Can an RFID-enabled Information System Automate a Company’s Supply Chain?

If so, how?

—Name withheld

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The short answer is no, it can't—not unless you buy a lot of robots as well. You would still need people to move pallets, pick items, place goods on trucks and so forth.

What an RFID system can do is automate the process of collecting information and correcting errors. This is important for a number of reasons. First, because you can automate data capture, you can amass a greater amount of information with little extra cost. Imagine assigning a different employee to follow each item, case or pallet from the time it is manufactured until it is sold. You would have to give each person a cell phone, and if you wanted to know where a particular pallet of widgets was at any given, you would need to call the individual assigned to follow that pallet. He or she would then report on its location and status (shipped to customer A, for example). This would cost a small fortune—actually, a large one. RFID technology allows you to achieve this level of tracking without people, and thus at a much lower cost.

Having this kind of information allows you to greatly reduce your supply chain costs. I once spoke to the head of supply chain at a large consumer products firm, who told me that "at any given time, we have $1 billion in product in our supply chain that we can't locate. It's not lost. We just don't know where it is." Obviously, if you can't locate your product, it can't be shipped to a customer—it is just excess goods floating through the system. RFID would enable you to eliminate this excess, freeing up $1 billion in working capital and—based on the rule of thumb that supply chain carrying costs equal about 10 percent of the value of goods—saving the company $100 million annually in supply chain expenses.

RFID also provides a feedback mechanism to let workers know when they are making mistakes. Typically, if you send the wrong goods to a large retailer, it charges a penalty known as a chargeback. Even if a retail customer does not charge penalties for shipping the wrong products, your firm could potentially lose sales if the incorrect items were shipped, and you might eventually lose that retailer as a customer. When tagged goods arrive at a warehouse, they can often be counted automatically (metal goods stacked on pallets might not be counted at the case level, due to the inability to read tags at the pallet's center). So you can have an accurate count of what has arrived.

The location can be recorded automatically by associating a rack location with the pallet's RFID number. When it comes time to pick an order for a retail customer, workers can be sent to the precise rack location to retrieve the correct goods. At the packing station, the tags can be read in order to confirm that the proper items, cases or pallets have been picked. If a serial number on a tag does not match the number that the system expects to read, personnel can be alerted that they have picked the wrong item. The tags could then be read again as the items, cases or pallets are placed onto a truck, to ensure that the proper items end up on the correct vehicle, and workers can be alerted in the event of an error. This can save time and money, since workers need not repeatedly count the same items. It can also reduce chargebacks and ensure 100 percent accurate shipments.

In addition, RFID provides a level of visibility that cannot be achieved using bar codes. Imagine that army of workers reporting in regularly via cell phones about the precise locations of goods. Supply chain managers can reduce their safety stocks, because they know with certainty where goods are located. This also frees up working capital and reduces supply chain costs.

So the critical things to understand about RFID in the supply chain are that truly automatic data collection allows you to amass more information about the location, condition and status of goods; enables you to provide a feedback mechanism to alert workers to problems, so they can be corrected immediately; and provides visibility enabling you to manage your supply chain more efficiently.

—Mark Roberti, Founder and Editor, RFID Journal