Wal-Mart Case Study – RFID and Supply Chain
Management
FINAL PAPER
By
Group 2
Group Members:
Angrish, Sangita
Chivukula, Venkata S.
DeWitt, Brendon
Patel, Raxesh
Shamsi, Shazeb
Yellapragada, Ramachandra
Date: November 30, 2005
Table of Contents
INTRODUCTION ........................................................................................................................................ 4
WHY RFID OVER BAR-CODE? ................................................................................................................ 4
RFID INFRASTRUCTURE........................................................................................................................... 5
INTRODUCTION TO SUPPLY CHAIN MANAGEMENT .................................................................... 7
WAL-MART INTRODUCTION AND ITS BUSINESS PROCESSES ................................................... 9
OPERATIONS ............................................................................................................................................. 9
BUSINESS MODEL....................................................................................................................................10
Market Strategy of Wal-Mart ....................................................................................................10
Organizational Development .....................................................................................................10
Competitive Advantage ...............................................................................................................11
Market Opportunity ......................................................................................................................11
SUPPLY CHAIN MANAGEMENT AT WAL-MART .......................................................................................11
Procurement and Distribution ...................................................................................................11
Logistics Management .................................................................................................................12
Inventory Management ...............................................................................................................12
RFID IN WAL-MART ................................................................................................................................13
EFFICIENCY IN SUPPLY CHAIN WITH RFID ...........................................................................................14
WAL-MART SUPPLIERS ...........................................................................................................................15
Kimberly-Clark................................................................................................................................15
Kraft Foods ......................................................................................................................................15
Gillette ...............................................................................................................................................15
CURRENT USAGE OF RFID ...................................................................................................................15
RFID IN MILITARY ..................................................................................................................................16
SUCCESSFUL RFID IMPLEMENTATION IN DIFFERENT INDUSTRIES .....................................................16
Volkswagen ......................................................................................................................................17
Supermarket tries out smart tagging ....................................................................................17
Sun Microsystems sets up RFID test centre in Scotland ................................................17
I.B.M. Expands Efforts to Promote Radio Tags to Track Goods ..................................17
Texas Instruments ........................................................................................................................17
EPC global Network ......................................................................................................................18
LIMITATIONS AND CHALLENGES OF RFID ....................................................................................18
FUTURE OF RFID .....................................................................................................................................20
FUTURE APPLICATIONS ...........................................................................................................................20
REFERENCES: ...........................................................................................................................................21
Wal-Mart RFID, A Case Study
Fall 2005
Introduction
Technology is inevitable in every sphere of life today; it has always made things
easier. Wal-Mart works on the same strategy, from the above description; we can
understand how diversified Wal-Mart is and the volume of cargo it needs to handle
for each of its business‟s. Traditionally, it had started with computerization of
individual stores with small billing machines and had then led to centralized billing
for record keeping. The technology has grown by leaps and bounds and has become
increasingly challenging to maintain large databases of information and maintain
records. Powerful computers networked with high performance clusters maintain and
store this data. This gives a picture as to how technology plays a vital role in today‟s‟
businesses.
Traditionally, technology has been upgraded in billing systems and for storage
purposes. A new area where technology could be applied to, where many expenses
could be saved was in inventory management and logistics. Wal-Mart being so huge,
needed to keep track of men and material sent across different countries and had to
maintain hundreds of warehouses across the world. Bar-codes have been initially
identified as a suitable technology to meet the purpose.
But due to the limitations of barcodes, a new emerging technology called RFID has
been identified to meet the demands. RFID is low cost Radio Frequency Identification
system which requires minimum human intervention to carry out tasks ranging from
billing to materials tracking and supply chain management. It is a small wireless
device which can store good amount of data and can virtually be tagged to anything.
RFID is an electronic tagging technology as shown in figure 1 that allows an object,
place, or person to be automatically identified at a distance without a direct line-of-
sight, using an electromagnetic challenge/response exchange.
Fig 1: RFID Devices [Source: The Magic of RFID, Roy Want, INTEL RESEARCH, October 2004 ]
Why RFID over Bar-Code?
The ability to read without line-of-sight is the best advantage of RFID over bar-code
systems. RFID readers can sense items even when the tagged items are hidden
behind other tagged items. This enables automation. The challenging part of
implementing RFID is that tagged items should not be missed by the reader due to
interference, multipath fading, transient effects etc. Missed reads are an unfortunate
reality with RFID systems. RFID uses a serialized numbering scheme such as EPC
(Electronic Product Code). Each tag has a unique serial number. Serial number
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information is extremely powerful in understanding and controlling the supply chain
and provides much more detailed behavior of the supply chain than can non-
serialized bar codes such as UPC (Universal Product Codes) and EAN (European
Article Numbering). Serial numbers have many advantages such as food
freshness/expiration. This can tell how for how long an item has been in the supply
chain where as such information is not captured in bar code system. Hence items can
be reached the right place at the right time. Furthermore RFID implementation
monitors theft too. For example if number of items reached at the retailer‟s outlet is
less than that was departed from supplier‟s location, it can be easily tracked for. In
all these ways, RFID systems have stronger sensor networking system or monitoring
system than bar code systems.
