For many, the introduction of radio frequency identification technology (RFID) is the inevitable outcome of retail pressure, traceability legislation and technological development. US retail giant Wal-Mart is now but six months away from its deadline for the top 100 suppliers to put tags on all pallets and cases, and in Europe, legislation enforcing manufacturing traceability is coming into force in January 2005.
As the largest single customer of many manufacturers in the US, Wal-Mart is seen as the driving force behind the concept. The organisation is trying to create the critical mass necessary for RFID to take off, and expects all 10,000 of its suppliers to tag their cases and pallets by January 2006.
Wal-Mart believes that the pilot scheme has so far been very encouraging. "We're seeing the positive results we expected," said Linda Dillman, executive vice president and CIO for Wal-Mart Stores. "We also anticipated hitting a few minor bumps in the road, which has happened. The whole reason for a pilot is to fix any last minute issues and clear the path for a smooth implementation. That's what we're doing and we're looking forward to January 2005 with great expectations."
But some think that like the bar code was for years after its 1974 launch, the electronic product code is still largely a technology in search of its users.
Writing in forbes.com, for example, Chana Schoenberger points out that one manufacturer makes a 5 per cent margin on tagging $10 cases of tuna fish. But with tags costing 20 to 25 cents, and the associated labels bringing the cost up to $1 per case, RFID is cutting deeply into margins without immediate benefits to the company.
Until enough products bear RFID tags, it doesn't pay for retailers to install the readers, and until enough retailers have invested the capital to read the tags, manufacturers won't tag their products. Schoenberger quotes Thomas Grant, chief executive of high tech firm ThingMagic as saying that the RFID market is unlikely to really take off until 2008 or later. All the software and hardware now in development, he says, is basically being designed on spec.
It would appear therefore that for the time being, the majority of manufacturers currently implementing RFID technologies are doing so more in an attempt to retain the mandating customer than to achieve operating efficiencies and improved customer service.
But proponents contend that RFID offers manufacturers advantages beyond simple compliance with retail mandates. The tags provide companies with potentially valuable information on their supply chains and their customers' preferences, along with the obvious benefits of better tracking and management of assets. In addition, RFID could lead to reduced labour costs and reduced inventory stockouts.
The technology can also help fortify visibility with better data granularity and more timely updates, and goes beyond the traditional bar-code product identification to offer critical information, such as the product source, destination, and expiration date. The technology can also help combat counterfeiting and supply chain security breaches.
But according to Thomas Ryan, vice president of value chain research at research group Aberdeen, these benefits will come about only if manufacturers move beyond the compliance approach that most are contemplating now. They need to fully incorporate the capabilities of RFID into the distribution centres and customer communications aspect of their operations.
Moreover, achieving reduced stockouts requires greater collaboration with retailers to understand what their consumption patterns are so that the manufacturer can anticipate them accordingly. Enterprises that change their processes to take advantage of the technology's promise will be the only ones in a position to capitalise on RFID's breakthrough capabilities, says Ryan.
From this point of view, manufacturers would be well advised to invest now in RFID and embrace fully the concept of complete traceability. Because to achieve all the benefits, processors need to go beyond mere compliance and accept that RFID technology can work in their interests as well.