RFID in Supply Chain Management

RFID In Supply Chain: Benefits & Future Recent Trends in Operations Management & Radio Frequency Data Identification in Various Industries By- Anmol Sheth - 109087605 MSc. Information Systems & Business Analysis Aston Business School  1. Introduction: 1 1.1. Just In Time Production: 1 1.2. Product Development: 1 1.3. Customized Production: 1 1.4. Supply Chain Management: 2 1.4.1. RFID Technology in Supply Chain Management: 2 2. The evolution of RFID 3 2.1. RFID & Enterprise Systems: 4 2.2. RFID , Business Intelligence & Strategic Decisions 5 2.3. Factors influencing adoption: 6 3. Review of potential benefits: 6 3.1. Competitive Advantage by use of RFID: 10 4. Application in Various Industries: 11 5. Pitfalls Of RFID: 12 6. A Look Ahead: 13 6.1. Opportunities: 13 6.2. Challenges: 14 7. Conclusion: 15 8. References: 16  Introduction: The operations management is a procedure of managing events that creates and distributes goods and services so as to create value to the customer. In order to improve performance in this procedure, a number of operations related ideas are being proposed and implemented in practice. It is widely held that successful implementation of these ideas requires system thinking, functional integration and flatter organizational structures. (Sabbaghi A. and Vaidyanathan G.) There are number of recent ideas and philosophies developed recently in the market in order to work more efficiently with main streams like supply chain management, manufacturing and quality development. Few of them are described below in order to get a brief idea about recent trends. Just In Time Production: Earlier, there used to be mass production method where goods were produced in batches and sold at mass scale generating economies. In the modern operations management period, batch production focus has shifted towards Just In Time production where goods and services are produced upon the receipt of order with customizations. It helped to reduce inventory cost significantly (Hajara, Tutebox). Product Development: Few years back product life cycle used to be lengthy and products were not being introduced to the market quite often. In today’s technology powered phase, product life cycle has become shorter and new one is replacing every product too quickly. Because of such reason, manufacturers are enforced to commence quick development of new product while promising improvement (Hajara, Tutebox). Customized Production: Before few years back concept of mass production was successful which was large scale with standardized production to gain economies of scale. In today’s market position, to be in competition with other companies and in order to increase flexibility, manufacturers are forced to customize their products based on customer’s priorities and methods such as mass customization is used to fill that (Hajara, Tutebox). Supply Chain Management: Supply Chain Management is constantly progressing and there are always new trends and issues that are of interest. Modern-day supply chain concentrates on the client. Industry needs to recognize correctly about what customer wants and in what way they need packaging item. There is not a single strategy, which can get solution of it at one time. Manufactures should be able to move tracks rapidly in order to achieve customer’s demands. As a result, business and manufacturing processes need to be agile and scalable (Thangamuthu, K). (Fig. SEQ Fig. \* ARABIC 1 Typical Supply Chain) There are few recently developed strategies and trends such as green supply chain management, Radio Frequency Identification System (RFID) and ERP Integration with Supply Chain Management is being implemented in practice. It is necessary that implementation of these philosophies are required system thinking, functional integration, and flatter organization structures. Implementation of RFID system in company’s supply chain adds lavishness of economic and innovative capabilities (Thangamuthu K., 2008). RFID Technology in Supply Chain Management: Manufacturers, retailers and distributors consider supply chain cost reductions as a critical issue to be addressed in their business. This desire to cut supply chain costs has pushed Radio Frequency Identification (RFID) technology that can be used to provide electronic identity to any object (Attaran M., 2007). It’s not a new technology but it’s quite new to supply chain. Radio Frequency Identification (RFID) has capabilities of solving supply chain problems and improving effectiveness and efficiencies. RFID has potential in areas of operations, such as manufacturing, after-sales service support and total product life cycle. RFID technology gives complete visibility of accurate inventory data throughout the supply chain from manufacturer’s warehouse to retail store. RFID can help organization throughout the supply chain to recognize significant productivity gains and efficiencies. Sometimes