RFID Infrastructure
Many software systems used in enterprise systems today are not designed to handle
serial numbers as required by the RFID systems. The problem in synchronizing RFID
systems to software system can be best described as the problem in synchronizing a
speaker to a hi-fi amplifier. If the hi-fi amplifier is not synchronized to speaker there
will be distortion in sound signal. Like wise there will be mismatch in capabilities and
requirements if RFID system is not synchronized with enterprise software properly. A
solution to this problem is to introduce a layer between RFID readers and the
application software commonly known as RFID middleware. It has two levels of
functionality: a lower level device and data management and a higher level
interpretation level.
Data management layer provides some functionality of filtering of data due to
intermittent appearances and disappearances. This can be achieved by setting some
time threshold levels. For example you could tell the software to record tags as
missing only after they have not been seen for a certain number of seconds. This is
important because if the reader cannot read certain tags due to interference of
certain objects, the software should not conclude that the tagged item is being sold
or stolen. This mechanism would reduce false reads.
Device management is one of the most challenging part of RFID implementation.
RFID readers interact with other devices such as motion sensors, programmable
logic arrays and human interfaces. RFID readers operate in ISM (Industrial, Scientific
and medical) bands at 13.56 megahertz, 915 megahertz and 2.45 megahertz.
Because implementing RFID is an extensive ubiquitous task, there is a complication
of different bandwidth standards around the world. For example, Japan has very
different bandwidth standard than U.S.A. Security intrusion is also an issue in RFID
deployment because RFID readers operate automatically unlike bar code scanners
which are operated by humans.
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Fig 2: Two Levels of Functionality [Source: Integrating RFID, Sanjay Sarma, Oatsystems and MIT,
October 2004]
After the data management layer yields data, the data interpretation layer must
extract inference from such data and forward it to the applications that deploy RFID.
This inference mechanism is a very sophisticated task. For example if a tagged pallet
carrying tagged items out of the door should not be confused with the one that just
passes by the door and does not go outside it. This high level of reasoning involves a
lot of inferences and associations.
Tags can be associated with each other when they are assembled.
Integrating RFID into the enterprise is one task but extracting value for the
enterprise at the systemic level is another challenging task which requires lot of
control and effort.
Fig 3: Architecture with Independent EPC Visibility Layer [Source: Integrating RFID, Sanjay Sarma,
Oatsystems and MIT, October 2004]
The EPC visibility layer keeps track of RFID data in many level of detail. The
architecture for such a system can be shown as in figure 2.The enterprise EPC
systems can then be a single source of all EPC data. The enterprise system can keep
a true and multi resolution record of all EPC data permitting different applications to
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access EPC data at the appropriate resolution. The Auto-ID center has developed a
software called savant which serves as the edge and the enterprise software. They
also built a prototype of the ONS. EPCglobal operates ONS. EPCglobal also sell EPC
codes to users who want to place EPC tags on their products. EPCglobal run a
number of hardware and software modules of the EPC system. The EPCglobal system
includes a number of standards for communicating with readers, for middleware of
the edge, and for the edge and enterprise EPC systems. This emergence of EPCglobal
system has changed the way supply chain is operated today.
Introduction to Supply Chain Management
Supply chain management (SCM) is the coordination of a network of facilities and
distribution options that performs procurement of materials, processing the materials
into finished products, and distribution of the products to customers. SCM is seen as
involving five core processes. These include planning, sourcing, making, delivering,
and returning.
Fig 4: Typical supply chain showing interrelations between all involved parties. [Source: Auto-ID:
Managing Anything, Anywhere, Anytime in the Supply Chain, Bose and Pal, ACM August 2005]
SCM exists in both service and manufacturing environments. A typical supply chain
consists of many interactions between suppliers, manufacturers, distributors,
retailers, with the ultimate goal of providing either a service or a product to
customers. This also works in reverse with the customer at the head of the process
when returning a product.
SCM is used as a means to integrate planning, purchasing, manufacturing,
distribution, and marketing organizations that normally do not work together to
achieve a common goal. Each works toward goals specific to their own organization
that accomplish narrow objectives. SCM is a way of integrating these varying
functions so that they work together to maximize the benefits for all involved.
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There are three levels of SCM: strategic, tactical, and operational.
Fig 5: Three Levels of SCM [Source: Auto-ID: Managing Anything, Anywhere, Anytime in the Supply
Chain, Bose and Pal, ACM August 2005]
Strategic SCM deals with future planning than in looking at market evaluation,
capacity issues, new products, and technology changes. This planning is addressing
issues that may be factors several years out. This is accomplished at the executive
management level.
