Aug 01, 2007Until recently, news about radio frequency identification pilots and deployments in Latin America has been scarce and sporadic. While some companies in the region are sophisticated in their use of technology, many others have yet to embrace the use of bar codes, let alone RFID. And with no retailer or government mandates within these countries requiring suppliers to use RFID in their supply chains, as there have been with the U.S. Department of Defense and Wal-Mart in the United States, Tesco in the United Kingdom and Metro in Germany, there was little to compel companies to adopt the technology.
Today, while Latin America still lags behind the United States, Europe and Asia in RFID implementations, RFID projects throughout the region are growing rapidly. Indeed, Hewlett-Packard Brazil recently won the first RFID Journal Award for Best RFID Implementation (see "Keeping Tabs on Printers"). The company is using RFID to track individual printers, as well as improve supply chain management and manufacturing and distribution processes.
Moreover, Mexico could be one of the first countries to secure its pharmaceutical supply chain. A directive from the Mexican government last year required manufacturers and distributors to put RFID tags on medicines sold to individuals covered under Seguro Popular, a government health-care institution that operates similarly to an insurer and serves roughly 4 million families. While implementation has been delayed due to a change in administration in the Mexican government, the pharmaceutical industry has been testing the technology in preparation, according to Jorge Morales, director of operations for the International Supply Chain Education Alliance Mexico.
As the cost of RFID comes down and international companies share their experiences publicly about successful RFID applications, the technology is starting to be deployed throughout Latin American manufacturing plants, retail chains, government agencies and organizations in ways that are becoming standard elsewhere in the world-to track products, equipment, assets and people. For example, Procter & Gamble and Avon in Brazil are using CHEP's RFID-tagged containers to track and trace products at warehousing and distribution facilities. Levi Strauss in Mexico is tracking jeans and other goods on store racks and shelves to ensure customers can find the products they want to buy. Ford Motor Co. is using WhereNet's active RFID real-time locating system technology to track parts at its automobile manufacturing plant in Hermosillo, Mexico. Hospitals and medical centers are tracking medical devices and patients to help staff locate equipment and beds more quickly. And RFID is being tested and deployed in Latin America as a security technology to prevent everything from tire theft to carjacking (see "RFID Crime-Busters").
The recent surge in RFID pilots and deployments can also be attributed to encroaching competition from international retailers-most notably Wal-Mart-that are rapidly expanding into Mexico, Central America and South America. Latin American retailers are experimenting with RFID in their own supply chains because they are concerned that international retailers will implement RFID to achieve the efficiencies they've realized in other regions and, as a result, be able to sell products more cheaply than local retailers. At the same time, some retail suppliers are hedging their bets and experimenting with RFID now because they believe Wal-Mart and Latin American-based chains will mandate that they RFID-tag products or shipments sometime in the near future.
Another factor spurring RFID adoption is the growing number of free-trade agreements in the past few years between Latin American countries and the United States, Europe and Asia. There's a new push to turn companies in Mexico, Central America and South America into international suppliers of low-cost manufactured goods and fresh foods, and that has convinced governments and businesses in the region to look to technology to keep prices low, improve order fulfillment and accuracy, and provide better assurances about food safety and traceability for foreign buyers. In addition, companies want to deploy RFID to more efficiently capture oil, ores and other natural resources, one of Latin America's largest export industries.
"We're seeing tremendous growth [in RFID] in Latin America," says Matt Ream, senior manager for RFID systems at Zebra Technologies, the Illinois-based RFID printer company. "The economies down there are, by and large, getting better. The GDPs [gross domestic products] are higher than in previous years. A lot of things are going on with the creation of free-trade agreements. Free-trade agreements work both ways. They give us more opportunities to sell products there, but it also opens up the doors to sell their exports to the U.S. and other regions, as well."
Wal-Mart operates 2,157 SuperCenters, Sam's Clubs, Bodegas, BIG Hypermarkets and other subsidiaries in Mexico, Central America and South America. While the global giant has been mum about whether it will move its RFID-tagging requirements into Latin America, many companies believe that Wal-Mart will start with Mexico and bring RFID into other parts of its Central and South American operations in the coming years.
Latin American retailers are not waiting for Wal-Mart to make the first move. In May 2007, Almacenes Exito, the Colombian retail chain that manages 95 retail outlets in 31 cities, announced that it was asking its top 50 suppliers to start RFID-tagging goods, to automate receiving in warehouses, improve inventory management and track products from distribution centers to points of sale. Since many of Almacenes Exito's branches are "superstores"-selling a range of goods from food to clothing-the RFID initiative will impact many industries.
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"They see Wal-Mart coming into their countries, and they want to be on top of RFID. They are a competitor to Wal-Mart," says Zebra's Ream. "We are in the process of helping [Almacenes Exito] and some suppliers start a pilot for supply chain management, with the ultimate goal being to put out a mandate to suppliers."
CBD, Brazil's largest retailer, began piloting RFID technology in 2004 to track pallets of goods from international suppliers such as Gillette and Proctor & Gamble through its supply chain. "The idea was to understand the balance for the whole chain-what it means in terms of visibility," says Eduardo Santos, senior manager at Accenture in Sao Paolo, Brazil, who worked on the pilot.
