RFID: Business Issues
Operations & Decision Technologies
Department
Kelley School of Business
Indiana University
Fall 2007
Business Issues
1
What is RFID?
• RFID stands for Radio Frequency Identification
• It is a technology that permits contact-free
transfer of data using a radio frequency
transmission
• The heart of RFID technology is a transponder,
which is a silicon chip attached to an antenna. It
is called a tag. The tag can be attached to items
that are to be tracked
• A numeric code is stored on the chip. This code
is called the electronic product code (EPC)
• The code is read when communication takes
place between a reader (interrogator) and the tag
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RFID Technology is Not New!!
• Tracking livestock (Approximately 15 years)
• Contactless payments (Approximately 5 years)
ExxonMobil Speedpass
Tollbooth lanes
• Event access (Ticketing)
• Building access control
• Has been used in manufacturing to track large
components such as engines and chassis
• Has been used for the international postal
system for monitoring the quality of service
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Some Existing RFID Applications
• Toyota and Lexus – Keyless cars
• Marks and Spencer – Fresh Food Tracking:
Reduce costs of tracking some 4 million trays of
chilled foods
• Metro Group – Rolling out RFID at 250 stores and
10 warehouses with 100 suppliers
• pH Europe – Tracks its fleet of rental containers
and pallets using active tags
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An Antenna Tunnel
Verification
Antennas
tunnel reads
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Some Existing RFID Applications
• Parcelforce Worldwide – Use RFID to position
trucks at loading bays. Cut time from gate to
loading bay at depot by 14 minutes (15 minutes to
1 minute)
• Goldwin Sportswear – Skiwear tracking in
manufacturing and distribution
• Xerox – Uses an RFID system to ship
approximately 250,000 copiers in Europe
• Timekeeping at European motor rallies
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Why RFID Now?
• The creation of the Electronic Product
Code (EPC)
• Technology changes
• The price of the tags has been coming
down. However, price is still an issue
• Mandates by various organizations
(European Parliament, DOD, Wal-Mart,
Target, etc.)
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The Wal-Mart Mandate
• Wal-Mart required its top 100 suppliers to be
RFID-enabled at the case and pallet level by
January 2005
• The rest of its suppliers were expected to
compliant by December 2006
• Wal-Mart did not endorse specific RFID
hardware or software
• Expected suppliers to perform their own tests
of RFID technologies
• Will impact 10,000+ Suppliers
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The DOD Mandate
• Department of Defense required its top 100
suppliers to be RFID-compliant by January
2005 for cases, pallets and packaging of items
• Its top 500 suppliers had to be RFID-compliant
by July 2005 for cases, pallets and packaging
of items
• The remaining suppliers had to be RFIDcompliant by January 2006 for cases, pallets
and packaging of items
• Tags should be EPC compliant
• Will impact approximately 43,000 suppliers
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Key Drivers
• Mandates by Various Organizations
Wal-Mart
Target
U.S. Department of Defense
FDA Counterfeit Drug Task Force
Healthcare Distribution Management
Association
• Cost of the tags
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Impact on Business
• Distribution and Logistics – Track items
throughout the supply chain
• Demand Planning – The adaptive approach
• Manufacturing – Leaner production and
better inventory management
• Packaging/Labeling
• Security – Product authentication and antitheft
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Likely Impact on Retail
• Better and more efficient tracking of items through the
store
• Lower warehouse management costs
• Improved inventory systems. Better shelf inventory
visibility – Smart shelves and systems will give
advanced notification as soon as stocks run low
• Fewer out-of-stock situations - Higher availability of
goods
• Systems will automatically register best-before date
near expiry
• Tracking of high-priced items such as batteries,
razors, CDs, and computer games
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Likely Impact on Retail
• Location of the product – Promotional display or
shelf
• More point-of-sale data than currently available
through bar codes
• Market to the individual consumer
• Smart Carts that will enable marketing based on
early purchases
• More product information available to the retailer
and the customer
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Some Cost Saving Projections
• 10-20% improvement in demand planning
forecast accuracy
• 2-10% increase in sales from fewer out-ofstock items
• 10-30% decrease in inventory due to
reduced safety stocks
• 10-30% reduction in labor costs at
distribution centers or warehouses
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Likely Benefits for Retail Partners
• RFID will enable all partners in the supply chain to keep track
of the entire supply chain
• Partners will be able to handle incoming and outgoing goods
faster and easily
• Partners are always up to date on inventories and the
location of merchandise
• Inventory can be replenished in time and merchandise can
be reordered more accurately
• Fewer merchandise will be written off
• RFID serves to protect merchandise against theft
• Time-consuming inventory counts can be eliminated
• Better efficiency of merchandise distribution within the store
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Metro’s RFID Motivation
• Reducing Shrinkage in the Supply Chain. The retail industry
estimates that supply chain shrinkage runs at about 2% of
sales worldwide. In the US it runs around 1.3% or $26 Billion
a year. Analysis shows this can be reduced by 25% if tags
used at the case level and 40% if tags used at the item level
• Improving On-Shelf Availability and Reducing Out-of-Stocks.
Out-of-Stocks run at between 6% and 10% in grocery
retailing and higher in fashion retailing. GMA estimates that
approximately 25% of stock-outs are because of misplaced
items.
• Productivity and Labor Efficiencies. It takes approximately 6
seconds to do a barcode reading. Surveys show that RFID
can improve on that.
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Supermarket of the Future
• The word “sold out” will be a thing of the past.
Smart shelves will automatically register
whenever stocks of a product are near depletion
• Special terminals will provide product
information and source of products. For
example, you will be able to find out exactly the
route taken by the steak you are contemplating
buying from the farm to the counter
• Intelligent home appliances like refrigerators will
communicate directly with the supermarket to
determine what the consumer needs to purchase
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Key RFID Issues: Business Implications
• What is the business case for the
implementation?