Tactical SCM involves a shorter planning cycle. It is more concerned demand
planning, inventory planning, and supply planning. This is determined at a less
senior level than Strategic SCM.
Operational SCM is current planning activities measured in at most weeks.
Operational SCM involves the majority of the operations. It includes demand
fulfillment, scheduling, production, transport, and monitoring.
There are many decisions that are made when looking at SCM. They follow the
above categories. Strategic decisions are made over longer periods of time and
linked to a corporation‟s strategy. Operational decisions are more short term and
look at day to day activities. Four major decisions are considered. The include
decisions on location, production, inventory, and transportation. A geographically
strategic placement of the production facilities is key to creating a successful supply
chain. Decisions on what products to be produced have to be made wisely and
strategically. Also, where these products (which locations) will be manufactured is
very important to SCM. Inventory decisions and management is critical. Some
inventories are necessary to hedge against uncertainty, but this comes with a cost.
Managing these inventories efficiently will be of benefit to the corporation.
Transportation decisions include cost versus benefit. Air transportation is costly, but
fast and reliable. Other modes of transportation may be cheaper, but the sacrifice is
having to hold inventories due to delays that may occur. If the above decisions are
made with careful and strategic thought as well as with concern for integration, the
supply chain should be efficient and successful.
The overall goal of SCM is to optimize supply chains in an attempt to provide more
accurate and time sensitive information that can be used to improve process times
and cut costs. Supply chains have been around for decades and a constantly being
improved. The newest opportunity for improvement is the introduction of radio
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frequency identification (RFID) tags. RFID technology will provide real-time
information that will allow manufacturers to get better readings of customers and
markets thus further improving supply chains. RFID will help retailers provide the
right products at the right places at the right times. Ultimately, maximizing sales
and profits
Wal-Mart has been leading the charge with RFID technology. Having the largest
retailer adopt and begin to use RFID technology has given strong backing to the
technology and will only further and quicken the expansion of RFID. They have
begun requiring all their major suppliers to implement RFID technology on all
products supplied to Wal-Mart.
One example of what Wal-Mart has done with SCM and its suppliers is that of its
relationship with Proctor & Gamble. These two built a software system that hooked
Proctor & Gamble up to Wal-Mart‟s distribution centers. This system would then
monitor supply levels and when products run low, automatic alerts are sent out to
require the shipment of more products to that distribution center. Wal-Mart has
taken this as far as going to the individual store locations. The shelves are
monitored in real time via satellite links that send inventory messages whenever
Proctor & Gamble products are scanned at a register. This allows Proctor & Gamble
to be fully aware of up to the minute product inventories at the actual store locations
and ship additional products as necessary. This concept is a huge step in making
SCM as efficient as it can be.
Wal-Mart Introduction and its Business Processes
Wal-Mart is one of the largest Fortune 500 companies, which is spread across the
globe. It is an arguably the largest retail chain which deals with everything from food
to consumer electronics. In terms of the revenue generated, it leads the fortune 500
companies like GE and Microsoft. Simply put, it has everything a homemaker can
ever think of. Affordable price range coupled with aggressive online and market
strategy has lead to wide acceptance for Wal-Mart in towns and cities alike. Wal-
Mart is probably the only largest fortune 500 corporations in the world, which directly
services the common man.
Operations
Wal Mart operations are comprised of three business segments:
Wal-Mart Stores
SAM‟S CLUB
Wal-Mart International.
Wal-Mart Stores segment is the largest segment, which accounted for approximately
67.3% of their 2005 fiscal sales. This segment consists of three different retail
formats, all of which are located in the United States. This includes the following
sections:
• Super-centers, which average approximately 187,000 square feet in size and offer
a wide variety of products and a full-line supermarket;
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• Discount Stores, which average approximately 100,000 square feet in size and
offer a wide variety of products and a limited stock of food products; and
• Neighborhood Markets, which average approximately 43,000 square feet in size
and offer a full-line supermarket and a limited variety of general merchandise.
SAM‟S CLUB segment consists of membership warehouse clubs in the United States
which accounted for approximately 13.0% of 2005 fiscal sales. SAM‟S CLUBs in the
United States average approximately 128,000 square feet in size.
Wal-Mart International operations are located in Argentina, Canada, Germany, South
Korea, Puerto Rico and the United Kingdom, the operations of joint ventures in China
and operations of majority-owned subsidiaries in Brazil and Mexico. This segment
generated approximately 19.7% of 2005 fiscal sales. Here, it operates several
different formats of retail stores and restaurants, including Super-centers, Discount
Stores and SAM‟S CLUBs.
For the fiscal year ending January 31, 2005, Wal-Mart topped $10 billion in net
income for the first time in their history and added almost $29 billion in sales.
Business Model
A Business model is central to any successful business. Wal-mart is no exception.
Wal-mart has always been innovating and improving its business model to suite its
organizational goals and also meet customer requirements, and so has managed to
stay on top year after year. Wal-mart has employed a mixed-business model for its
business for the same.
