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Does Supply Chain Type Affect RFID's Potential Benefits?

Posted By Mark Roberti, 10.29.2009
Would a company with a vertically integrated supply chain obtain greater or fewer benefits from RFID than one that sources parts and materials from multiple suppliers and distributors? And would a firm only get those benefits if its supply chain wasn't highly automated?



It's difficult to say whether a specific company with a vertically integrated supply chain would benefit more or less than another with multiple suppliers and distributors, because there can be many variables that determine what benefits can be derived from using RFID. But in general, a vertically integrated firm will benefit more, since it handles parts or finished product more often and can accrue benefits at each point along the supply chain, while the benefits in a multi-echelon supply chain are shared among the companies within that supply chain.

Take the example of a vertically integrated apparel retailer. If it makes its own clothing, it can tag raw materials and work in process, reducing labor costs and improving business processes. It can tag clothing at the source and ensure that the proper items are shipped out. It might also be able to reduce shrinkage, if items have been stolen at its factory. At a distribution center, inventory can be identified as it arrives automatically, thus lowering labor costs. Items can be associated automatically with a location bin in the DC, so that when they need to be picked, they are located quickly and accurately. Shipping errors can be avoided by confirming the items picked match those ordered, thereby saving on shipping errors and labor. When the goods arrive at the store, they can again be scanned into inventory automatically, saving additional labor costs. And items can be tracked in the store so that the store knows when to replenish.

At each step, there are clear, concrete savings. If a retailer orders clothes from suppliers that tag, on the other hand, then it only receives benefit at the store level. This is why, in many cases, it makes economic sense for vertically integrated companies to deploy RFID to track goods in their supply chains.

As for the second question, it depends on what you mean by highly automated. Very few supply chains are highly automated today, in the way that, say, Fedex or UPS are. Some businesses use bar codes to manage their inventory and supply chains, but bar codes are not a truly automatic automatic-identification technology. They almost always require a company to hire a person to scan each bar code. That is very expensive, so most firms don't do that. They might scan a bar code on a pallet when it moves from the factory to the warehouse, but if it moves from one shelf or bay within the warehouse to another, they do not scan the bar code again to record its new position.

In the example of the vertically integrated retailer, few apparel companies scan each bar code before the product leaves the factory, when it arrives in the warehouse or when it arrives in the store. And no retailer scans the bar code on each apparel item in the store each day to determine what inventory needs to be replenished. So a company with bar codes and wireless LANs can still get incredible benefits from being able to collect data automatically, or with far less labor (RFID is approximately 20 times faster than scanning bar codes on apparel items). So I think most companies would see a significant benefit.

If you are not using any technology, you would see even greater benefits.

Mark Roberti, Editor,
RFID Journal

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