for a large enterprise, RFID infrastructure can be more complex (Attaran M., 2007). Different supply chain at extended level has vast benefits of using RFID and they can use it for different activities: Manufacturers RFID enables comprehensive, automated monitoring of parts as they move through a plant. RFID identifies the beginning of faulty components or products, even after they have been sold. Distributors It helps to manage inventories and fleets so effectively that manual tasks can be eliminated and shipping errors can be reduced. Retailers It helps to maintain stock levels, keep tracks of origin and history of products, and prevent theft or misplacement of goods. The evolution of RFID From era of 70s, the service sector has been using Universal Product Code, formerly known as Barcode. In around 30 years, Barcode became popular and still it appears on almost every product. Manufacturing industry as well as service industry accepted barcode widely but in some conditions it became hard to read barcode if it is damaged by environment or temperature. In those cases, people preferred to use RFID technology. This technology originated in 1940s, when US Government used transponders to distinguish friendly aircraft from enemy aircraft. (Attaran M., 2007) RFID does not require the tag or label to be seen for reading data. It uses radio waves to capture data from tags. It supports various platforms and related applications such as asset management, tracking to manufactured products and related customer services to access controls and automated payment systems. It has three main primary components: the tag, the reader and the computer. The tags are fixed chips in the product or pallet, which can store and transfer information about the particular component or product. It has Electronic Product Code can store product information on microchips that in turn are placed on objects so they can be uniquely identified. There are two types of tags, active (self powered by battery) and passive (no battery). Passive tags are more popular, less expensive, with almost unlimited lifelines. They use the radiated energy from RFID readers for information transfer. Active tags are self-powered and more powerful. They work as transmitter that receive, store and transmit information to the RFID readers. These tags can have different types such as read only, read/write or a combination of both. RFID readers can have an effective range from few centimeters to a few meters depending on kind of work and tags. RFID & Enterprise Systems: According to Sabbadhi, A. and Vidhyanathan G., in 2008, it is necessary for organizations to have clear picture of the key supply chain processes in order to measure effectiveness and efficiency. Companies in many consumer-targeted industry are implementing new technologies such as EPC and RFID. Few companies such as Wal-Mart had to slow down implementation of this technology, as infrastructure was not developed enough. (Fig. SEQ Fig. \* ARABIC 2 Example Of RFID System) As per Keen and Mackintosh, RFID technology is now part of modern supply chain infrastructure and that will support mobile commerce. They introduced “process freedom”, the ability to add value along the entire supply chain. According to them, information should float easily between manufacturers and end users. This process should create an “extended enterprise” and in effect material and service suppliers, channel supply partners, which are wholesalers, distributors, retailers, and customers, supply chain management consultants, software product suppliers and system developers, will become key players in the process. Using the concept of business intelligence to data from supply chain management systems, supply chain technologies may be applied to provide strategic information for decision-making process. In this manner, data will be collected in data warehouse for future predictions and measuring effectiveness and efficiency of supply chain. RFID , Business Intelligence & Strategic Decisions The main motivation of employing RFID can be identification, authentication, location or hunger of automatic data acquisition (Sabbadhi, A. and Vidhyanathan G., 2008). In most ADA applications, objects such as products, cases and pallets are tracked automatically and data captured out of it is used to derive enterprise applications such as SCM systems, CRM systems and ERP systems as RFID could significantly enhance the accuracy of date. As technology prices are going down and applications becoming more cost-effective, RFID has became very precious tool for being productive. Business Intelligence software can use this data effectively and produce number of future predictions such as marketing strategy, price management, merchandise planning, resource allocation and warehouse management etc. (Fig. SEQ Fig. \* ARABIC 3 Use Of Information by SAS Business Intelligence Software) Currently RFID is mainly used