To understand the Business models used by Wal-Mart, first it is important to know
the factors, which go in defining those models, and how does it relate to Wal-Mart
specifically.
Market Strategy of Wal-Mart
Wal-Mart stresses mainly on their Everyday Low prices (“EDLP”) pricing philosophy,
in which they price items at a low price every day that builds & maintains customers
trust in their pricing. Since they employ both the “clicks and bricks” and “bricks and
mortar” methods to market their products, consumers get to choose their products
either the traditional way or online anytime of the day. Though Wal-Mart has not
advertised in Advertising, as many of its competitors do, the trust people have built
on the Wal-Mart brand has taken them far from their competitors.
Organizational Development
Wal-Mart has restructured its business into two parts to handle specific
organizational needs.
Specialty Division
- Tire & Lube Express
- Wal-Mart Optical
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- Wal-Mart Pharmacy
- Wal-Mart Vacations
- Wal-Mart's Used Fixture Auctions
- Wal-Mart Alaska Bush Shopper
Retail Division
- Wal-Mart Stores
- Super centers
- SAM'S CLUBS
- Neighborhood Market
- International walmart.com
Competitive Advantage
Wal-Mart has been an undisputed leader in offering the markets lowest prices to
consumers. It has always given a “price match guarantee”, and has challenged other
stores to offer lesser prices and has agrees to reimburse the difference, the
difference of price if any. No other store could meet this and Wal-Mart has been
leading the pack for years.
Market Opportunity
Wal-Mart employs a combination of two Business Models viz.
B2B Single firm network Business Model – SAM‟S CLUB segment of Wal-Mart
supports small businesses. Its main focus in this segment is to create its own
network of trusted partners to coordinate supply chains and provide exceptional
value on brand-name merchandise at “Members Only” prices.
B2C E-Tailer Business Model – Wal-Mart uses “clicks and bricks” methodology to
provide millions of its customers online version of its retail store, where customers
can shop at any hour of the day or night without leaving their home or office.
Wal-Mart employs Sales revenue model as it is mainly involved in sale of goods and
services.
These two models help Wal-Mart in achieving its business perspectives related to its
firms organizational needs and the second helps in its interaction with the customer
and manages goods and services offered by Wal-Mart to the end users.
Supply Chain Management at Wal-Mart
Supply chain management at Wal-Mart can be described in 3 sections.
Procurement and Distribution
Wal-Mart‟s process of procurement involves reducing its purchasing costs as far as
possible so that it can offer best price to its customers. The company procures goods
directly from the manufacturers, bypassing all intermediaries.
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Wal-Mart has distribution centers in different geographical places in US. Wal-Mart‟s
own warehouses supplies about 80% of the inventory. Each distribution centre is
divided in different groups depending on the quantity of goods received. The
inventory turnover rate is very high, about once every week for most of the items.
The goods to be used internally in US arrive in pallets & imported goods arrive in re-
usable boxes.
The distribution centers ensured steady flow & consistent flow of products. Managing
the center is economical with the large-scale use of sophisticated technology such as
Bar code, hand held computer systems (Magic Wand) and now, RFID. Every
employee has access to the required information regarding the inventory levels of all
the products in the center. They make 2 scans- one for identifying the pallet, and
other to identify the location from where the stock had to be picked up. Bar codes &
RFID are used to label different products, shelves & bins in the center. The hand held
computers guide employee to the location of the specific product. The quantity of the
product required from the center is entered in the hand held computer, which
updates the information on the main central server. The computers also enabled the
packaging department to get accurate information such as storage, packaging &
shipping, thus saving time in unnecessary paperwork. It also enables supervisors to
monitor their employees closely in order to guide them & give directions.
This enables Wal-Mart to satisfy customer needs quickly & improve level of efficiency
of distribution center management operations.
Logistics Management
This involves fast & responsive transportation system. More than 7000 company
owned trucks services the distribution centers. These dedicated truck fleets enables
shipping of goods from distribution centers to the stores within 2 days and replenish
the store shelves twice a week. The drivers hired are all very experienced & their
activities are tracked regularly through “Private Fleet Driver handbook”. This allows
the drivers to be aware of the terms & conditions for safe exchange of Wal-Mart
property, along with the general code of conduct.
For more efficiency, Wal-Mart uses a logistics technique called “Cross Docking”. In
this system, finished goods are directly picked up from the manufacturing site of
supplier, sorted out and directly supplied to the customers. This system reduces
handling & storage of finished goods, virtually eliminating role of distribution centers
& stores. Because of “cross-docking” the system shifted from “supply chain” to
“demand chain” which meant, instead of retailers „pushing‟ the products into the
system, the customers could „pull‟ the products, when & where they required.
