Effectiveness and Efficiency of RFID in Supply Chain Management
Read this article. Sixteen different types of supply chains are presented in Figure 2. Select one type from the High Complex / High Business Impact quadrant, what are some benefits and challenges associated with it?
RFID Technology in enterprise systems
In the 1990s, IBM created
company wide organizations for procurement, logistics, fulfillment and
manufacturing. In 2002, IBM brought all of those units together under a
new Integrated Supply Chain division. The division was credited
with helping to cut costs and improve responsiveness within a year. The
company had to balance two ways of measuring supply-chain performance:
(1) effectiveness: flexibility and responsiveness, and (2) efficiency:
lowering costs as much as possible. It was reported in the same paper that the supply-chain optimization effort forced IBM to seek
opportunities to balance effectiveness versus efficiency in all four
dimensions: (a) data collected at various points in the supply chain,
(b) the business processes involved in the supply chain, (c) the
information systems involved and (d) the organizations involved in
carrying out the various business practices.
In order to measure
effectiveness and efficiency, firms need to have a clear picture of the
key supply chain processes and a measure of performance in each one of
the processes. Companies in many industries, such as fast-moving
consumer goods industry, manufactures, consumer electronics, apparel
industries, are in their infancy stages in the implementation of new
technologies that use EPC and RFID. This technology will extend the
abilities of firms to capture accurate information on the location and
status of physical objects across the supply chain. The pace of
implementation in Wal-Mart has been slower than the giant retailer had
predicted due to insufficient infrastructure of supply chain for RFID
and the cost of implementing the technology. To better understand supply
chain management and RFID technology as well as the opportunities and
the challenges, we will discuss supply chain infrastructure,
particularly as it relates to the enterprise and inter-enterprise
subsystems of RFID systems.
RFID in enterprise systems
The
focus of supply chain technologies has primarily been on providing
operational and transactional efficiencies in the area of sourcing,
manufacturing, and distribution activities within a firm and across its
supply chain. According to the Supply-Chain Council, "The supply-chain
encompasses every effort involved in producing and delivering a final
product or service, from the supplier's supplier to the customer's
customer. Supply-chain management includes managing supply and demand,
sourcing raw materials and parts, manufacturing and assembly,
warehousing and inventory tracking, order entry and order management,
distribution across all channels, and delivery to the customer.
Keen
and Mackintosh argue that RFID technologies are part of the
"universal infrastructure" that will support mobile commerce. They
introduced "process freedom", the ability to add value along the entire
supply chain, to relate logistical operations and business relationships
by enabling the mobility of critical elements that included business
activities, people, information, documents, and communications. In this
context, the technology holds the potential for providing significant
"freedoms" that will reduce considerable human labor from certain
workflows as well as for facilitating the possibility of making
information readily available to all participants throughout the value
chain. However, due to its wide scope, supply-chain management must
address complex inter dependencies and accordingly be open to re engineer
its appropriate processes. Moreover, these processes should create an
"extended enterprise" that reaches far beyond the factory door. In
effect, material and service suppliers, channel supply partners that
include wholesalers, distributors, retailers, and customers, supply
chain management consultants, software product suppliers and system
developers, become key players in the supply chain process. For a supply
chain participant, core competencies and capabilities must enable them
to create value in the form of lower cost, improved quality, more
flexibility, higher speed, and better information/intelligence about the
processes and market forces. In particular, using the concept of
business intelligence to data from supply chain management systems,
supply chain technologies may be applied to provide strategic
information for decision making purposes. In this manner, data collected
across the supply chain may be analyzed to provide information for
evaluation of the supply chain performance and its reconfiguration, as
well as conducting what-if scenarios to measure the effectiveness and
efficiency of supply chain.
Value of RFID in enterprise systems
What
has been developed and presented as a supply chain within distinct
companies has varied widely. In essence, no two companies' supply chains
look alike. There are many supply chain models, and these models only
effectively deliver on their promise when aligned with the way in which
the company wants to go to market. Furthermore, most companies don't
merely have one chain. They have many, and several of them are actually
networks. As shown in the figure 2, on the basis of business impact and
complexity, Cavinato distinguishes sixteen types of supply chains.
