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Hard RFID Questions for Logistics Providers

While logistics providers are still concerned about RFID issues like security, data encryption, and tag costs, their attention has shifted to problems specific to the 3PL industry. This guest article from Forrester Research looks at a few of the hard RFID questions that they are starting to tackle.
Nov 17, 2005This article was originally published by RFID Update.

November 17, 2005—Forrester Research attended eyefortransport's RFID Opportunities for Transport and Logistics Providers event held last month in Las Vegas. It was clear at the event that, while logistics providers are still concerned about RFID issues like security and data encryption, "kill-switch" functionality, and high tag costs, their attention has shifted to problems specific to the 3PL industry. The following are a few of the hard RFID questions that logistics providers are starting to tackle. (For part 1 in this three-part series of articles about RFID's adoption in transport and logistics, see The Present and Future of RFID in Logistics.)

Will RFID Render My Highly Customized And Expensive Legacy Systems Obsolete?

With hundreds of millions of dollars invested in building legacy systems for warehouse management and track and trace, logistics providers are apprehensive about the ramification of RFID-generated new streams of data. Amassing these legacy systems, via acquisitions and internal growth, most logistics providers like UPS now have an optimized network that allows them to offer customers a high level of visibility. These legacy systems will now have to handle not just a growing volume of data, but also new data hierarchies, associations, and business logic that can capitalize on RFID investments.

For example, having RFID-based item-level visibility of highly valued products like a plasma widescreen TV: Can the logistics provider's legacy track-and-trace system offer the association logic needed to map the item to a pallet, a shipping container, a ship or a tractor, and a driver? Can the system make this data available to a growing number of trading partners, while maintaining the appropriate authorization and security needs?

Logistics providers are questioning whether it's feasible to extend this functionality by enhancing the legacy system, or if it is cheaper and more effective to start investigating more advanced technologies that can give them -- logistics providers -- the flexibility to cope with the constantly changing business logic needed to enable end-to-end supply chain visibility.

Can Logistics Providers Treat The Cost Of RFID Tags As A Surcharge, Paid For By Customers?

Although the logistics provider industry enjoyed more than 13% CAGR in revenues in the past few years, its margins remain razor thin. With higher operational costs, due to warehouse ownership, trainings for drivers, fuel purchases, and security regulations compliance, many logistics providers cannot justify the cost of throwaway passive RFID tags. Historically, the logistics industry was able to charge customers for additional nontransportation-based expenses in the form of accessorial or fuel surcharges.

Logistics providers are investigating different business models in which the customer pays a surcharge for passive RFID tags applied to assets and products. Using this model, a logistics provider will invest in the physical and IT infrastructure needed to offer its customers supply chain visibility, while relying on the customer to finance throwaway passive tags. This can allow logistics providers to offer customers additional value-add services, without eroding thin profit margins.

How Can I Capitalize On RFID Technology To Improve Load Tendering And Delivery?

Not long ago, shippers pushed for the adoption of EDI to streamline communications between them and their logistics providers. Using standard EDI messages, a logistics provider can send shipment updates, including advance shipping notices (ASNs), carrier load acceptance, and arrival and departure notifications. But, without industry-enforced standards, clients customized each message to meet their specific needs. This created a financial burden on the logistics provider, which had to comply with and maintain unique EDI requirements from each customer.

As RFID adoption increases, logistics providers are examining the feasibility of using RFID-based technology to eliminate the need for some EDI communications. For example, logistics providers are examining the feasibility and ROI associated with adding the advance shipping information on the RFID tag to reduce the number of EDI messages. For example, a less-than-truckload (LTL) carrier like Yellow Freight can write extensive shipment information, including customer and order identification, intermediate stops, and final destination, on the shipment's RFID tag. Reading this complete set of information at each stop could eliminate the need for an advance shipping notice (ASN) to identify the customer, load, and remaining stops.
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