RFID provides fast, accurate inventory tracking

Wherever Wal-Mart leads, few competitors or vendors fail to follow. Therefore, the march toward automated inventory control begins. Wal-Mart has instructed its 100 largest vendors to be ready to track every pallet and every carton of merchandise — not yet down to retail package level — that enters its distribution network with a radio frequency identification (RFID) tag no later than January 2005. The remainder of the Wal-Mart supply chain must join the parade by January 2006.

If the distribution chain were not previously ready for a new world of inventory tracking, it has been given the critical push by the powers-that-be in Bentonville. The federal government has joined the campaign as well, with the Department of Defense announcing on October 2, 2003, that it now requires RFID tags ready to track all packaged assets by January 2005. These assets include items as varied as bombs, missiles, or meals-ready-to-eat. The Defense Department wants passive tags for all pallets and possibly have them used as far down the supply chain as individual packages such as meals. The internal DOD processes for utilizing this tracking must be ready for use by May 2004.

In their least expensive form, RFID tags are small adhesive-backed stickers containing a passive microchip and an antenna. These tags carry basic information such as a product code and manufacture identification. Data is transmitted from the tag only when it is illuminated by a radio signal. Range of these passive tags is usually less than five feet.

Increased speed and accuracy

Every part of the distribution chain looks to the potential of RFID to achieve three goals, John Healy, CEO of the 360 Solutions Group, says. Users want to cut, or at least control, costs, improve the accuracy of the supply chain, and increase the speed of goods through the logistics process. This technology will have a ripple effect throughout the supply chain, providing benefits throughout as information is collected more rapidly than ever before, he says.

Wireless inventory tracking no longer is as expensive as it was just months before. As is the case with any new technology, the price decreases as the volume of users increases, Healy says. When RF tags for inventory tracking were first introduced in the mid-1980s, they cost an average of $6 per tag. At the time, the tags cost more than some of the products that distributors and retailers wanted to track. Recent projections call for tags that cost less than 50 cents, and some producers are talking about making RFID tags for less than five cents apiece.

Operating frequencies for this tracking technology also have an impact on cost. As standards for operating frequencies and power requirements for tags become settled globally, the price will decrease as well, Healy says.

The best news about RF inventory tracking is that extra infrastructure is not required. These systems are being built to plug into existing RF systems within warehouse management programs, Healy says.

Benefits to vendors

Wal-Mart says that the introduction of RFID tracking will benefit its vendors. Potentially, the information developed by such tracking will improve production planning. It will improve supplier response to customer demand with faster, more accurate information. With an accurate count of every carton moving through the supply chain, inventory control should become almost automatic. In addition, shipping and receiving are projected to become more efficient as less labor is required on docks to ensure rapid and accurate movement of goods, Healy says. Farther down the RF road, this technology has the potential to provide information about load location.

A more accurate supply chain is necessary to reduce the impact of some proposed regulations for the national food supply. Tracking tags have the potential to reduce some of the burden that country-of-origin labeling poses for the food industry. RF technology also has the potential to reduce the threat of theft from food warehouses, Healy says.

Some industries and some manufacturers already use RFID; the cosmetics industry, selling high value products in small packages is a good example. However, a critical mass must be reached before the technology can be adopted throughout the food industry. One critical need at this point, Healy says, is for all players in the potential RFID game to get involved early so that the eventual rules fit all the players instead of a few huge retailers.

No silver bullets

One decision must be made soon about the level that RFID tracking will involve. Some users want to track pallets and cartons, while other want to track retail packages all the way to the store shelf. However that decision comes out, one thing is certain. RFID is not a silver bullet to solve all the problems in supply chain management. If a supply chain already has flaws, RFID will not fix them, Healy says. It might, in fact, aggravate those problems, because RFID will allow the supply chain to move faster.

Some moves to RFID, other than at Wal-Mart, have already started. Giant Eagle, a $4 billion supermarket chain with 214 stores and five distribution centers in four states, recently set out to overhaul its warehouse management system. Although RFID is not included in the warehouse management upgrade, Giant Eagle has required that the new system be compatible with RFID so that it can be added simply at a later time.

The goal for future RFID applications at Giant Eagle is to streamline distribution and reduce inventories. The chain expects that RFID can provide inventory visibility in real time throughout the supply chain. Manhattan Associates is the supplier for this new warehouse management system that is scheduled to begin operation in mid-2004.

Change at Marks & Spencer

In a recent case study from the United Kingdom, Marks & Spencer is reported to have sales of about $4.5 billion annually in its food division. The company handles more than 3,000 food products, all under the Marks & Spencer private label. More than 70% of that business is fresh, chilled food moved in 120 million cases with 75% of those packed for delivery in returnable plastic trays. Marks & Spencer had been using bar codes on those trays until making the decision to move to metric trays to replace its older imperial measurement trays. This change offered the opportunity to change to RFID tracking instead of bar codes.

Marks & Spencer is in the process of adopting a system that uses 3.5 million plastic trays with RFID tracking from suppliers to corporate distribution centers to retail stores. This tracking and inventory control is intended, in the words of the Marks & Spencer mission statement for the changeover, to achieve “perfect availability” throughout the supply chain. The change is sequential. Instead of scrapping bar codes completely, the company purchased software that can utilize either bar code data or RF tracking. After making sure that the information infrastructure could handle the change, small pilot programs were put into operation.

The Marks & Spencer distribution process stacks the plastic trays on wheeled dollies that roll directly from the delivery trailer into retail stores. As the RF project progressed, tags were attached to both trays and dollies so that tray contents as well as whole dollies could be tracked. The system installed by Marks & Spencer allows them to change the data on a tray or dolly without replacing the tag, resulting in a 90% cost reduction simply as a result of not printing and attaching a new bar code sticker every time dolly or tray content changes.

The system has increased velocity through the distribution as well. Previously, Marks & Spencer reported that it took 29 seconds to get a thorough, accurate scan of every tray on any given dolly. The bar code system also required that dollies and trays to be oriented properly to ensure visibility of every sticker. The RFID system has no such orientation requirement and can provide an accurate reading of every tray on a dolly in less than five seconds.

Although Marks & Spencer can be seen as a great success story, the food industry still has things to learn from the failure of some installations, Healy says. One particular reason for difficulties with the new technology is constant focus on the cost of the tags instead of looking for the benefits and value added to the supply chain as a result of increased information. In addition, some distributors take too long to implement any new technology. Constant hesitation during installation, stringing out the process beyond a practical time frame can cause failure, he says.

Making sure that everyone in a company knows what RFID can do and how those goals are to be reached is essential, Healy says. The new RFID technology will not solve all problems, and, if it is sold in the company as a magic bullet, no system will be able to live up to those expectations. RF tracking will provide more information that most distribution companies have ever seen. The key is deciding what information is useful and then setting up systems to take action based on the new data.