Creating an RFID-Enabled Company

Apr 01, 2011In our Jan./Feb. 2011 cover story, RFID: The Key to Knowledge, RFID Journal revealed some unexpected insights companies gain from the radio frequency identification data they collect. The article, by contributing editor John Edwards, concludes that the real value of RFID may be in telling companies about the things they don't realize they don't know ("unknown unknowns," in the words of former U.S. Secretary of State Donald Rumsfeld).

Airbus and a handful of other companies that understand RFID's real value are attempting to eliminate the unknown unknowns by trying to know everything. Perfect information is, of course, unattainable, and things that happen outside a company—a new product from a competitor, shifting weather patterns, a natural disaster in a key market or production area—can affect what happens inside the company.

But Airbus believes it can eliminate waste and improve efficiencies across its entire value chain—from suppliers to customers—by using RFID to achieve "visibility and measurability." It is moving away from collecting some information manually to collecting a lot of information digitally, with RFID. It is going to what Carlo Nizam, head of value-chain visibility at Airbus, calls the "digital, fly-by-wire value chain."

What does that mean? Nizam uses the analogy of air-traffic controllers to explain: By relying on radar to track airplanes' locations and identities, air-traffic controllers know exactly where every plane is in the sky, and receive automatic warnings when planes fly too close to each other or dip below a certain altitude. Similarly, Airbus is deploying RFID strategically to automatically collect data regarding where aircraft parts, tools, jigs, vehicles and other items are at any given time.

Airbus started by tagging parts for critical assets. The RFID data it collected enabled the company to measure and eventually streamline common business processes, which led to cost savings and improvements in product quality. Now, Airbus is deploying these streamlined business processes, designed at one location, across other manufacturing and supply-chain facilities. Managers can make decisions related to RFID-enabled operations based on real insights rather than gut instincts or best guesses.

Manufacturers that have adopted Six Sigma strategies have worked diligently to fix business processes that led to product defects. But most manufacturers have very little visibility into what's happening in their factories, and the vast majority have unknown problems in their supply chains. RFID enables the collection of granular data manufacturers could analyze to determine how long it takes to get a part from the receiving bay to storage, how long it takes to locate an item in storage, how long it takes to get a product to the line, and how often the part is not at the line when it is needed.

When HP Brazil implemented RFID in a printer manufacturing plant, the company anticipated supply-chain and inventory-management improvements. But HP also gained an unexpected benefit: insight into the manufacturing process. The company found it took some lines considerably longer than others to produce the same printer. Did a worker cause a bottleneck, or was there an issue with equipment or parts replenishment? By analyzing the RFID data, HP managers were able to pinpoint and troubleshoot the problem.

The ability to see and measure everything that's happening within an organization has implications for companies in every industry. In the retail sector, for example, selling has long been more art than science. No doubt, understanding what fickle consumers want to buy will always be a challenge, but RFID-enabled visibility and measurability will remove much of the fog that clouds decision making today.

Apparel retailers deploying RFID now are focused on in-store applications—studies show the technology can boost inventory accuracy from, on average, 65 percent to more than 95 percent. This will have an immediate impact on sales and gross profit margins. By displaying the goods in the right place when customers want to buy them, retailers can sell more items at full price; they don't have to mark down goods that didn't sell because they weren't on the shelf during peak traffic periods.

But RFID can do more—much more. If an item is on the right shelf only 65 percent of the time, regional managers don't know whether that item sold poorly because of poor execution at the store or some other reason. If the item is available 99 percent of the time and doesn't sell well, store or regional managers could then begin to consider other issues.

If data collected by shelf readers shows a sweater was rarely picked up, for instance, a store manager might determine the item was unpopular, and senior executives might have buyers discontinue it. If RFID data shows the sweater was tried on often but rarely purchased, a store or regional manager might determine the item was popular but there was an issue with the way it was manufactured. In that case, senior executives might ask manufacturing to rework the design.

RFID also could help managers determine why a product isn't replenished consistently. Data might reveal a contract manufacturer in Asia is shipping the product late, or a problem exists in a particular store—say, employees aren't being trained properly, or there is a performance issue with a certain worker—and managers are not addressing it properly. If items often disappear from that store, managers could compare when items go missing with which employees work during those shifts, to help identify an inside thief.

Senior executives would be able to view the data for the entire chain or specific regions, using dashboards that show which managers execute well, which are average and which fall below average. RFID data could be analyzed to determine whether poor store sales indicate a problem with a particular manager, or the wrong product mix for the neighborhood.

Creating a truly RFID-enabled company, with near-perfect visibility, won't be easy. And it won't happen overnight. Airbus and Wal-Mart, two leaders in RFID-enabling their operations, are moving in a methodical way, achieving short-term tactical successes that help pay for the rollouts and build confidence throughout the company that the technology works. The key for any organization is to integrate the data from RFID systems with new or existing software that enables managers to see and measure what is happening within the enterprise. Then, it's up to managers to use the data to make decisions that improve business.