Inventory Management
Considering the rapid expansion of Wal-Mart stores, it was essential to have a very
good communication system. For this, Wal-Mart set up its own satellite
communication system in 1983. This allowed the management to monitor each and
every activity going on in a particular store at any point of the day and analyze the
course of action taken depending on how the things went.
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Wal-Mart ensures that unproductive inventory is as less as possible, by allowing the
stores to manage their own stocks, thereby reducing pack sizes across many
categories and timely price markdowns. Wal-Mart makes full use of its IT
infrastructure to make more inventories available in case of items that customers
wanted most, while reducing overall inventory. By making use of Bar-coding & RFID
technologies, different processes like efficient picking, receiving & proper inventory
control of the products along with easy packing and counting of the inventories was
ensured.
Wal-Mart owns the “Massively Parallel Processor (MPP)”, largest & the most
sophisticated computer system in private sector, which enables it to easily track
movement of goods & stock levels across all distribution centers and stores. For
emergency backup, it has an extensive contingency plan in place as well.
Employees use “Magic Wand”, which is linked to in-store terminals through a Radio
frequency network, to keep track of the inventory in stores, deliveries and backup
merchandise in stock at the distribution centers. The order management and store
replenishment of goods is entirely executed with the help of computers through Point
of Sale (POS) system. Wal-Mart also makes use of sophisticated algorithm to
forecast the quantities of each item to be delivered, based on inventories in the store.
A Centralized inventory database allows the personnel at the store to find out the
level of inventories and location of each product at a given time. It also shows the
location of the product like distribution center or transit on the truck. When the
goods are unloaded at the store, the inventory system is immediately updated.
RFID in Wal-Mart
Wal-Mart had initiated its plan to employ RFID technology in its supply chain in June
2003. Subsequently Wal-Mart reinforced its plans and actively asserted on defining
the RFID standards it will be implementing.
The specification of the following RFID components was laid out in November 2003.
EPC (Electronic Product Code) specification
Type of Chip that would be installed
The Distribution centers that will accept RFID tagged products
After the defining phase, Wal-Mart specified the RFID requirements to its suppliers
that they should comply with:
EPC: 96-bit with a Global Trade Identification number
TAGS: Should operate in UHF spectrum (868 MHz to 956 MHz)
The TAG will carry the 96-bit serial number and will be field-programmable, that will
allow the suppliers to write serial numbers to the tags while being applied to the
products.
EPC –compliant tags in UHF band consists of two main parts:
EPC data format on the chip
Class0 or Class1 communication protocol
Class0 is a factory programmable tag
Class1 provides the capability to the end users to write serial number on it
Wal-Mart planned to implement Class1 Version2, a globally accepted protocol that
incorporates both specification of Class0 and Class1.
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In addition, Wal-Mart is planning to enhance mobility to its existing RFID tag readers
by implementing RFID-enabled forklift. These readers will have the capability to read
the tags on the pallets and transmit data through the RFID network, which would
help the users to be better informed about the supply-chain data.
Efficiency in Supply Chain with RFID
The various components of Supply Chain are: Procurement, Distribution, Logistics
and Inventory Management.
Since the core of Wal-Mart business is perpetual improvement in its Supply Chain
implementation, it believes in “no-compromise” on implementing an innovative IT
infrastructure and strong communication system as they are they the important links
in the chain for a smooth functioning of the complete system.
Wal-Mart tapped RFID technology with an aim to increase the efficiency of its supply
chain. This is because RFID implementation will enhance transparency of their supply
chain and hence will help them minimize cost and labor and will strengthen inventory
control. According to Venture Development Corporation,
“With Wal-Mart selling over $245 billion worth of goods in fiscal year
2003, a 1% improvement in the out-of-stock issue could generate
nearly $2.5 billion in very profitable sales.”
In addition, a study by Cohen at Wharton chalks out the difference between the
existing inventory management and the RFID enabled supply chain.
“In current systems, you may know there are 10 items on the shelf,
and that information is compiled in an enterprise planning software
system. With RFID, you know there are 10 items, their age, lot
number, and expiration date and warehouse origin. "It's like knowing
there are 1,000 people in a city," says Cohen. "With RFID, you know
their names."
From the above studies it indicates that employing RFID technology will help in
implementing a seamless supply chain and hence yield profits.
The increase in their efficiency is evident from the news article at Breitbart.com,
where it states that implementation of RFID tags in Wal-Mart‟s inventory has helped
boost sales by keeping shelves better stocked. Usage of RFID has reduced out-of-
stock merchandise by 16% at the stores that have implemented RFID tags for more
than a year. The CIO at Wal-Mart stated that,
“Wal-Mart has been able to restock RFID-tagged items three times as
fast as non-tagged items.”
In addition to improving the availability of in-stock merchandise, Wal-Mart aims to
reduce the practice of manually placing the order and has achieved 10% reduction in
the case.
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The recent studies show that 130 major suppliers ship merchandise to Wal-Mart
distribution centers with about 5.4 million tags. Wal-Mart expects to increase RFID
implementation by adding another 200 suppliers that are projected to supply to
another 1000 stores.
