In an international study undertaken by IT consultancy LogicaCMG, the majority of the companies interviewed in the Netherlands, UK, Ireland, Germany, France and Belgium, gave RFID top priority in terms of planned IT investment. The study shows that half of the 50 companies interviewed in Europe have or are planning to deploy RFID pilot projects throughout 2004, with the vast majority planning to start implementing the technology within the next three years.
"The research shows that we are on the threshold of a breakthrough of RFID technology in the European market," said Paul Stam de Jonge, director sales and marketing at LogicaCMG.
RFID technology is based on a relatively simple concept. It consists of two elements that communicate through radio transmission - a tag and a reader. The tag contains a small chip and an antenna and can be placed on any object. The information on the tag, such as an identification number, can be transmitted to an RFID reader over a distance of a few metres.
The readers are placed in various locations throughout the supply chain. RFID allows objects to be electronically identified and followed throughout the complete distribution chain.
A number of major retailers, such as Tesco in the UK and Metro in Germany are already rolling out large-scale RFID programmes. But while these projects will be finalised by 2007, the research indicates that companies will not begin to tag consumer products until 2008 when prices of tags will have naturally lowered.
The focus for the moment is therefore on returnable transport items (RTIs), such as crates and pallets. The tagging of these RTIs will be standard as of 2005. The Logica research highlights when and how RFID will be used on a large scale for RTIs within European retail supply chains.
The dominant position of the retailers in the supply chain means that they have a leading role in the uptake of RFID. The study shows that retailers are particularly interested in tracking at an individual product level. Tagging at pallet level is not as crucial as they are often only used to transport the goods to the distribution centre, as opposed to throughout the entire supply chain.
However, it is clear that the use of RFID with RTIs will only take place if the financial benefits are greater than the cost of implementation. The cost/benefit analysis part of the research showed that based on a tag price of 50 eurocents the handling cost per pallet could decrease by 8.5 per cent. This leads to a payback period of between two and three years.
For these reasons, LogicaCMG believes that the proliferation of RFID is an inevitability. "The RFID implementations will lead to an irreversible process in the retail market," said de Jonge. "In the short term, it is therefore of the utmost importance for companies to gain knowledge and experience with RFID."
Since the whole supply chain is involved, the RFID implementations of the large retailers in 2005 will have a great impact on the food manufacturers and logistic service providers. But according to recent research undertaken by Forrester, not everyone on the manufacturing side is as enthusiastic as the LogicaCMG research might suggest.
Forrester, which interviewed supply chain executives at $1 billion-plus companies, found that many firms do not expect RFID mandates to enhance supply chain visibility.
"Within our own firewall, there are enough warehouse information systems in place that we don't really lose things of great enough value that RFID would make sense," said one CPG manufacturer. "What is important for us is to use RFID to tag containers for inventory visibility or to enable direct-to-store delivery."
In fact, some manufacturers believe that supply chain RFID projects can distract from efforts to match supply to demand. "RFID is forcing us to take our eyes off major efforts to minimise shocks to our supply chain," said another manufacturer interviewed by Forrester. "My perspective is that we need to focus on events that exaggerate supply/demand shocks. Then the extra RFID data can be helpful."
The consensus among the manufacturers interviewed, it seems, is that production networks still suffer from a lack of visibility with customers and suppliers, and it is this that results in mismatches between supply and demand.
"The problem that we have is that the vast majority of retail clients don't have ways to manage their store inventory, so they walk around the store trying to find the voids," said a food manufacturer. "Once, we visited one of their stores, which had stock-outs for their most profitable, best-selling item. We went back and realised that they weren't ordering that product; they were ordering the wrong stuff."
The conclusion reached by Forrester is that top suppliers are adopting RFID to appease their retail customers, but that mandate-driven RFID projects leave many of them unhappy. This is because many still struggle with the fundamental problem of matching supply to demand.