RFID - Applications within the supply chain

Source: Cranfield School of Management, Cranfield University U.K.

Previously published in "Supply Chain Practice Vol6 No2 2004, Cranfield Univerisity, Cranfield U.K."

Introduction

Radio frequency identification(RFID) has been heralded by some commentators as a technology that will have asbig an impact on supply chain operations as the advent of computer basedplanning systems in the early 1970s; others say it is just yet anothertechnology fad that will have gone away in a couple of years. We arecontinually reading conflicting messages about RFID - this is partly due to theterm being misused in some quarters and also because, as with all new technologies,it takes time for all those involved to define a common language. This paperwill examine the benefits and barriers to RFID implementation before moving onto discuss applications of the technology and to look at case study examples.

RFID Benefits

When compared with other automaticidentification systems like barcodes, magnetic stripes or manual data entry,RFID offers many potential benefits; currently the cost of the technology is abarrier but as implementation costs fall this will be less so. Any costjustification of an RFID system should take into consideration the entire costfor the life of the system. Habitually, potential users of RFID tend only tocompare the cost of the tag against that of a barcode label which results inthe cheaper bar code option being favoured (Harrop, 2000). However if thiscomparison is made at a system level, RFID can be the lowest cost technology,with tags being reused and operational costs lower due to cheaper maintenancecosts and lower labour requirements.

Table 1 provides an overview of the benefits of RFID overbarcode type systems as identified by a number of commentators in the area.

Barriers to RFID implementation

Cost of RFID Tags

The cost of the tags is one of themost important constraints for the full implementation of this technologywithin supply chains (Chomka, 2003). The low cost of the tags will allow their applicationfor single use or for low cost multiple uses where the durability of the tag issuitable. These tags contain data that can be read remotely and cost less thanfive cents (Harrop et al, 2003), therefore cheap enough to bedisposable.

RFID Applications within the supply chain

Assessing the return on investment of RFIDs added features instead of focusing on tag cost might be the strategy to be followed by users. Nevertheless, sometimes, the payback from the implementation of RFID technology can be difficult to calculate. In order to achieve low price RFID tags it is necessary to trade-off various factors like functionality, data capacity and construction. Presently chipless tags represent the lowest level of cost for RFID tags. The chip with the tag represents the most expensive component and this can be up to 90 per cent of the tag value (Das et al, 2002), Many commentators state that for RFID tags to be used widely the price of a chip-based tag must be reduced to below one U.S. cent. This would enable full scale item level tagging within the supply chain. By early 2003 the cost of chip smart labels was around 40 U.S. cents and it is expected that by 2004 these costs will drop to 15-20 cents and finally to 5 cents by 2007. However, the full scale implementation of item level tagging will require the tags to cost one cent or less (IDTechEx Ltd, 2003a).

RFID Typical applications

RFID systems should not be seen as a substitute for other identification systems like barcodes. Their multifunctional capability can provide additional features that allow the use of this technology for other applications that consequently add value. RFID can be used to address the following important issues within a variety of business sectors:

• Asset/product tracking
• Real time theft detection - shrinkage
• Product handshaking
• Real time tampering detection
• Anti-counterfeiting
• Market research
• Safety and security
• Entertainment
• Access control
• eCommerce fulfilment
• Condition monitoring
• Controlling grey markets
• Transactions
• Industrial and warehousing
• Positioning/locating
• Merchandising

The following discussion will focus on just some of the most relevant applications of RFID within logistics and supply chain management.

Asset and product tracking

Milner (2000, p.14) provides a clear definition of the use of low cost RFID technology for asset and product tracking. He says it can be used to monitor and manage the physical movement of materials and finished products, to generate and deliver a flow of critical information, and to form the basis for enhanced working between supply chain partners. This application is of particular interest in warehousing and distribution, as these activities, according to MIT (Harrop et al, 2003), account for 75 percent of a products retail cost. Tracking items like assets or products allows knowledge to be gained on the history of the item and the process it has been through (Graham, 2003). This capability enhances the control of operations by reducing stock losses and improving supply chain visibility. The use of this technology for asset tracking is mainly used for vehicle and container tracking (e.g. fleet management, military logistics, postal services, food and clothing retail) where the tag cost is very small compared to the tagged asset value. The use of RFID technology at item level is still restricted by the tag cost and other problems regarding physical features such as size and metallic/electrical interference (Finkenzeller, 2003).