for efficient tracking but the most respected impact of RFID will be recognized from use of technology’s intelligence. RFID has adopted few global standards. The most noticeable industry standards are EPCglobal and standards for supply chain. EPCglobal Inc., a same company who managed for barcode UPC, manages standardization for encoding information on RFID tags. Factors influencing adoption: SCM systems are capable to make analysis for planning solutions and strategic level decisions. Companies who adopted SCM systems reported lower procurement costs, smaller inventories, shorter cycle times, better utilization of resources, faster response to the market and reduction in forecasting errors. Supply chain cost is often cited as a major factor influencing RFID adoption (Attran, M. 2007). (Fig. SEQ Fig. \* ARABIC 4 Typical Implementation Cycle) Review of potential benefits: There are five main types of benefits that can be achieved through out supply chain by help of RFID technology. Reduced Shrinkage: Shrinkage occurs in various ways, in form of misplacement, retail crime or can be spoilage. RFID is able to reduce occurrences of shrinkage. US retailers’ shrinkage cost was $30 billion in 2005 and it is believed that RFID is able to reduce this amount by two-thirds. RFID defined as a solution to black market sales (Twist, 2005 and Tajima M, 2007). Reduced Material Handling: RFID helps to reduce material handling and inspection time. As per one study, it reduces 40% of stock taking time and it reduces 90% of location errors. (Quirk and Borrello, 2005). It also helps to reduce human error such as counting, manual data entry and put-away (Rutner et al., 2004). Reducing material handling leads to lower labour cost and increases productivity. Increased Data Accuracy: Inventory accuracy is a major problem with retail industry. RFID is able to increase the accuracy of shipment data, which can improve demand forecast and production planning (Lapide, 2004; McCrea, 2005). Accurate information can lead to improve management quality and decisions (Lin et al., 2006). Faster Exception Management: RFID is able to support faster exception management by providing timely acquisition of data and better synchronization of information and material flows (McFarlane and Sheffi, 2003). RFID can also automate some aspects of exception management, such as invoice reconciliation, shipment data adjustment and sending alerts (EPCglobal INC., 2004a). Improved Information Sharing: Data sharing can be automated with the use of RFID (Rutner et al., 2004). RFID is able to offer flexible information sharing by customizing aggregation or disaggregation of supply chain data (Murphy-Hoye et al., 2005). Now, next three types of benefits are more associated with manufacturers: Production Tracking: RFID can track raw materials, work-in-process inventory, finished products or even assembly status during production. I.e. Ford’s kanban system improved tracking of parts through assembly process (Ka rkka inen and Holmstro M, 2002). Quality Control: RFID can be used to certify quality assurance during production. i.e. Malden mills tracked imperfactions in Polartec fleece fabric using RFID ( Bear, 2003). Supply and Production Continuity: RFID can ensure production continuity and supply availability by improving material tracking (Ka rkka inen and Holmstro M, 2002). RFID can provide regular equipment monitoring in order to reduce equipment downtime and maintenance costs (Lu et al., 2006). (Fig. SEQ F5 RFID Benefits through Various Participants) Now, next two types are more associated with distributors and logistics providers: Space Utilisation: For better material handling, RFID can improve flexibility of space utilisation along with improved efficiency. RFID can also provide flexible space allocation by reducing product incompatibility problems (Rutner et al., 2004). Asset Management: Variety of huge volume assets can efficiently manage by RFID. Better tracking of reusable assets subsequently leads to better asset utilisation, better shipment partnership, reduced fuel expenditure for trucking and lower capital costs (McFarlane and Sheffi, 2003). Now, next four types are more associated with retailers: Reduced Stock outs: RFID can reduce stock outs and subsequently reduce lost sales. By this reduction, retailers will be able to focus on promotions tracking and execution, category management, new product introduction and shelf layout. All of them are supported by RFID (RFID Update, 2006b; Rutner et al., 2004). Customer Service: RFID can advance customer service in diverse ways. Use of RFID can save staff’s time from counting inventory and dealing with stock outs. So, Staff can pay more attention on customer assistance (Roberti, 2003). I.e. Exxon Mobil launched RFID based self-checkout system and that reduced customer’s waiting time (Bear, Stearns Co. Inc., 2003). After Sales Service: RFID can respond efficiently to