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Demand-Driven Supply Networks Give RFID Momentum

AMR Research data collected from over 450 retailers and manufacturers suggests that DDSN leaders are turning to RFID to instrument and accelerate their sensor networks. Analyst Colin Masson discusses how RFID is gaining momentum as demand-driven supply chains become a reality.
Jul 24, 2006This article was originally published by RFID Update.

July 24, 2006—Can you market and take orders for your product across the internet? Can you analyze vast quantities of inventory and sales data, related demographics, and other market data to determine the current and future demand for your products (and those of your competitors)? What about mining the data for new product and service opportunities? If you've answered yes to all these questions, your demand sensing and insight is in good shape. You may already be leveraging your own, your distributors', your customers', or retailers' RFID data to react more expeditiously to increasingly volatile demand. According to AMR Research's latest analysis of over 450 retailers and manufacturers, the leaders in demand-driven supply networks (DDSN) are spending almost five times more on RFID than those operating traditional supply chains.

Now for the hard stuff. Can you e-mail your product, or deliver it across the internet? I bet you wish you could. You can't e-mail chemicals, cars, or the majority of consumer products. After you place that order on Amazon.com or Buy.com, you don't see the massive logistics engine that's put in motion to get the product to your door. Was it delivered on time? If not, it probably wasn't that impressive logistics engine that screwed up; more likely, the manufacturer didn't have any of the product physically in stock.

And there's the challenge. Somebody out there -- increasingly not the brand name you associate with the product -- still has to manufacture. It's not glamorous, it's not sexy, but somebody has to do it, and given our expectations of ever increasing product quality and immediate availability, somebody has to do it very well.

Agile manufacturing is replacing inventory as the new demand-response buffer

Today's consumer expectations are having a traumatic effect on traditional make-to-stock supply chains. Most industries are being forced to accommodate a growing mixture of products with shorter product lifecycles, shorter lead times, tightening quality, regulatory compliance, and cost constraints on aging manufacturing assets -- assets originally designed and deployed to manufacture high volumes of a low mix of products, with infrequent changeovers. The double whammy for manufacturing is that raw material, work-in-process, and finished goods inventories are viewed as a luxury that today's volatile demand-driven economy can't afford. (For more on the new role of inventory, see AMR Research Report Redefining the Role of Inventory for Demand-Driven Supply Networks.)

RFID as the new foundation of sensor-driven supply networks

The net effect of eliminating inventory as the buffer that accommodates volatility in demand is that someone, somewhere, now has to manufacture products on demand. AMR Research data collected from over 450 retailers and manufacturers suggests that DDSN leaders are turning to RFID to instrument and accelerate their sensor-driven networks, particularly in more complex European supply networks, where RFID ranks as the 4th highest amongst the 22 categories of supply chain technology investments being made in 2006 and 2007. In the self-assessment of their own DDSN maturity, the 200 US respondents admitted to lagging their European counterparts in their migration to DDSN. RFID investments reflect this, with RFID ranking 15th in US supply chain technology investment priorities.

For those that haven't taken the disciplined approach of Dow Chemicals in identifying and prioritizing the broad applicability of RFID and other sensor technologies (Dow identified 450 use cases), lots of help is available. EPCglobal has developed EPC/RFID Value Models for many industries (see EPCglobal Releases RFID Value Models for 3 Verticals). The Chemical Industry Data Exchange (CiDX) has documented its initial assessment of RFID use cases. Finally, the European Commission has launched the three-year BRIDGE (Building Radio frequency Identification solutions for the Global Environment) project to research and educate many industries on the business benefits of RFID (see Europe Launches Initiative to Drive RFID Adoption).
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