Anti-Counterfeiting

The anti-counterfeiting function of RFID technology is normally considered an additional feature provided by RFID chip-based tags and is partly addressed in the asset and product tracking and product handshaking functions. However, counterfeiting is a major concern for all industries and some companies are beginning to look for this type of functionality from RFID technology.

Condition monitoring

RFID tags with sensor functions can monitor physical conditions, like temperature and humidity and to register if the product has suffered any knocks. This feature is being used by the United States Military (IDTechEx Ltd, 2003a) to monitor the condition of munitions but it may also be used in the food retailing industry where chill products condition can be continuously measured. If some condition is altered the system can flag up a warning or set off a corrective procedure. Condition monitoring can also be used for anti-tampering purposes, detecting changes in some physical conditions of the product (IDTechEx Ltd, 2003b) or detecting if the tag has been peeled off (Harrop et al, 2003). This type of application is also being used in cold chain applications within the pharmaceutical/health industry to detect if products have been subjected, during transit, to temperatures outside the tolerance limits set by the authorities.

Merchandising support functions

The implementation of RFID technology focusing on merchandising functions is already being tested. One example that clearly illustrates this is the trial being conducted in an Extra store in Rheinberg, Germany - The Metro Future Store¹ (Benoit, 2003). One of the applications for RFID tags is being tested on Pantene shampoo bottles to achieve a more direct communication with the customer. When a tagged shampoo bottle

is lifted from the shelf, it activates the display screen above the shelf starting a commercial advert or communication tailored to that product. The use of RFID technology for marketing functions will be mostly dependent on item level tagging and at present this is still not feasible in the short term within the FMCG retail industry although Prada (the fashion retailer) has applied it to high value product in their New York store. Other possible uses could be monitoring customer behaviour by using RFID loyalty cards and providing tailored marketing approaches according to customers shopping habits (Harrop, 2000).

Industrial and warehouse environments

The use of RFID technology has many applications in the industrial and warehouse environment such as product handshaking, near real time inventory control and condition monitoring. Additional applications for RFID technology can be found in these areas. Warehouse picking can be made accurately and automatically (Graham, 2003), and warehouse yard management can be optimised so that vehicles and cargoes can be identified as they enter a compound and be directed to the right location to be unloaded/loaded. Another example is the application of RFID to conveyor picking systems resulting in increased efficiency due to the higher levels of accuracy achieved.

Company case studies

We will now look at some actual implementations of RFID technology to understand the benefits that are being experienced within some organisations.

Allied Domecq, UK tracking ownership and duty paid status

Allied Domecq is a major producer of wines and spirits. Trials were undertaken with RFID, within manufacturing and supply chain environments that successfully demonstrated the benefits that could be accomplished in a closed system. More recently, and under the Chipping of Goods initiative (Home Office, 2003), another trial was launched. In this trial, individual bottles of spirits were labelled with a unique serial number encrypted in a two dimensional bar code. These bottles were packed into cases and their information associated with the unique case serial number.

The numbers for every case were associated with the RFID tag on the pallet on which the goods were transported, enabling the movement of product to be tracked through the supply chain from one distillery to two distribution centres. The aim of this trial was to provide evidence of ownership and duty paid status and to trace the products across the supply chain (IDTechEx Ltd., 2002). However there are no reports regarding the success and results of the trial.

