Meeting the Needs of Small and Midsized Suppliers

By Steve Keifer

Aug. 7, 2006—The majority of RFID pilot programs in the retail supply chain have explored the benefits of the technology for large businesses. These pilot programs have tested merchandise manufactured by large apparel and consumer packaged goods (CPG) suppliers destined for the distribution centers and stores of large retailers. However, little analysis has been performed regarding the benefits of radio frequency identification technology for small and medium businesses (SMBs). Approximately 80 percent of manufacturers in the retail supply chain are SMBs, and RFID adoption is a critical factor to their long-term success. After all, both large and small suppliers have to face challenges associated with obsolescence, counterfeiting, shrinkage, new product introductions, promotions and out-of-stocks.

In the past two years, a handful of early-adopter SMBs have been recognized for their efforts to embrace RFID proactively for their manufacturing and supply-chain operations, but questions still remain: Will RFID provide the same advantages to SMBs as it does to larger suppliers? How are SMBs responding to the emergence of RFID? How quickly will they leverage these new technologies? What is the current state of readiness of the typical SMB? And with many large businesses still debating the merits of RFID, is it premature to worry about SMBs?


Industry thought leaders continue to debate the timeframes expected for widespread adoption of RFID in the retail supply chain. Aggressive estimates indicate such adoption in as little as two years, while more conservative visions predict a five- to 20-year horizon. If current trends continue, retailers will follow one of two paths for RFID. A handful of very large retailers and technology-savvy midsize retailers will make significant investments in RFID up front, while the remainder will embrace a more conservative approach—tagging only high-value items prone to theft, perishable products with a fixed expiration date or a selected group of fast-moving promotional items.

New economics will make deploying RFID-based systems financially preferable to maintaining existing business processes. The initial result will be a dual operating mode. Enhanced business processes, applications and technologies will be in place for products supplied primarily by large, RFID-enabled companies. Products shipped by non-RFID-enabled suppliers, primarily SMBs, will require the continued use of legacy business processes. Operating in this mixed mode will result in complexity and costs that diminish the ROI of RFID. As a result, retailers will move quickly to encourage 100 percent use of RFID. As adoption levels increase, non-RFID-labeled products will be viewed as exceptions rather than mainstream. Adoption from the broad community of SMB suppliers then becomes vital.