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Paddling to Profits

Some packaged-food manufacturers are getting swamped by the costs of meeting retailer RFID-tagging mandates, but others are staying afloat by examining how the technology could help them improve business practices and meet government food safety regulations.
By Elizabeth Wasserman
Dec 01, 2008—Many large packaged-food manufacturers are in the same boat as Nestlé. The Swiss-based international producer of chocolate, baby food, pet food and other food products has been RFID-tagging cases and pallets of goods to meet retailer mandates from Wal-Mart in the United States, Tesco in the United Kingdom and Metro Group in Germany. The retailers are using RFID data to reduce out-of-stocks, automate receipt of goods and keep better tabs on inventory. But Nestlé believed the benefits were somewhat one-sided, because the company had already optimized its internal business processes with information technology.

At least, that's what Nestlé officials thought until researchers at Cambridge University's Institute for Manufacturing convinced the company to re-examine its internal production processes in the making of everything from chocolate to coffee. Nestlé U.K. has since identified a handful of business benefits that it could gain from using RFID, in preparation for RFID pilots that could begin early next year in conjunction with the European Union-funded BRIDGE project, coordinated by GS1.

Among the potential pilots is a track-and-trace operation to RFID-tag reusable containers employed in the manufacturing process, including vessels that transport ingredients, bins that hold chocolate candies waiting to be packaged and molds used to make the candies. "We need to know where they are and what state they're in—are they available, have they been cleaned, are they full or empty, and what product was made in them last," says Paul Roberts, logistics manager of Nestlé U.K., who is shepherding the BRIDGE pilots.

Another potential pilot would track chocolates with filled centers as they come off the production line and are temporarily stored until they are packed with other assorted chocolates. The bins would be RFID-tagged, and the products inside would be associated with that tag in a database, Roberts says. Nestlé already has some software that uses bar codes to track the bins, but "that still requires human intervention," he says. The company would like to automate that tracking process with RFID.

As more retailers issue RFID-tagging mandates—Sam's Club, the warehouse retail chain owned and operated by Wal-Mart, recently upped the ante by requiring that suppliers tag all "sellable units" by October 2010—both large and small packaged-food manufacturers will need to look for internal and supply-chain benefits to offset the costs. For large companies like Nestlé that have optimized their businesses processes, RFID can enable improvements and automation that other IT hardware and software products cannot. Smaller manufacturers that haven't already gained efficiencies in their business operations with the use of IT stand to gain even more benefits.

"Manufacturers have for many years invested in automation and trimmed processes down to the point where they're lean in operation," Roberts says. "At the end of the day, the only driver that's going to get RFID adopted is if business benefits are involved." Nestlé's interest in testing RFID internally was "driven by the recognition that there were probably areas in our business capable of generating savings," he says.

Those business benefits extend to the supply chain. Some consumer packaged-goods companies that have been RFID-tagging goods for Wal-Mart have been using the data the retailer makes available to reduce out-of-stocks, better manage new-product introductions, reduce chargebacks, improve order reconciliation and minimize shrinkage. For packaged-food manufacturers, RFID enables other benefits, such as reducing loss from out-of-date goods, identifying items for recalls, and meeting government regulations to improve the safety and traceability of food products.

Even manufacturers that aren't under retailer mandates are discovering benefits from RFID-tagging products. In particular, companies are combining RFID tags with sensors to monitor perishable foods.
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