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7 Reasons to Act Now

If you make, move or sell products, you will need to deploy RFID at some point. What you do—or don't do—today could mean the difference between saving millions of dollars each year and wasting a fortune on a bundled implementation.
By Mark Roberti
Sep 01, 2003—Few opportunities come without risk, and radio frequency identification is no exception. Yes, it has the potential to dramatically improve supply chain efficiencies, cut costs and reduce out-of-stocks. But there are still many questions surrounding the technology. Will the hardware you buy today be obsolete in a year? How long will it take for tag and reader prices to drop? Is the technology mature enough to deliver highly accurate information under real-world conditions?

These are important questions, and in a perfect world, you'd have all the answers before making a deployment decision. But any company that makes, moves or sells products—and wants to remain competitive in tomorrow's market-needs to take steps today to plan for an RFID deployment.

If you're one of Wal-Mart's many suppliers, you have little choice but to embrace RFID technology. The retailer is requiring its top 100 suppliers to begin, in January 2005, putting RFID tags carrying Electronic Product Codes on the cases and pallets that they ship to its distribution centers and stores. The rest of its suppliers will have to tag shipments by the end of 2006.

If you're not one of Wal-Mart's suppliers, you might wait until one of your customers forces you to get with the program. That might seem like a smart strategy. After all, many "first movers" on the Internet went belly up, while those who proceeded more slowly didn't fare as badly. Problem is, the complexities of deploying RFID can't compare with the relatively easy task of creating a business-to-business Web site.

And while you're waiting, other companies, including some of your competitors, will be deploying RFID technology. It's a complicated endeavor that will require cooperation among senior executives in IT, engineering, operations and supply chain management. Here are the seven reasons why it's critical to start planning now.

1. Installing an RFID system is a black art.
Many articles about RFID make it sound simple. Put tags on your products and readers on your dock doors and—viola!—perfect information. It doesn't quite work that way. Getting enough power to the tag so it can reflect back a serial number can be a black art. Radio waves are absorbed by water, reflected by metal and blocked by electromagnetic interference.

These are not minor issues that you'll overcome in a couple of weeks. Wal-Mart has been experimenting with RFID for more than a decade. It has a lab in Rogers, Ark., where it tests tags and readers in a warehouselike environment. The company is building a larger facility so it can test RFID systems with all of its many types of conveyors and dock doors. Every company will face different problems because their facilities are all unique. It's critical to give yourself time to understand and address the issues associated with tag-to-reader communication.

2. There's a lack of skilled RFID technicians.
You can't necessarily count on your RFID vendor to help you solve every problem. The leading vendors producing RFID products have a limited number of technicians who can install RFID systems. These companies will hire and train more as the market grows. But right now, there probably aren't enough trained technicians to serve Wal-Mart's top 100 suppliers.

Systems integrators? There are a few who can install RFID systems, but most are experts in bar code technology. Some vendors have launched programs to train partners, but most integrators, particularly those in the United States, have never done a large-scale RFID deployment and will be learning at your expense.

You could try hiring your own team of RF engineers. But of course, you'll be fishing for people with skills in a very small talent pool, and you'll be competing with everyone else. RF engineers from the telecommunications industry may eventually fill the gap, but it will take time to attract and retrain these workers.

3. Existing IT infrastructures need to be upgraded.
If you get your RFID readers installed correctly, they will gather a continuous stream of accurate, real-time data automatically. But IT infrastructures will be strained under the load. One consumer packaged-goods company estimates that tracking the 10 billion units it sells each year would require transmitting an average of 50 megabits of data per second over its network—and considerably more during during peak periods.

A bigger problem will be the stress put on databases. This consumer goods manufacturer estimates that tracking all its items from production to point of sale would require 3,000 database transactions per second on the low end and upwards of 30,000 on the high end. If each product has 1,000 bytes of data associated with it, the RFID system would generate 10 terabytes of data per year. If you store your data for five years, and you'll have a 50-terabyte database. Have fun querying against that.

4. Integrating an RFID system with backend software could take months.
Once all this data starts pouring in, you'll need to do something with it, besides store it in a bloated database. There are a few companies that offer modules for integrating RFID systems with enterprise applications. But for the most part, you'll have to take raw data from RFID readers and figure out how to get it into your accounts receivable, inventory management and other systems.

That's an awfully expensive, time-consuming chore in the best of circumstances. It's even worse if you've grown through acquisition and have 72 different legacy systems that require a custom format for the RFID data. One major aerospace company hired a large IT consulting and integration company to do the coding, but the firm backed out just before work was set to begin because it was concerned about completing the task. Two of the company's own programmers wound up spending five months creating a custom application that could route RFID data to the right application in the right format. And that was just for phase one of its project.

5. RFID will require replacing some assets that are not "RF friendly."
The cost of an RFID system goes beyond just buying tags and readers. Companies may have to replace other equipment that interferes with RFID systems. For instance, retailers might have to replace metal shopping carts with plastic ones. Manufacturers might need to install new conveyor systems that don't interfere with RFID readers.

The cost of tags and readers will come down over time, but other associated costs will go up if you wait; you'll have to replace some assets even if they haven't reached the end of their lifecycle. Planning ahead and deploying in stages give you the option of purchasing RF-friendly items as you replace aging assets.

6. Business processes need to be changed.
RFID will require manufacturers and retailers to change the way they run their businesses. For instance, a Procter & Gamble facility in Spain was able to handle a higher throughput thanks to an RFID system. But first its forklift operators had to be trained to use the RFID system and to do their job in a new way. Instead of staging pallets on the dock, they loaded them directly onto trucks.

Business process change is always disruptive. There needs to be a transition period from the old way of doing things to the new, and employees don't always embrace change. When Air Canada piloted an RFID system to track food carts at catering stations around the world, employees of the catering companies cut the cables to readers and put metal boxes over the readers so they wouldn't work. Why? They thought the system was tracking their performance. Before rolling it out, the airline had to educate its catering partners and their staff about why it benefited them, as well as Air Canada.

7. The sooner you deploy, the sooner you benefit.
Of course, you're probably more than a little cynical—and rightly so—about claims that you need to invest millions of dollars in technology soon to get big benefits. Many companies never achieved the cost savings promised by vendors selling Internet technologies. But RFID is already saving many companies money. Associated Foods Stores, a grocery distributor based in Salt Lake City, Utah, cut the number of tractors in its fleet from 120 to 67 after installing an RFID real-time locating system. The Procter & Gamble facility in Spain not only reduced its number of forklift operators, it virtually eliminated shipping errors. And Air Canada cut the number of food carts it loses each year by more than 80 percent.

Moreover, many companies find that their RFID system delivers unexpected benefits. Air Canada, for instance, now saves money on trucking fees. That's because its RFID system tracks usage patterns and allows for better planning, which means there are fewer times when food carts have to be moved on the ground from one airport to another to avoid shortages.

Scottish Courage Brewery, one of the largest beer producers in the United Kingdom, found its RFID system reduced lost kegs as expected, but it also cut the amount of time from when a keg is first filled to when it comes back from a pub and is refilled from an average of 47 days to 40 days. That enabled the brewer to use fewer kegs, freeing up $14 million. And the brewer cut gray market sales, which boosted revenue by 3 to 4 percent.

Beginning early gives you time to do a careful analysis of the business case for deploying RFID. You'll have time to correct mistakes, retrain workers and phase in the technology. The other option is to wait three or four years and then try to install an RFID system across your business all at once. Which will be like trying to replace your race-car's engine in the middle of the Indianapolis 500.
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