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The Role of RFID in the Search for Perfect Logistics

AMR Research analyst John Fontanella notes how many manufacturing processes can already achieve near perfection through Six Sigma principles, while logistics processes have much greater room for improvement. RFID, asserts Fontanella, will help change that, improving logistics by offering much higher levels of accuracy.
Mar 01, 2007This article was originally published by RFID Update.

March 1, 2007—While working with a client to define specifications for a new warehouse management system (WMS), a member of the team from manufacturing, new to the world of distribution, asked me a simple but thought-provoking question: "Why don't logistics processes perform at the same high standards of quality that her production lines do?"

For manufacturing, the reference point for excellence is Six Sigma. Not meeting customer expectations more than four times out of a million opportunities means failure. By comparison, the quality standards we seek to reach in order fulfillment and warehouse operations seem embarrassingly modest. The Warehousing Education and Research Council's (WERC) most recent survey of distribution organizations found that its respondents only shipped perfect orders -- complete, delivered on time, and damage-free, with correct documentation and pricing -- 85.7 percent of the time. If my math is correct, that means 143,000 orders out of every million fail to meet the specifications set out by the customer. To the eye of a Six Sigma practitioner, that is a process out of control.

The huge discrepancy in performance is not caused by lack of trying to correct operating deficiencies. Unfortunately, improvements come in very small increments. The WERC survey only saw 0.2 percent improvement in perfect order performance from 2005 to 2006. Why can manufacturing dare to flirt with near perfection while warehousing operations struggles to maintain what is at best a mediocre performance?

The answer is simple. In repetitive tasks like order picking or manufacturing assembly, human-directed activity acts as a constraint, not an enabler, to improve performance. A wide range of literacy skills, job aptitudes, and experience in the workforce prevents creating the consistency needed to operate at very high levels of performance. Manufacturing learned this lesson long ago, and has spent the last 20 years automating its assembly lines, and in the process stretching performance to what was before unimaginable levels.

Logistics need not be so far behind, though. RFID, in combination with other technologies, will provide the boost to make quantum leaps in execution performance. What we haven't seen to date is the right collection of partners come together to form a scaleable, replicable, and cost-effective approach.

Fortunately for the industry, this is changing. LXE, for example, introduced Adoptive Recognition and Information Assurance (ARIA) at the recent ProMat2007 show. ARIA integrates technologies such as RFID, voice recognition, warehouse management applications, and mobile devices to recognize and correct deviations from the customer order. While LXE demonstrated several use cases, the one that excited me was voice-directed order picking by selectors, using a forklift-mounted RFID reader integrated with the WMS to verify that the work had been done correctly. The selector was notified by voice of any errors (quantity, SKU) and instructed to correct them. The value proposition is obvious. Despite the significant amount of money spent on training and quality control, picking errors are unavoidable. LXE's approach allows for the flexibility a human workforce gives us, but with the quality assurance of an automated process.

We are seeing similar examples of combining RFID with purpose-built software applications that automate processes to make them more efficient, error-free, and quicker to transact. Asset tracking and contactless payment cards are just two examples of how the technology removes the error factor introduced by human involvement. Within the supply chain, companies like Vue Technology and TrueDemand Software are automating the mundane but vital task of managing store shelf replenishment of grocery and pharmaceutical products, again raising the possibility that performance can make quantum leaps.

It takes time -- years, not months -- to assemble technology partners and develop the use cases that offer real value. They are finally in sight. While we search for the elusive RFID value proposition, remember our customers and the challenges, and costs, we incur to meet their expectations. It is the best place to start.
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