While CBD has not yet implemented RFID, more Latin American chains are now experimenting with the tracking technology. Coto C. I. C. S.A., an Argentine retailer, conducted an RFID pilot in conjunction with EPCglobal Argentina earlier this year. It applied RFID tags with Electronic Product Codes to items in the Top House line of small household appliances. It also developed an IT system to manage item movement and stock, including a checkout component that allowed scanning of a shopping cart all at once.
"RFID is a marvelous opportunity offered by today's technology to substantially improve our material circuit, especially stock picking and speeding up at checkout registers," says Daniel Padin, Coto's CIO. "Needless to say, this must be an integrated process together with our suppliers. We have no doubt that this is the right way, and we must be well prepared." He says the company's entire supply chain will be RFID-enabled once suppliers adopt RFID, which he estimates will take about three years.
In anticipation of future mandates, some Latin American manufacturers are already testing RFID. Compañia de Galletas Noel S.A., a Colombian manufacturer of cookies, crackers and cakes, and a supplier to Wal-Mart, started a pilot in 2006 to see if it could use RFID technology to help improve order fulfillment, given that its products have a limited shelf life. Each pallet of goods received a passive RFID tag, including information such as lot number and product expiration date. The pallets were read through the supply chain from the production floor to the distribution center in Medellin, where sales order and fulfillment information was reconciled. According to Oracle, which worked on the pilot, Noel realized that its bar-code processes were being executed incorrectly, making inventory and shipment data inaccurate. The company plans to roll out a full-scale RFID system in the near future.
Latin America exports $550 billion in merchandise each year, with more than 50 percent of those exports destined for the United States and Europe, although exports to China, India and other Asian countries are increasing, according to figures from the World Trade Organization. Exports from Latin America have been growing since the implementation of free-trade agreements in the last decade or so with other regions, such as the North American Free Trade Agreement (NAFTA) between Canada, Mexico and the United States; the Central American Free Trade Agreement (CAFTA) between that region and the United States; pacts between Chile and the United States, Canada, Korea and other nations; and a host of other agreements to lower trade barriers between the Latin American region and other countries around the globe.
The largest share of goods exported from Central and South America (excluding Mexico) is made up of fuels and mining products (37 percent) and agricultural products (26 percent); the remaining exports include raw materials such as iron, steel and chemicals other than fuels and mining products, machinery, automotive equipment and clothing. In many of these export industries, companies are testing or deploying RFID solutions to improve operations-with the ultimate goal to make their products safe and low-cost so companies can compete in the global marketplace.
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Mining and oil companies are experimenting with tracking valuable equipment in underground mines, at refineries or on oil-drilling platforms, to reduce the costs of equipment and increase production times. Miners in Chile and Mexico are using mining helmets with RFID tags from AeroScout, a U.S.-based active RFID supplier, to help better pinpoint their location in underground ore mines in the event of accidents or emergencies. On the shipping side, ThyssenKrupp Steel, one of the world's largest steel companies, based in Duisburg, Germany, recently completed a pilot that tracked 1,000 steel slabs originating in Brazil to German factories, where they were processed. The company expects to tag and track steel sent to Germany once it opens its new plant in Sepetiba, Brazil, in 2009, to automate the movement of steel through ports and on to their final destinations.
Government regulations to improve the safety of food and plant products sold in the United States and Europe are having reverberations in Latin America. "Exporters in Latin America involved in the export of flowers, coffee, grain and beef seem to be giving RFID serious consideration in response to requirements from Europe and a need to improve supply chain visibility," says Daniel Picchi, senior manager of business development for Avery Dennison RFID.
Brazilian regulators are promoting electronic traceability to protect Brazil's cattle industry from disease and safeguard its export trade. Outbreaks of avian flu in ducks and chickens and bovine spongiform encephalopathy (also known as "mad cow" disease) in cattle have raised awareness for the need to take precautions to verify the health of livestock. The European Union, in particular, has approved restrictions on imports from countries that don't monitor cattle for disease. Last year, Digital Angel Corp. of St. Paul, Minn., announced that it has signed a distribution agreement with a Brazilian company to begin selling RFID tags for livestock throughout Brazil, the largest beef exporting country in the world and home to nearly 200 million cattle.
Food producers in Latin America are also looking to increase the quality of their produce, which is shipped to stores thousands of miles from where the fruits and vegetables are grown. RFID used in conjunction with temperature sensors could help ensure that fresh foods are kept at optimal conditions during the long overseas journey to U.S. and European markets. This year, Rio Blanco, an avocado producer in Chile, started tracking the temperature of its products as they travel by ocean vessel 6,000 miles from the company's farms in Chile to ports in the United States. The company conducted a pilot last year and found that RFID helped it respond more quickly if the avocados became too warm at any of the read points throughout transportation.
In other industries, many Latin American companies see RFID as a tool that could cut manufacturing costs, reduce shrinkage and inventory, and control production to meet demand in a more timely and accurate fashion. By using RFID to improve efficiencies, they believe they can export their products at more competitive prices.