At present, Wal-Mart is at a nascent state of implementing RFID. In addition to
strengthening the Supply Chain, the largest retailer is also looking into different
dimensions where RFID can be helpful. As a pilot test, Wal-Mart is working on the
data collected by RFID to analyze the consumer behavior.
According to Venture Development Corporation, the major implementation
milestones of RFID at Wal-Mart are to expand Regional and domestic implementation
of RFID throughout 2005. These include Regional Distribution Centers, Grocery
Distribution Centers and Sam‟s Club Distribution Centers in Texas. And, by 2006,
Wal-Mart aims to mandate RFID implementation for all its suppliers.
Wal-Mart Suppliers
Some of the major suppliers of Wal-Mart are:
Gillette, Hewlett-Packard, Johnson & Johnson, Kimberly-Clark, Kraft Foods, Nestle,
Purina PetCare Company, Procter & Gamble and Unilever.
Kimberly-Clark
Kimberly Clark is a manufacturer of paper goods products that include Kleenex,
Huggies and Depend. In April 2004, Kimberly Clark tagged its Scott paper towels
shipment with RFID tags to be shipped to Sanger, Texas.
Kraft Foods
Kraft Foods, the largest food company employs RFID system to improve handling of
its bulk containers. Kraft has outsourced its RFID system to TrenStar to handle the
complete supply chain.
Gillette
Smart razor blades have been introduced to the supermarkets. Gillette has ordered
half a billion tags to track razors. The Gillette Company uses RFID for both pallet and
case applications. All the cases in a pallet are scanned with RFID readers as they
move along the conveyor belt. In a trial at Tesco's new market Road branch in
Cambridge, the packaging of Gillette Mach3 razor blades has been fitted with tiny
chips.
Current Usage of RFID
RFID technology is rapidly evolving and growing, providing solutions to a wide array
of problems. Many companies are finding value in implementing RFID systems today
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especially when it is applied to solve more realistic supply chain problems. The key
factor, as with any new technology, is to understand the capabilities of RFID and
evaluate how it can be useful to our operations today. Though RFID deployment is
still not full fledged, it is clear that its deployment is an attainable future goal. The
value, which is the most important metric for a RFID application, is determined by
considering the following key factors:
Basic asset and inventory visibility needs, Speed, range and reliability needed to
track the target product ROI (Return On Investment) in the context of scope for
improvements
RFID in Military
The U.S. military has also been heavily involved in SCM. The military‟s main focus is
on getting equipment and necessities to the servicemen and servicewomen who are
on the battlefield. This is quite different from most businesses that often lose sight
of the end customer in the process.
In a memo issued back in 2003 by the Acting Under Secretary of Defense that said,
“The Department of Defense will be an early adopter of innovative RFID technologies
that leverages the Electronic Product Code (EPC) and compatible tags. Our policy
will require suppliers to put passive RFID tags on lowest possible piece
part/case/pallet packaging by January 2005. We also plan to require RFID tags on
key high-value items.” The goal of the military is to improve data quality, item
management, asset visibility, and maintenance. The DOD has done a good job at
meeting this goal. They continue to be on the cutting edge in advances in military
logistics using RFID and SCM.
The Army has experimented with a concept called anticipatory logistics. Anticipatory
logistics is quite similar to the corporate world‟s SCM. They both consist of seven
main components. These are suppliers, procurement, manufacturing, order
management, transportation, warehousing, and customers. Anticipatory logistics is
in an attempt to use technologies, information systems, and procedures to predict
and prioritize needs and provide supplies in a timely manner. The military approach
to SCM is only slightly different than that of the commercial industry. The military
focuses on mission requirements as opposed to profit and loss statements, which are
what drives a corporation.
According to a benchmark initiative by Deloitte & Touche, only seven percent of
companies are effectively managing their supply chains. The interesting fact is these
companies are seventy three percent more profitable than other manufacturers.
This lends to the belief that proper SCM is beneficial to a company‟s bottom line.
Efficient SCM is difficult to implement and is being widely studied. Companies must
find the right balance between inventory, transportation and manufacturing costs. If
this is done properly, SCM will be successful and the company will likely receive the
rewards by way of increased profitability.
Successful RFID Implementation in different Industries
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Volkswagen
Volkswagen, Europe's largest automaker and the fourth largest auto manufacturer in
the world are deploying RFID technology to speed up vehicle pickup and improve
customer service. The system is used to quickly locate a car in the holding lot, which
has over 10,000 automobiles, and to track the vehicles' progress through a pre-
delivery system.
After the production line, every vehicle is equipped with an i-Q8 tag, an active tag
that contains a unique identification number and pre-delivery tasks. The vehicle is
then delivered to the holding lot. An Intelligent Long Range (ILR) -enabled van with
an RFID reader identifies the targeted vehicle when approaching the car. After the
pre-delivery tasks are completed, the status is written to the active tag.
