Integrating RFID

Any supply chain can benefit from the proper implementation of good technology. Consider how best to do so in your company

By Marlo Brooke

Radio frequency identification (RFID) has come to be seen as a potential boon to supply chain efficiencies. However, in reality, it is merely a tool of a wider efficiency initiative — not a magic bullet solution. When treated as such, of course, it can be a very valuable piece of a larger supply chain improvement initiative.

RFID is actually the servant of a larger vision created by EPCglobal, a worldwide and joint effort by EAN International and the Uniform Code Council. EPCglobal’s vision is to see a totally networked economy in which there is a perfect synchronicity between supply and demand, so that the moment an item is used, purchased or consumed, an automated trigger informs the appropriate suppliers all the way back to raw goods procurement.

In this process, RFID, by computerizing all pieces of the puzzle, plays a very important role. It removes uncertainty and creates a certain synchronicity in the supply chain process — fewer underages and overages of raw goods and inventory, a reduced need for storage space, etc.

However, RFID is only one piece of an effective supply chain improvement process. A company can be compliant with RFID requirements set by large customers and still not be getting value for that commitment. To capture that value, it’s important to create a new functional model — what I call the synchronized value chain. The synchronized value chain demands that all technology and process changes must add value, and every measure must directly contribute to the bottom line. RFID is a small part of it.

Before RFID

To implement RFID with any hope of business benefit and return on investment, the first step must be to implement the Global Data Synchronization Network (GDSN, formerly known as UCCnet).

GDSN is a complementary initiative to RFID, endorsed by the same organizations that support RFID within the supply chain, and players like Wal-Mart are requiring this of their suppliers. GDSN is the foundation on which the synchronized value chain is built.

If RFID is about the movement of data, GDSN is about static data. GDSN helps a company prepare for RFID in a very structured way. If implemented properly, it will allow a company to clean up its internal data and processes around how item data is managed. Its goal is to provide the supplier a single point of entry for its item data, so that it enters that item data only once. This process solves the pervasive problem that at any given point in time, trading partners have the wrong data about items 30% of the time. GDSN is a standard, global single point of entry. Whereas RFID is concerned with a specific, unique item and its movement through the supply chain, GDSN is about communicating static, basic item and company data.

The most exciting part of GDSN is the immediate return on investment (ROI). At one of our customers we found a way of achieving a seven month payback in a single department, not to mention the spinoff opportunities within the rest of the organization. At another customer (a small manufacturer of less than $200 million), we found a way to implement GDSN that would achieve a $1 million per year payback once GDSN was fully realized. This alone would pay for the entire RFID initative several times over.

GDSN provides the infrastructure for collaboration with suppliers and customers, helping to create critical integration points between supply and demand. It also lays the foundation for RFID. From a process and cost perspective, it is the most practical way to prepare a company for RFID.

A strategic initiative

Successful companies are careful not to look at RFID as simply a compliance measure for their important clients. It’s essential for senior management to see such an implementation as an important part of their annual strategic business plan. But it can’t be seen as a separate piece of that plan. It needs to be carefully linked to the strategic objectives for the year — to help increase profits and sales.

To make this happen, top down executive sponsorship is essential. There is always a risk that RFID could be turned into a departmental silo, an IT initiative or a political hot potato — a path to sure failure.

As an integrated piece of a company-wide strategic plan, RFID implementation should be linked to the achievement of certain returns on investment (ROI). Many companies spend months trying to determine an ROI for their RFID and still fail to find a business case. This shouldn’t happen. If it takes a company more than a few weeks to do this, there’s a serious problem — the focus isn’t there for the commitment.

The easiest way to solve this quandary is to ask one question: “If we could track anything in any way we wanted, and use that data in any way we wanted, what would it look like?” In other words, what do you hope RFID will do for you? This is a question that merits the attention of a company’s best thinkers and visionaries, and can include the assistance of outside subject matter expertise.

The question alone creates a positive and proactive mindset. But more importantly, your company’s ideas can engage RFID solution vendors and get them working more effectively for you. If you don’t know what you want, they can sell you anything, and no one will gain from it.

Another critical question to ask is: “What can be done today with the additional data that I and my trading partners collect to benefit my company?”

The answer to this will depend on many factors, including the industry and the company’s current level of automation, but it may include better tracking of items that once went missing in transit (i.e. pallets of goods arriving at the wrong destination), or tracking the movement of goods within a store to chart restocking needs or the success of promotions in real time.

By asking these questions and strategically positioning the RFID rollout, ROI can be realized more easily.

Think lean

Another question that leads companies into effectively creating a synchronized value chain is asking, “Where are my manual processes in manufacture and production?” Our company approaches RFID with six sigma methodology. At its essence, six sigma is about finding ways to implement permanent breakthrough improvement on an ongoing basis, with measurable payback. It searches for the fat (the non-value-add steps) in the supply chain, and finds ways to systematically eliminate that fat, starting with the most costly problems. The best thing about six sigma is that it provides tools to find problems that are not even known. This includes redundancy, manual processes that can be automated, and even undefined processes. This approach provides great benefit even when a company is not an official six sigma shop.

This doesn’t mean making the mistake of forcing RFID into processes where it has no business being. Other solutions (like the barcode) may prove more cost effective and just as efficient. If RFID isn’t the solution, it’s good to know that as well. You can’t lose when you think lean for RFID.

Collaboration between a company and its suppliers and customers creates efficiencies that are essential for competing in a global economy in which speed means a lot, and accuracy means even more. By strategically managing an RFID rollout — asking the right questions and creating the right environment for change — an organization can reap considerable rewards.

Marlo Brooke is president of Avatar Partners (www.avatarpartners.com), a consulting services company specializing in supply chain best practices.

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