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Developing an RFID Strategy

The approach each company takes toward an RFID deployment can make the difference between disaster and profitability. Here are three basic strategies that companies can adapt to further their long-term business goals.
By Bob Violino
Build a Superefficient Supply Chain
Companies that adopt the “superefficient supply chain” strategy have a very simple goal: Make sure product is where it’s supposed to be for the least cost. The first thing to understand is that this strategy is not about RFID. “It’s an overall supply chain strategy in which RFID is one enabler,” says Dave Donnan, a vice president at the management-consulting firm A.T. Kearney. “There are other auto-identification technologies, including bar codes, that need to be looked at to figure out where you are going to drive benefits—how you are going to improve traceability, product availability and merchandizing within the overall manufacturing and retail environment.”

Moreover, just using RFID as a “radio bar code” isn’t going to achieve the goal. The key to taking cost out of the supply chain is to fundamentally change the way the supply chain is managed. “Everything today is based on manufacturing and ordering to forecasts,” says Kara Romanow, research director for AMR Research’s consumer products group. “Companies need to create an agile supply chain to react to demand signals. We’re moving from a push system to a pull system, and that’s a big shift.”

A pull system, where manufacturers make goods in response to near-real-time demand, rather than push goods out based on monthly forecasts, requires collaboration. Manufacturers, retailers and logistics providers need to share real-time information. That will enable each company in the supply chain to reduce safety stocks, while simultaneously improving on-shelf availability. Without a strategic plan, manufacturers will deploy RFID without rhyme or reason. Or worse, they’ll simply slap an RFID tag on a case as it goes out the dock door. That will drive up costs and make the company less competitive.

“A consumer-driven supply chain aligns planning, replenishment and operations around real-time consumer demand or store-level activity,” says Sean Campbell, a partner with IBM Business Consulting Services. “Manufacturers need to align their planning and distribution center shipments and ultimately some of their manufacturing operations around demand signals.”

A demand-driven supply chain will take years to build. Companies will need to synchronize data with partners, revamp their enterprise resource planning systems and upgrade their IT infrastructure to make it happen. So how do they cut costs in the short term while making these changes?

The first phase is to focus on achieving internal benefits across the enterprise. That means looking for savings in manufacturing, shipping, receiving, packaging and so on. The second phase is to work with suppliers and logistics providers to track products that will bring the greatest benefits to all parties in the supply chain.

Some retailers might start by tagging apparel; it often requires a lot of manual labor to keep track of a wide variety of sizes, colors and styles. The auto industry might focus on the lucrative market for replacement parts. And pharmaceutical manufacturers, distributors and pharmacies could work together to reduce counterfeiting and theft of high-priced drugs.

By developing a strategy that focuses on achieving benefits across the entire supply chain, each individual player has a greater chance of achieving lower costs or reducing out-of-stocks. For example, if retailers can show their top suppliers that tagging cases of a particular class of product will lead to, say, a 40 percent reduction in out-of-stocks within one year, the manufacturers will be eager to adopt RFID technology and will move more aggressively. A manufacturer tagging for one retail customer might want to work with others to leverage the benefits across more of its operations.

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