After deploying active RFID solution, Volkswagen claims to have witnessed the
benefit of significant reduction of the vehicle delivery time and productivity has been
improved by as much as four times. The solution also provides additional benefits
such as improving quality control, electronic work-in-process tracking, and automatic
status update.
Supermarket tries out smart tagging
The electronic radio tags will allow staff and customers to keep track of the goods in
the store. They will also help prevent shoplifting, tracking the items from the shelf to
the till and out of the door. British supermarket chain Tesco has started to install
„smart shelves‟ that can track items as they are placed or removed. If the product
goes through the door without being paid for an alarm is set off.
Sun Microsystems sets up RFID test centre in Scotland
Sun maintains that RFID tags have the potential to cut huge costs from the supply
chain of retailers and manufacturers and said the European centre will help firms
with the tagging of products, integrating the information into back-end systems and
sharing it with their supply chain partners.
I.B.M. Expands Efforts to Promote Radio Tags to Track Goods
IBM‟s move into the RFID tag printer business with an RFID-capable printer designed
to help customer reduce costs and improve operational efficiencies. Also I.B.M.
consultants began selling advice on consumer privacy issues related to the use of
radio identification tagging of consumer goods.
Texas Instruments
Texas Instruments deploy RFID in the field of logistics/supply chain management. TI-
RFID technology connects all phases of the supply chain, from resourcing and
manufacturing to inventory and distribution. RFID creates real time information links
that speed production, improve quality and streamline delivery.
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Wal-Mart RFID, A Case Study
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EPC global Network
The EPC global Network uses RFID to enable true visibility of objects in the supply
chain. The network has five fundamental elements:
The Electronic Product Code (EPC) is a unique number that identifies an item in the
supply chain, whether that is an individual product or a case, or pallet, of many
products being shipped.
Each silicon chip of each RFID tag is encoded with a unique EPC that identifies the
product. The silicon chip is wired to an antenna, and, using radio frequency
identification technology, each tag communicates to an RFID reader its EPC.
The Object Name Service (ONS) collects the EPC that is passed on from the reader.
The ONS resides on a computer or local application system. It tells the computer
systems where to locate information on the network about the item who‟s EPC it has
just encountered. This information will typically reside on the Internet, making it
readily available on a worldwide level.
Physical Markup Language (PML) is an XML-based language that is used to define
data on objects.
Savant is the middleware technology that coordinates the movement of information over
the computer systems.
Limitations and Challenges of RFID
Many issues still exist about the implementation of RFID that even Wal-Mart may
have trouble addressing despite their decision to move forward with the new
technology.
Current challenges in RFID implementation are:
Global standards: A single global RFID standard is highly unlikely to
evolve. Like barcodes, standards for RFID will probably vary between
many regions of the world. Multinationals like Wal-Mart may need to
implement a variety of RFID standards and technologies across their
global organizations.
Technology problems: Problems such as signal distortion, reader
accuracy and speed, and tag transmission capabilities persist making RFID
still not practical for widespread use. Some of the major technical
limitations are:
1. Read-range distances are not sufficient to allow for consumer
surveillance: Most of the RFID tags currently in use have read ranges
of fewer than 5 feet. The read range of the RFID tags depends on the
antenna size, transmission frequency, and whether they are passive or
active.
2. Limited information contained on tags: Although some
researchers on RFID support this aspect of the technology by pointing
out that the tags associated with most consumer products will contain
only a serial number. However, this number can reveal a lot of
information, which is generally used as a reference number that
corresponds to information contained on one or more Internet-
connected databases. This means that the data associated with that
number is theoretically unlimited, and can be augmented as new
information is collected.
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Wal-Mart RFID, A Case Study
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3. Defective and poorly performing RFID tags: RFID tag
manufacturers continue to produce faulty tags. Failure rates in early
RFID pilots have been as high as 30%. Unfortunately, "relatively high
reliability" is unacceptable if an RFID mandate calls for a 100% read
rate.
4. Damaged RFID tags: Since tag reading happens automatically
without line of sight and no human interaction, it can be difficult to
know when certain tags are not read. This becomes a serious issue for
business applications built around RFID if 100% read rates are implicit
as part of the core business application design.
Data management: Lack of development of right information management
tools to manage the data effectively, is making it difficult to realize the full
potential of RFID in generating a wealth of information. “Companies planning
to adopt RFID face technical concerns related to effective data capture (or
reading), and to data volume (in database management and transmission)”.
Cost: Any developing technology is associated with high costs and so is RFID,
which is highly expensive to implement. “Individual tags cost about 30 cents
each; this will drop to between one and five cents per tag once billions are
being produced” . And depending on functionality, tag readers can cost
anywhere from several hundred to several hundred thousand dollars. The
largest cost issues, however, reside in the required size of the databases,
their integration with a company‟s current systems and the effective
transmission of information. Associated costs can approach the millions of
dollars, but they are unavoidable if the full benefits of RFID are to be realized.