Lamosa, a bathroom fixture manufacturer based in Monterrey, Mexico, sees RFID as a way to increase exports to retailers such as Home Depot in the United States by helping the company fulfill orders more quickly and reliably. Lamosa currently exports 40 percent to 50 percent of its products, and RFID at the pallet level is now providing the company with real-time control over inventory. "They want to be capable of delivering what they call 'perfect shipments'-delivered on time and 100 percent complete," says Gerardo Barraga, sales director and cofounder of IDZ, an RFID systems integrator in Mexico. "They see that as their competitive advantage."
The introduction of RFID to Latin American manufacturing and supply chains has the potential for dramatic results; it can help companies and organizations in this developing region of the world that have not yet optimized processes with the help of IT. Proponents of this concept draw similarities to South America's use of cellular phone technologies to leapfrog over landline telephone technologies and bring telecommunications access to all corners of the continent.
"They now have a different slate of technologies to look at," says Michael Liard, research director of ABI Research. "They can consider RFID in places where they maybe haven't even used bar codes yet."
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Latin American economies could realize a significant return on their RFID investments. But jumping over generations of technology will involve substantial investment, which may be elusive in economies still struggling with currency crises, political instability and even the nationalization of industries, as is currently underway with the oil industry in Venezuela. In addition, logistics operations tend to be fragmented, which could present obstacles in tracking products through supply chains.
Still, the region is developing rapidly, spurred on by the reduction of barriers to trade with the United States, Europe and Asia. And investment capital from abroad keeps pouring into many Latin American economies, better positioning the region as a low-cost manufacturing center.
"Low-cost manufacturing hubs within the region represent significant potential for RFID tagging at the point of manufacture itself," says Priyanka Gouthaman, an analyst with Frost & Sullivan.
Many companies in Latin America are excited about RFID but are proceeding slowly. "Training is the first step," says Mario Abitbol, automatic data capture department chief at GS1 Argentina, which is affiliated with EPCglobal Argentina. "Companies today should engage in training to start learning what this technology is all about, in which areas it is applied and how it is going to be applied, because this is not a plug-and-play technology where one can replace bar codes with radio frequency chips and automatically let them run by themselves."
Companies in Latin America are realizing that RFID is not a panacea. They understand, Abitbol says, that whole processes must be revised so that they can use this new technology to shore up domestic sales in the face of growing import competition or make exports more competitive abroad.
Companies, governments and organizations in Latin America are using RFID as a security measure to fight smuggling, theft and other crimes. In Colombia, which historically has faced challenges with illegal narcotics smuggling, Colombian shipper Emprevi worked with Savi Networks to build a 1,700-mile-long RFID network, to track cargo containers filled with exports from manufacturing plants to ships destined for overseas locations. The RFID system has 20 interrogation points on major roads and at ports in Colombia that can read Savi's electronic container seals and detect if a container has been opened or tampered with en route.
After a yearlong pilot, the project is set to ramp up this summer. It will track shipments from several of Emprevi's customers, which include pharmaceutical makers, coffee producers and beverage manufacturers. "There is a higher threshold for security," says Lani Fritts, chief operating officer of Savi Networks. "People aren't taking things out of containers necessarily, but putting stuff in shipping containers."
In Mexico, antitheft applications are gaining popularity. Earlier this year, an intra-city bus company started testing an RFID tire-tracking system from Actia Mexico to secure new tires, which can bring top dollar on the black market. The RFID system can also monitor the number of kilometers a tire has been driven, which could help improve maintenance operations. And the Universidad Regiomontana, one of northern Mexico's largest universities, is using RFID to prevent the theft of the laptop computers it issues to staff and faculty. Before the RFID system was introduced in October, roughly 15 percent of laptops were stolen each year. Since the system, developed by Axcess International, was deployed, not one RFID-tagged laptop has been pilfered.
Argentina last year introduced the first electronic toll-collection system in South America, developed with RFID provider IPICO, to curb speeding, reduce congestion and combat the proliferation of unregistered vehicles. Brazil is planning a nationwide RFID program to register vehicles; roughly 30 percent of vehicles in the country are not currently registered. And Sao Paulo is working with consulting firm Accenture and other companies on an RFID pilot to tag some 500 vehicles and post 24 interrogators in the congested Jardins section of the city. The goal is to improve traffic management by restricting access on certain days of the week, as well as help crack down on car thefts.
RFID access-control applications are being used to protect public and private citizens. CIDESI, a Mexican government-owned research and development center in Queretaro, uses active RFID vehicle and personnel tracking to control access to buildings and parking lots, according to IDZ, a Mexico-based RFID integrator. And in upscale Mexican neighborhoods, gated communities are using RFID to restrict access to properties. "You typically have a greater disparity between the haves and the have-nots," says Allan Griebenow, president and CEO of Axcess, which has provided technology for many such deployments. RFID adds a layer of security that could help guard against kidnapping and carjacking.
Illustration by Hank Osuna.