¹ Information on this project can be accessed at the internet address http://www.future-store.org

Woolworths, UK total transparency for itemtote- dolly-container-driver-route-store

Woolworths involvement with RFID technology came under the Home Offices Chipping of Goods initiative (Frontline Solutions, 2002a). For this retailer, the losses due to shrinkage, which had an impact on service and inventory levels, were considerable enough to justify a trial with RFID technology. In 1999, a small-scale pilot was launched and involved one distribution centre and one store. The Woolworths trial revealed that RFID has potential applications to improve supply chain transparency and to reduce supply chain costs. However, at that time, it was felt that the technology was too expensive, not robust enough and without any universal standards. Moreover there was a lack of a compelling business case to justify further investment in such a new technology. In 2002, and within the Home Offices initiative, Woolworths started another trial using RFID technology in one distribution centre, two stores with fixed RFID infrastructures and 30 stores using mobile RFID infrastructures. In this trial the RFID tags were placed on 16,000 dollies instead of each product item because the average item value of 3 could not support the investment of individual tags (ONeill, 2003). The system uses an integrated approach using various technologies. Products are picked into tote boxes with a unique barcode identification that will be assigned to a dolly identified with a unique RFID tag; this dolly can carry up to ten totes. RFID readers distributed in strategic places within the distribution centre track the dollies movement in real time and ensure that they are loaded into the correct vehicle ready for despatch. This also allows identification of mistakes before the product goes any further than the dispatch bay. When dispatched, a GPS system tracks vehicles that are associated with the dollies that they carry. Therefore, it is possible to track products through the supply chain from the vehicle level to the item level - item-tote-dolly-container-driver-route-store.At the store, drivers using handheld RFID/barcode scanners confirm the delivery without the need for paperwork related to proof-ofdelivery. Finally, the stores involved in this trial were equipped with fixed position readers that gather and check information on the dollies contents on arrival from the distribution centre. This original six-month trial was extended and 2,500 deliveries were tracked and the movements of 350,000 tote boxes filled with goods were recorded (Frontline Solutions, 2002a). The results confirmed improvements on the processes by using information that identifies the causes of supply chain inefficiencies. This situation led to the reduction of costs associated with:

• shrinkage reduction (this was 1.8% of sales)
• reduced labour for deliveries checking and claims processing
• improved utilisation of totes and dollies
• the reduction of inventory levels, improving product availability and customer service

The Gap, USA 100% on-shelf availability increasing sales by 12%

A three-month trial was carried out in a Gap store in Atlanta where Texas Instruments RFID tags operating at 13.56 MHz were used for item level tracking of denim apparel. The aim was to reduce stockout situations and obsolete inventory, enabling staff to locate specific articles. It also aimed to improve supply chain efficiency by having an increased stock visibility from factory to store. The result was an almost 100 percent on-shelf availability of the RFID tagged merchandise and a 12 percent increase of sales of this merchandise in comparison to control stores that were not using an RFID system (IDTechEx, 2003c). The system also allowed easier store replenishment for employees and a more efficient inventory management system to be created.The trial achieved positive results from improved handling efficiency with a return on investment of 1.7 years (Das, 2003), half the time that was originally estimated. Despite the advantage of working in a closed system where production is controlled by The Gap, a roll-out of an RFID system in their chain of stores is still not part of their plans because of funding requirements (Harrop et al, 2003), the lack of standards and a suitable open system (IDTechEx, 2003d).

Tesco, UK the intelligent shelf

Tesco is currently trialling tags on DVDs at its Sandhurst and Leicester stores. In this trial Tesco is testing smart shelf technology in collaboration with MeadWestvaco, an American packaging company and Entertainment UK (EUK), that keeps DVDs stocked in 2,500 retail stores in the UK (Thomas, 2003). It uses RFID tagged DVDs that are programmed using the MeadWestvaco Intelligent System (MWVIS). For the trial, MeadWestvaco retrofitted ten 4 ft. x 6 ft. shelving units with 13.56 MHz readers. Two readers provide power to hundreds of antennas using the MWVIS networking technology. The backroom of the Tesco store was also equipped with this technology that is designed to work with the electronic product code technology developed by the Auto-ID Center (IDTechEx Ltd, 2003e). The trial will allow staff at Tesco and Entertainment UK to see, in near real time, exactly what is in the store (shelves and backroom) through a secure website and allow staff to see when goods are out of place or need to be restocked. The system records when a product was moved. Additionally it will allow staff to save time spent in sorting DVD titles and to improve on-shelf availability as the titles will be stored in the correct place and the system can give a warning if items are in an incorrect location. In addition a trial is being made with Gillette razor blades.