recalls by isolating bad batches (Quirk and Borrello, 2005). It can also help retrieving warranty information by tracking information on tag (Ka rkka inen and Holmstro M, 2002). Lower Inventory: RFID is able to reduce safety stocks by improving inventory data and cutting stock outs (Schell, 2004). By facilitating vendor-managed inventory, just in time delivery and automatic replenishment using smart shelf, RFID can reduce inventory (Prater et al., 2005; Smaros and Holmstro M, 2000). (Fig. SEQ Fig. \* ARABIC 6 Alternative Benefit Model) Competitive Advantage by use of RFID: Based on figures above, the use of RFID achieves benefits in three different ways; Process automation, closed-loop tracking and supply chain visibility. Supply chain visibility is the most commonly mentioned advantage of RFID and it is expected to produce many benefits in SCM solutions. This can be long-term benefit, as it requires mass adoption of RFID, trading partner collaboration and technology infrastructure for information sharing. Because of it, organizations are likely to adopt process automation and closed loop tracking first, as its internal patterns of use. In concern of new technology adoption, various cost reduction, gaining market share, earning a reputation as technology leader and business intelligence prediction can be included as basic competitive advantages (Dos Santos and Peffers, 1995). Exploitation – Exploration theory propose two different ways of competitive advantage. Exploitation aims to improve the existing product or process and its notion is captured by terms such as selection, refinement, efficiency and risk reduction. Process automation and closed-loop tracking are considered as exploitation part of theory and are internal use of RFID. Exploration aims to discover innovation, and its notion is captured by terms such as search, variation, risk-taking and experimentation. This conceptual distinction between exploitation and exploration has been used widely as an analytical construct in management research (He and Wrong, 2004). Changing organizational practices is good example of exploration. Application in Various Industries: RFID has so many usages such as access control to building, document tracking, live stock tracking and identification, vehicle security, pay at the pump petrol sales, product authentication, retail, sport timing, supply chain, ticketing and wireless payment etc. Here below summarized about different industry that uses it in everyday. Shipping and Distribution: Tags determine what loading/unloading services are needed. It also helps to determine routes. Retail Industry: RFID tags continually gather information as products move from shelves to the check out counter. Wal-Mart took initiative for using this technology and it helps to keep track of purchasing, reordering and stocking. According to estimate, Wal-Mart saves $6.7 billion in labor costs alone from RFID implementation (Rockwell Automation, 2004). Manufacturing: It helps to track parts during manufacturing process. This helps manufacturers to meet Just In Time production requirements. Tags can be used to keep track of usage, availability, location and maintenance of material handling equipment. Agriculture, Food Production: It can reduce recall costs by increasing ability of manufacturers to identify and recall only the affected items (Homs, 2003). Health Care: It can be used to improve quality and reliability. A British firm is using RFID tags to match blood samples to patients (Philips Semiconductors et al, 2004). They can also keep track of assets such as wheel chairs. Even doctors and nurses can keep track of dosages given to petitions. Pharmaceutical: The drug industry uses RFID to self-police in the fight against thieves and counterfeiters (Patton, 2005). Government: They use it for supply chain management, inventory, security and military strategies. The Army uses RFID tags on supply containers for detecting shock and variances in temperature (Bacheldor, 2003). The Navy can use it for weapon management. Weaponry data collected by RFID tags reveal anything from materials to capabilities and mission details (Aitoro, 2005). Gaming Industry: They are looking to derive profit by using technology. Casinos are installing RFID readers and PCs at game tables so they can look over counterfeiting, card counting and other illegal behaviors. It also helps casinos to keep eye on how much players bet and how long or often they play (Gilbert, 2005). Security Industry: RFID is silently moving towards people tracking realm, especially area of monitoring children. It can be put in to items and that items can be tracked in certain area. If tag is not removed or de-activated, than readers can identify it and buzzers can go on (Sullivan, 2005). Pitfalls Of RFID: There are few issues with implementing RFID though it has above listed enticing benefits. As per UPS, these issues are well known to industry and