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I Want You to Tag Your Shipments

The U.S. Department of Defense wants to use RFID to transform its supply chain. But large and small suppliers alike are struggling to understand and meet tagging requirements.
By Bob Violino
Feb 01, 2005—“As you move into some of these military operations, you can have fairly thin pipelines, and it’s important to move supplies,” says Alan Estevez, assistant deputy undersecretary of defense for supply chain integration. “RFID helps you get good inventory information into the system if you have good business processes to go with it. RFID is not going to enhance the reliability of weapons systems, but it can enhance the readiness of the systems if you move the right parts to maintain the weapons systems.”

To achieve this ambitious goal, the DOD is requiring its suppliers to use passive RFID tags on all pallets, cases and certain items. It’s a tall order that could make the DOD and the entire defense industry in the United States more efficient and competitive. But it will likely be years before the vision becomes a reality.

The DOD has, without doubt, the most complex supply chain on earth. It has 43,000 suppliers and manages 4 million stock keeping units (SKUs)—everything from socks to airplanes. The Defense Logistics Agency (DLA), which supplies the four military branches—Air Force, Army, Navy and Marines–with most of their food, clothing and equipment, operates 18 distribution depots in the United States. Plus the branches have their own maintenance and parts warehouses, which supply troops with replacement parts. These supply depots and parts warehouses ship goods to fixed and mobile bases around the world. And the DOD must be ready to mobilize for war at any moment. Because military units could be deployed to almost any region of the world, it cannot predict where products will be shipped.

A different approach
The DOD’s implementation approach is different from that of Wal-Mart and others. Most retailers have asked their top suppliers to begin shipping pallets and cases of a small number of SKUs to a few distribution centers. These suppliers are required to pay for the tags. Over time, the retailers want the suppliers to tag more SKUs and ship them to more distribution centers. As the rollout progresses, retailers will require more suppliers to start tagging goods.

Instead of starting with its top suppliers, the DOD is focusing on high-value goods from all of its suppliers (see “RFID Marching Orders” on opposite page). And the DOD is not asking its suppliers to pay for the tags; it expects the cost of the tags to be factored into new procurement contracts.

The DOD is working with the Office of Management and Budget, an executive branch agency that oversees procurement policy, to revise the regulations that govern all DOD contracts to include RFID tagging as part of new contracts. Suppliers will be affected in 2005 only if they ship certain commodities to two DLA facilities (see RFID Marching Orders for details). Additionally, their contracts need to contain language regarding the requirement. The DOD is advising existing suppliers to ask their contracting officers about the timing and requirements for RFID tagging.
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