Tesco initiated a trial in September, 2003 in a non-food depot in Milton Keynes (UK) where selected cases of non-food items moving between the depot and its stores in Peterborough and St Neots in Cambridgeshire in the UK were RFID-tagged. From this trial, Tesco is already planning to roll-out RFID tagging technology across its supply chain in 2004 with its Secure Supply Chain Initiative (IDTechEx Ltd, 2003f). This roll-out will start with the tagged cases being moved between distribution centres and stores on selected products. It is hoped that from Autumn, 2004 Tesco will introduce its suppliers to the technology with cases tagged from source. By 2006, all suppliers will have to supply Tesco distribution centres with cases and pallets carrying RFID tags. Tesco also plans to start tagging more individual products in 2004 with RFID technology

Argos, UK from 54% to 100% data capture

Argos involvement in the 'Chipping of Goods' initiative is mainly due to the fact that they are a retailer of high value products such as jewellery, electrical equipment and furniture. Since jewellery pieces are small and easy to convey, this was the chosen product to track for this nine-month trial, which aimed to reduce shrinkage. Up to 16 per cent of the products are returned so an improvement in supply chain transparency was also sought (IDTechEx Ltd, 2003e). The trial involved twelve stores and three distribution centres. The RFID tags were used on roll-cages and totes - active tags on roll-cages and passive tags on totes. The product is put into the totes that are placed in the roll-cages and sealed. The tag movements are then tracked as they are loaded and unloaded throughout the supply chain. The result was the ability to trace products and identify supply chain vulnerabilities. This immediately resulted in solving the throughput claims made by distributors. Recent results have revealed higher levels of reliability showing 100 percent data capture against the 53 percent that had been achieved with manual data capture (IDTechEx Ltd, 2003e). However a decision regarding the rollout of the system will be considered after a final review of the trial.

Figleaves.com, UK picking errors down to 0.1%

Figleaves, a UK-based website that sells intimate apparel, uses RFID technology provided by Texas Instruments to rationalise the picking and shipping of products so avoiding the need to expand their facilities.

Items are stored in carts that carry three tote boxes - each of them have up to eight compartments and feature a unique RFID tag (RFID Journal, 2003a). The carts are equipped with radio data terminals that tell the warehouse staff where to go to find the right tote. The system allows the pickers to assemble up to 24 orders on a single cart by selecting the best picking sequences in order to optimise walking distances in a single trip with total accuracy. These picking carts have a built-in radio terminal with a graphics display with picking instructions thus preventing staff from mixing up the orders to be sent out and saving the time and labour spent on double-checking orders before they are shipped. When picking operations are finished, the tote boxes are delivered to a packing bench fitted with RFID readers that identify each tote and associate it with the order. When the order is complete the system prints a delivery note and a label and finally the order is sent to the mail sort. The result is a system that enables staff to pick 60,000 items per month with an error rate of less than 0.1%. This has led the company to expand the use of RFID technology.

Conclusion

RFID projects have been found to be highly successful when applied to internal operations or for tracking goods between one or two trading partners. Cost is still seen as a barrier to item level deployment of the technology except on high value products in vertically integrated supply chains. The successful application of RFID tags in the retail industry at an item level is currently limited to specific closed loop high value applications. Early return on investment is however possible if investments are made in distribution and inventory management activities at pallet level. In this way, it is possible to avoid stock-outs, monitor transport and distribution centres, secure correct shipments and accelerate logistics operations.

Further reading

Benoit, Bertrand (2003) Check out the supermarket of the future:

RETAILING: An ambitious 'roboshop' experiment in small-town Germany will help to shape the next generation of stores, The Financial Times, May 14, 2003, Wednesday London Edition 1, P. 16

Beck, Adrian (2002) Automatic Product Identification & Shrinkage: Scoping the Potential A White Paper for ECR Europe, ECR Europe and University of Leicester

Chomka, Stefan (2003) Radio tagging too pricey, claim many companies, Food Manufacture, Jan2003, Vol. 78 Issue 1, p13

Das, Rhaghu and Harrop, Peter J (2002) Chip Smart Labels: The Intelligent RFID, IDTechEx Ltd.