Industry Standards: Many privacy advocates are insisting the companies to
state their intended use of the technology due to lack of industry standards
regarding the use of personal information that could be encoded on the chips.
Privacy and civil liberties: One major confrontation for RFID technology
would be to deal with the threats to consumer privacy and civil liberties. RFID
tags can be embedded into/onto objects and documents without the
knowledge of the individual who obtains those items.
Must be programmed, applied and verified individually, and data
synchronization is usually required.
A final barrier to implementation that may need managing is employee
acceptance, particularly in light of potential job losses.
RFID Practices that should be prohibited:
Merchants must not force their customers into accepting RFID tags in the
products they buy.
RFID must not be used to track individuals absent informed and written
consent of the data subject. Human tracking is inappropriate, either directly
or indirectly, through clothing, consumer goods, or other items.
RFID should never be employed in a fashion to eliminate or reduce anonymity.
For instance, RFID should not be incorporated into currency.
What Should Wal-Mart Do?
Wal-Mart should redefine the scope of its RFID mandate by narrowing the scope of
products to those with limited amounts of metal and liquid. Suppliers would not be
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Wal-Mart RFID, A Case Study
Fall 2005
affected with a narrower focus on high-priced products like prescription drugs,
apparel, and DVDs etc. It gives additional time for vendors and suppliers to perfect
tag reliability for all products. “Forrester recommends that Wal-Mart use its influence
to help create a buying consortium, giving suppliers the collective power to cut tag
costs” .
What Should Suppliers Do?
Suppliers should use their initial knowledge to shape mandates by Wal-Mart and
other retailers. “In addition to addressing the challenges they are facing in
implementing RFID with Wal-Mart, suppliers should create an internal RFID lead
position with direct access to the CEO”.
Future of RFID
Fig 6: State of RFID technology deployment [Source: AMR Research, 2005]
Future Applications
- In the pharmaceutical industry, RFID tags on drug bottles are being used as
anti-counterfeiting devices.
- Pet owners have begun implanting their cats and dogs with RFID chips to
locate them should they become lost.
- In libraries, books are being tagged for self-automated checkout, freeing up
librarians to perform other tasks. This also allows a librarian to easily locate a
book misplaced on the wrong shelf.
- The USDA is pushing to give every cow in the United States its own unique
identification number, making it easier to track diseases, such as mad cow
disease, back to the originating farm.
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Wal-Mart RFID, A Case Study
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- It has been acknowledged that RFID technology can be used for marketing
purposes or even, in a Brave New World scenario, government tracking of its
citizens. For instance, it is possible to ubiquitously embed the chip within a
product, for instance a pair of jeans or a set of automobile tires. What is most
frightening, however, is the ability to implant an RFID chip under the human
skin.
The future of RFID is uncertain. There has been a mixed reaction from the various
suppliers and customers who already deployed RFID into their industry. Industry
analysts are unanimous on the view that RFID is going to dominate the industry
soon. RFID technology will reach the zenith by the end of 2006 and from a retailers
perspective the technology will bring a revolution, key retailers such as Tesco and,
in particular, Wal-Mart of the US are pushing ahead with the technology that will
end up affecting thousands of suppliers. So too is the US Department of Defense. It
will be widely used in retail and consumer goods, automotive, healthcare, military,
postal department and other scientific use but if consumers really don't like the
idea – if it's too confusing for them, too much technology or their privacy concerns
are too strong – will the technology survive is the question to be answered.
Two things are clear when it comes to RFID. First off, there has been no clear
roadmap that a company can employ while evaluating RFID opportunities or
mandates. The typical approach has been one of trial and error. Secondly, the future
of RFID is going to be determined more by the dominant applications rather than by
the technology. Many see RFID as a technology in its infancy with an untapped
potential. While we may talk of its existence and the amazing ways in which this
technology can be put to use, until there are more standards set within the industry
and the cost of RFID technology comes down we won't see RFID systems reaching
near their full potential anytime soon.
Researchers have concluded that organizations should keep initial RFID projects at
a simpler scale. “This might include single stage implementation, such as tracking
cases or pallets within warehouses, or from warehouse to store, or acting as bar-
code replacements” 9. Before any organization can seriously contemplate using
RFID to support its operations, it should have a firm understanding of the benefits
that the technology can provide. This level of understanding and experience will be
necessary before moving to more complicated supply chain implementations in
making RFID a big success. RFID learning curve is a long process and starting with
small projects and then establishing standards for efficient future product
movement can effectively implement it.
“As the old saying goes, "the early bird catches the worm." Even if the true benefits
will not be realized for several years, establishing the base RFID infrastructure today
is the key driver for total supply chain adoption and benefit realization tomorrow” 10.
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Fall 2005
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Fall 2005
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