supply chain
For all of its promises and problems, RFID is growing and retailers are finding new ways of benefiting from the technology. Standards are emerging, making it more practical. But most of that growth is retail-driven.

Manufacturers and distributors aren’t generally benefiting from implementing the technology to manage the supply chain and inventory, at least not yet. When the technology becomes widespread, it will be due to companies like Walmart insisting on its use, just as they’ve influenced the adoption of EDI for their suppliers.

That is not to say that manufacturers and distributors can’t benefit from RFID. Today, the greatest benefits of RFID are found in creative and innovative uses for the technology.

To learn more about RFID and other technologies enabling industrial growth, visit our Future of Technology in Manufacturing page.

Odete Passingham is the marketing director at SYSPRO Canada. SYSPRO is an ERP application consisting of finance, distribution and manufacturing controls for mid-size companies. To contact Odete, email: odete.passingham@ca.syspro.com or call (604) 451-8889. Learn more about SYSPRO at www.syspro.com

This article is part of the Manufacturing Growth & Innovation Centre, showcasing strategies for manufacturers on the move.