Finkenzeller, K (2003) RFID Handbook - Fundamentals and Applications in Contactless Smart Cards & Identification, John Wiley and Sons Ltd

Frontline Solutions (2002a) Woolworths on course for real RFID success,Frontline Solutions, October, 2002, Vol. 11 No. 8 pp: 28-29

Gerdeman, James D. (1995) Radio frequency identification application 2000, Research Triangle consultants, Inc

Graham, D. Douglas (2003) Warehouse of the Future, Frontline Solutions, April, pp. 21-24, 26

Harrop, Peter J (2000) Low Cost RFID: Smart Labels, IDTechEx Ltd. Harrop, Peter J: Eberhardt, Noel; Howe, Andrew; and Das, Raghu (2003)

Total Asset Visibility, IDTechEx Ltd. Home Office (2003)

http://www.crimereduction.gov.uk/securedesign14.htm , accessed 24^th May 2003

IDTechEx Ltd. (2002) Chipping of Goods initiative, Smart Label Analyst, Issue 23, December, pp.20-25

IDTechEx Ltd. (2003a) Smart Labels USA 2003 Conference Review, Smart Label Analyst, Issue 27, April, pp.1-11

IDTechEx Ltd. (2003b) Smart Tagging in Healthcare 2003 Review, Smart Labels Analyst, Issue 28, Feb 2003, pp. 13-14

IDTechEx Ltd. (2003c) RFID for Smart Packaging: conference review, Smart Labels Analyst Issue 25, Feb 2003, p.6-13

IDTechEx Ltd. (2003d) Progressing RFID at Marks & Spencer, Smart Label Analyst, Issue 27, April, pp.1-11

IDTechEx Ltd. (2003e) RFID In Action Conference Report, Smart Label Analyst, Issue 29, June, pp.4-11

IDTechEx Ltd. (2003f) Tesco Specify Plans To Roll-out Pallets and Case Level Tagging, Smart Labels Analyst, Issue 34, November, pp.1-2:

Milner, Colin (2000) Strategic partnerships - their role in the introduction of auto ID and mobile computing technologies, Supply Chain Practice, 2000, Vol. 2 No. 3 pp: 12-23

ONeill, Geoff (2003) Woolworths: RFID in the retail world, Handouts presented at the 1st ILT RFID Forum, Peterborough, 14th May

RFIDJournal (2003a) RFID Helps to Perfect Order Picking, April 2nd,

http://www.rfidjournal.com/article/articleview/366/1/1/ accessed 13^th June 2003

Sarma, S; Brock, D; Engels, D (2001) Radio frequency identification and the electronic product code, Micro, IEEE, Volume: 21 Issue: 6, Nov/Dec 2001, pp.50 -54

Thomas, Daniel (2003) Tesco to extend trial of RFID tags to DVDs, Computer Weekly, May 27, 2003

About the Authors:

Richard Wilding BSc PhD CEng Eur Ing MIEE MCIT MILT is a director of customised executive development in supply chain management and a senior lecturer at the Centre for Logistics and Supply Chain Management, Cranfield School of Management U.K. Richard works with European and international companies on logistics and supply chain projects in all sectors including pharmaceutical, retail, automotive, high technology, food and drink and professional services to name a few. He is a highly acclaimed presenter and regularly speaks at industrial conferences and has undertaken lecture tours of Europe and Asia at the invitation of local universities and confederations of industry. He has published widely in the area of supply chain management and is editorial advisor to a number of top journals in the area. Richard can be contacted at: Cranfield Centre for Logistics & Supply Chain Management, Cranfield School of Management, Cranfield, Beds,MK43 0AL. Tel: +44(0)1234 754170. Web: www.richardwilding.info

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