Trends in RFID--Part I
Trends in RFID--Part II
Business Process Innovations
As we've already discussed, for a technology to succeed and proliferate in today's world, it must be economically viable. In other words, it must enable businesses to meet one or more of their primary economic needs: reduce cost, increase revenue, and provide a competitive advantage. These objectives compel enterprises to innovate by examining existing business models and processes and reinventing or realigning them to fully take advantage of a new technology. The industry has just scratched the surface in business innovation that takes advantage of RFID technology.
Much of the impetus for future waves of innovation in RFID can be credited to the mandates set forth by major retailers around the world and the U.S. DoD. These mandates have created a ripple effect across the entire supply chain industry. Mandates have caused all supply chain partners including manufacturers, packagers, distributors, logistics and transportation agents, retailers, and wholesalers to examine ways in which they can improve the efficiency of their own supply chain systems.
RFID technology is already gaining good traction in certain areas of the supply chain such as warehouse management and inventory control. However, we are far from a fully integrated supply chain model. Although many technology and business leaders across supply chain enterprises agree that RFID offers tremendous promise, some argue that their short term return on investment (ROI) does not justify the initial cost of adoption--process re-engineering, re-tooling, and integration.
Others are hesitant to make decisions without stronger standards, and most worry about privacy and related public relations issues. Despite these concerns, analysts have predicted tremendous growth for RFID in supply chain management during the next several years. For example, Venture Development Corporation (VDC) expects the global shipments of RFID systems in manufacturing, logistics, and retail markets to reach $4 billion in 2007, up from $1.25 billion in 20042.
In the following sections, we examine the most critical business innovation trends in the supply chain. These will lead the way to RFID's ultimate deployment across the entire supply chain, starting with raw materials, all the way through to the checkout stand at your local retail store.
Item-level tagging is arguably the final frontier for RFID deployment. This concept permeates almost every type of supply chain application. However, from a practical standpoint, item-level tagging is fraught with challenges.
On the consumer side, a number of security and privacy issues create concerns and will impact its pace of adoption. From the perspective of cost-effectiveness, the sub 5 cents tag will be key before the potential of item-level tagging can be realized. Although several pilots are under development already--for example, in large specialty retail and drug store outlets--expert and analyst opinion on the pace of adoption varies. Estimates of when item-level tagging at the retail store level becomes commonplace range between the years 2010 and 2020. Expect a slow but steady pace toward the item-level tagging of just about everything as the industry and consumers meet the challenges head on.
Third-Party Logistics Management
Retailers that are implementing RFID will have better and real-time visibility of the goods they carry in their stores. This, in turn, will help them become more efficient by enabling true real-time management of the links in the supply chain. Retailers may be able to eliminate their own distribution centers and receive goods directly from suppliers. Naturally, this will require suppliers to send goods more frequently, and in smaller quantities, directly to a larger number of retail stores, thereby shifting the equilibrium for handling and shipping costs. Expect third-party logistics (3PL) management services to include aggregation and distribution of RFID tagged goods. Major transportation and logistics companies such as UPS, as well as smaller specialized 3PL providers, will play a significant role in this area.
Real-Time Inventory Management
Inventory management happens at every level of the retail supply chain: at manufacture time, during transport, around distribution centers, and in warehouses, at both wholesale and retail levels. The recent mandates by
major retailers will compel suppliers to continue to create new business models and applications that will not only help the retailers but the suppliers themselves, within their own four walls.