solutions are in development. Here are few on going issues faced by RFID implementation. Cost: Tag costs are major variable cost component for RFID but in addition, it integrates other costs such as software, systems’ integration, process redesign and skilled human resource. With the anticipated scale and scope of RFID deployment, tag costs are expected to continue their decline. Weather tags will be reused and that will be a cost driver that should be considered. Tag Readability: This issue is depending on: Tag frequency and range Reader capabilities and locations Operating Environment The type of assets being tagged Real question is just how to accurately read some items, especially if they are nested within pallet. Given the increasing demand for RFID and its history of incremental improvement, readability issues will become manageable for most applications. Data Management: Electronic Product Code will occupy larger data field than Universal Product Code. This is one of the most current issues for managing larger quantity data. Standards: There is no such standard defined for RFID frequencies. Tag operating frequencies will differ between the US and other regions for quite sometime. Support for open standards and multiple frequency readers make sense for global supply chains. Business Process Changes: RFID implementation requires new work methods and performance measurements for the supply chain. The design of any RFID strategy must consider new processes and procedures to automate tasks and decision making where possible (UPS Report). A Look Ahead: Opportunities: Recent technology advances and a strong industry-wide commitment to standards and investment point to a bright future of RFID. It can be used as a “closed-loop RFID”. According to this approach, RFID can be used across the enterprise on projects designed to enhance internal corporate applications rather than supply chain operations that share data with other business partners along with supply chains. It can help streamline a business process, enhance visibility into what customers need and can improve productivity by generating the fastest, lowest cost method of acquiring the data within the boundaries if a company. Companies like Wal-Mart who adopted it earlier, experienced positive results. As example, Wal-Mart claims to save $8.4 billion in annual savings. This is more than the total revenue of half of Fortune 500 companies combined (Rockwell Automation, 2004). Challenges: RFID has huge potential for reducing supply chain costs though there are number of reasons at the fundamental and technical levels for its delayed acceptance: Fundamental: Return of investment is not straightforward for RFID implementation and it’s not an easy process to calculate it. Uncertainly a lack of standards maturity and high capital costs will also need to be addressed before retailers can adopt and benefit from the technology (Attran M., 2007). Technical: RFID is still more expensive than barcode and there are problems using the tags on metal objects. To reduce tag cost is to reduce the size of chip. At the same time, it makes assembly more expensive. RFID creates huge amount of data that are difficult to manage. It requires an expensive hardware to deal with that data. More of them can be look in to Pitfalls area (Attran M., 2007). Organizational: IT experts must determine how to integrate RFID with existing SCM, CRM and Enterprise Resource Planning (ERP) applications with the entire system. Proper integration can improve return of investment rate and retail supply chain communication (Attran M., 2007). Conclusion: RFID technology is establishing its place in supply chain industry and sustainable operations. It promises industry in getting succeeded for moving goods around efficiently, to cut costs and deliver a wealth of information that helps companies more efficiently predict and respond to customer demand. IT is the most recent prolific technology that provides supply chain relationship and visibility. RFID systems will up-lift corporate ROI while at the same time improving supply chain communications. Many companies have embraced RFID and are beginning to generate real business benefits from the technology. Organizations who take time to understand technology’s capabilities and limitations can increase their inventory visibility while streamlining their operations. According to Rockwell Automation, RFID is less an issue of technology and more an issue of information flows and business process change (Robbins, 2005). If RFID will be able to successfully unify the industry standards, delivery on future promises, combination with existing manufacturing information systems, and convince end users of the technology’s benefits, then RFID’s future looks favorable. At the current stage, this RFID industry needs to focus on integration between Manufacturers and End users. 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