• What is the ROI for an RFID implementation?
• What are the business drivers for RFID?
• Which customers are going to mandate RFID
usage?
• What is being mandated?
• What will the implementation model be?
• How will processes be managed for mandating
customers versus others?
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Key RFID Issues: Technology
• Global Standards – Role of EPCGlobal
• Availability of RFID equipment
• IT Infrastructure to handle the large amounts of data
• Interoperability of RFID equipment throughout the
supply chain
• Interaction with Enterprise Systems
• Is RFID technology here to stay? What is the life
time of the current systems? How will changing
technologies impact new customers?
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Key RFID Issues: Costs
• Current costs of tags and RFID systems
• The item level problem – high costs versus
potentially high benefits
• Who bears the cost, particularly in the supply
chain?
• How will costs be spread – across customers
mandating technology or across all
customers?
• Fixed versus variable costs for new
customers
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Key Business Concerns: Across all
Businesses
• Standards and technology
• Changing technology
• Limited full scale reference deployments
• The item level problem – high costs versus
potentially high benefits
• Availability of RFID systems
• Current costs of tags and systems
• IT Infrastructure to handle the large amounts of
data
• Interoperability throughout the supply chain
• Who bears the cost, particularly in the supply
chain?
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Key Business Concerns: For
Individual Businesses
• Which customers are going to mandate RFID
usage? What is being mandated?
• How will the costs be spread – across customers
mandating technology or across all customers?
• What will the implementation model be?
• How will processes be managed for mandating
customers versus others?
• Fixed versus variable costs for new customers
• Is this technology here to stay? What is the life
time of the current systems? How will this impact
new customers?
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Identifying the Hurdles
• The Business Case: The key hurdle for most
RFID deployments will be coming up with a
business case to support the required
investment
• For a large consumer products manufacturer,
AMR Research estimates that a fully integrated
RFID deployment could cost between $13
million and $24 million.
• Companies complying with a mandate can
expect to invest from $1 million to $3 million
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Identifying the Hurdles
• Technical Hurdles:
RFID tag readability not 100%
Technology infrastructure will be too
cumbersome
Enterprise systems not designed for high
data volumes likely to be generated by RFID
systems
RFID system speed does not match either
warehouse speed or production speed
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Identifying the Benefits
• Inventory Management
More accurate shipments to customers?
Streamline Receiving/Shipping/Invoicing?
Streamline labor utilization?
Better record keeping?
• Order Management
Higher order fill rates?
Easier returns/recalls?
• Collaborative Planning
Increased demand planning accuracy?
Better upstream data from customers/partners?
Reduced safety stocks and shorter lead times?
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Strategic Implementation Roadmap
• Phase I: The Wait and See Phase
No use of RFID technologies
Wait and see approach
• Phase II: The Compliance Phase
Compliance required by customer
No internal use of RFID
• Phase III: The Ramp-Up Phase
Limited applications internally
Mainly containers and pallets tagging
Passive tags
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Strategic Implementation Roadmap
• Phase IV: The Supply Chain Visibility Phase
SKU tracking through out the distribution
channels
Case and pallet tagging
Passive tags
• Phase V: The Advantage Creation Phase
Customized applications
Active tags with Read/Write capabilities
Item level tagging
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Key Business Issues
• Business case development
• RFID technologies and systems
• IT infrastructure issues
• Enterprise system issues
• Data warehousing
• Leveraging the data
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RFID Costs
• Hardware Costs
Tags ($0.25 to $0.80 per tag)
Readers ($150 to $10,000+ per reader)
Antennas ($25 to $500+ per antenna)
Controller PC ($1000 to $4000+)
Cabling (Approximately $10/foot)
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RFID Costs
• Hardware installation costs: Significant
• Fine-tuning costs: Medium
• Software costs: Significant
• Process changes: Medium
• Integration costs: Very High
• Maintenance: Medium
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Fall 2007
RFID – Business Issues
Store Shelf
Store
‘Backroom’
Customer
Distribution
Center
Transportation
Manufacturer’s
Warehouse
Packaging
Manufacturing
Today’s Supply Chain
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Fall 2007
RFID – Business Issues
Store Shelf
Store
‘Backroom’
Customer
Distribution
Center
Transportation
Manufacturer’s
Warehouse
Packaging
Manufacturing
Today’s Supply Chain
$ Billions in losses
32
Designing the Supply Chain of the Future
Customer
Manufacturing Packaging Manufacturer’s Transportation Distribution Store
Store
Warehouse
Center
Backroom Shelf
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The EPC Network
Manufacturing
Fall 2007
Packaging
Manufacturer’s
Warehouse
Transportation
Customer
Distribution
Center
•
A clear view into the supply chain
•
Show where all the products are …
•
How much a company has …
•
Where it is…
•
Where it needs to be…
•
And when/where it goes missing.
RFID – Business Issues
Store
Backroom
Store
Shelf
34
Questions to ask a Business
• Does your business have an RFID strategy?
• Are you considering RFID as a enabler in your
business?
• Have you identified an approach for getting
started with RFID?
• What are the business drivers for considering
an RFID implementation at your company?
• Are the RFID business drivers from an internal
project or one of a partner (vendor or
customer)?
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Questions to ask a Business
• What processes have you considered enabling with RFID
technology?
• Will you use RFID to track product or fixed assets?
• How do you perceive your current product identification
processes will be affected?
• How do you think the data collection environment will
change at your company?
• What customers (internal and external) will this
technology serve?
• Are you looking for opportunities to demand RFID
compliance from your suppliers?
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