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Manufacturing Insights: GEN 2 Not a Silver Bullet

Manufacturing Insights, the IDC-owned research firm focused on manufacturing business intelligence and analysis, this week released a report that looks at the current state of RFID mandate initiatives and makes recommendations for how end-users can best approach their deployments.
Aug 22, 2005This article was originally published by RFID Update.

August 22, 2005—Manufacturing Insights, the IDC-owned research firm focused on manufacturing business intelligence and analysis, this week released a report that looks at the current state of RFID mandate initiatives and makes recommendations for how end-users can best approach their deployments. Entitled "RFID Investment: Cost of Compliance or Strategic Business Benefit?", the eleven-page report is authored by Mike Witty, Manufacturing Insights' Director of Demand Management Strategies and an RFID Update contributing editor.

RFID Update spoke with Mr. Witty about the report's findings. He confirmed the lull that has been reported in the press in recent months, saying "There is some stagnation in the marketplace." End-users continue to be confused by the technology and its application to their businesses. Furthermore, Manufacturing Insights found in their interviews that two long-held assumptions about current adoption rates are less true than the conventional wisdom suggests. The first is the issue of physics and RFID's general performance; that is no longer a primary concern. "The myths around physics aren't there," says Witty. Secondly, contrary to what many have expected (and hoped), the predominant reason for the market's lull cannot be blamed on end-users waiting for the release of GEN 2. "Some are waiting for GEN 2," says Witty, "but it's not going to be a silver bullet."

Data sharing is what Manufacturing Insights found as the most pressing issue confronting end-users today. "It still comes down to, at least with the CPG/retail environment, better [RFID-generated] information exchange between companies," he says. To realize true business benefit in the form of reduced inventory, out-of-stocks, and shrinkage, partners at every point in the supply chain must be willing to share RFID data. Witty noted that in his years of supply chain experience, there have been numerous technologies and practices that were touted as new solutions to nagging supply chain inefficiencies. RFID promises sound just like those of ERP, EDI, and WMS when those concepts were introduced. What sets RFID apart, however, is the new information. "RFID is different in the data it provides," according to Witty.

Successful exchange of information is what will take RFID from a cost center itself to a true pain point salve. "The next step for end-users is to put processes in place so they can share data effectively and therefore use it to make better decisions." In large part, the responsibility for doing so falls on the shoulders of the retailers who, after all, are the drivers of the mandates and represent the all-important end point of the supply chain. "The onus is a bit on the retailers to drive that collaboration channel and find more effective ways to share that data and improve those processes." According to the end-users Manufacturing Insights interviewed, the retailers have historically been reticent to do so. But that has been changing of late, fortunately. "Even in the last few months, there has been improved communication channels with the retailers."

Aside from better information exchange, Manufacturing Insights makes two suggestions to end-users to realize benefit from RFID. The first is an options-strategy approach to deployments, in which the justification model used is not one of the traditional ROI calculations which, according to Bob Parker's RFID Needs a New Justification Model, "abhor uncertainty and over penalize risk." Rather, with an options approach, "the value of being in a position to take advantage of RFID-based opportunities when the technology is ready is given a value and taken into consideration when evaluating the return on investment." (A full explanation of the approach can be found here.)

The second suggestion is to establish what Manufacturing Insights calls a "RFID Program Management Office," which is essentially a high-level person within an organization that can act as the resident RFID champion. In too many cases today, says Witty, the individuals implementing RFID "do not have any authority to move it through the organization." Instead, there should be "a senior member involved that understands what's going on and has the ability to put a strategic option in place." Without such internal advocacy and a leader endowed with the authority to expand the technology throughout an organization, RFID deployments are relegated to isolated side-projects.

Manufacturing Insights' conclusion that information exchange is the key to RFID's success as a transformative supply chain technology is further evidence of a theme that has evolved over the course of this year. The industry is screaming for software, solutions, and practices that yield actionable data from their RFID implementations. The shift in focus away from hardware and towards applications, as well as the increasing startup activity in the RFID analytics space, are conspiring to ensure that 2006 and 2007 will see significant activity at the application layer of the RFID ecosystem.

Read the release here
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