With respect to complexity, supply chains can range from a very basic
form to a very sophisticated complex chain and based on business impact,
they range from a very traditional to a supply chain with competitive
advantage. As one move toward more sophistication and business impact,
at the high end, the emphasis is placed on the model of supply chain with
information networks, and on data access that can be converted into
information, knowledge, and intelligence. RFID technology can support to
develop such an integrated model of supply and demand chain or an
integrated value chain in which one use the technology to drive revenues
and innovation and create value-not just to reduce cost, but to gain
competitive advantage.
![](https://learn.saylor.org/pluginfile.php/5619156/mod_book/chapter/50071/fig07-02.jpg?time=1716316585125)
The major purpose of deploying RFID is
identification, authentication, location, or automatic data acquisition
(ADA). Authentication applications usually assume the tag-holder to be a
person who has smart cards for simple and automatic payments of small
amounts such as highway tolls and cafeteria bills rather than an object;
whereas most supply chain applications assume that the tag-holder is an
object. One of the major thrust of the supply chain applications is
ADA. In most ADA applications, objects such as products, cases, and
pallets are tracked automatically and the captured data is used to
derive enterprise applications such as supply chain management systems,
customer relationship management systems, and enterprise resource
planning systems. Applications that require identification or ADA, such
as RFID tags embedded in athletes' shoes to keep accurate timings at
major athletics events, belong to the domain of ubiquitous computing.
This concept envisages a world where RFID tags are attached to a
multitude of items that automatically communicate and coordinate with
other networked intelligent devices to accomplish tasks that now require
human intervention. The effectiveness and the functionality of
these applications will be largely dependent on the type of tag itself.
While some tags offer longer read ranges, others can hold more data or
are easier to manufacture hence less costly.
As the prices of
technology decline and the applications become more economical, RFID
becomes very valuable from a productivity point of view. One can see
broader efficiency and operational improvements over traditional
processes, methods, and technologies. Ford uses a real-time logistics
system for visibility through triangulation. Similar to e-commerce, RFID
is evolving in application and its impact on effectiveness. Initially,
e-commerce was just automating existing processes and work flows. One
could send a purchase order by the Internet or pay an invoice or
communicate through e-mail, and thus substituting an existing technology
for a new one. However, the biggest value in e-commerce is when a
company develops collaboration with its suppliers. Microsoft found value
in e-commerce when they used the Internet to collaborate to design the
Xbox. RFID is following the same kind of evolution path. Currently, RFID
may be viewed mostly for efficient tracking. However, the most valuable
impact of RFID will be realized from new applications that use the
technology's intelligence. As Neubauer, et al note, if businesses
view RFID simply as a replacement for barcodes and do not change or
redesign their business processes based on RFID's capabilities, the
return on investment will be sub optimal. RFID can create a border less
supply chain when cargoes are equipped with tags showing the contents,
so that customs clearance can be done almost automatically. RFID can
also provide supply chain security when RFID tags are used to
electronically seal containers and monitor movements of the containers,
so that any tampering can be tracked. Finally another important benefit
of RFID is to facilitate sharing information with customers and
suppliers, developing alliances, innovating with suppliers, and
establishing strategic alliances. In other words, RFID can facilitate to
develop an integrated supply and demand chain or an integrated value
chain in which one uses the technology to drive revenues and innovation
and create value-notorious reduce cost, and to gain strategic advantage.
RFID standards in enterprise systems
One
of the critical elements of RFID application in supply chain is
Standardization for encoding information on RFID tags similar to the
current bar codes on Universal Product Code (UPC) system. When one
company ships goods to another company, these standards will help
simplify the electronic transactions that occur between the
organizations' ERP (enterprise resource planning) systems. The standards
will determine how middle ware handles data scanned by an RFID reader as
goods enter a warehouse and will pass the data to an enterprise
application. The current version of the EPC Tag Data Standard specifies
the data format for encoding and reading data from RFID tags. The data
stored in these tags dictates information about a product in UPC terms,
including company and product identifiers. Both EPC global and
International Standards Organization (ISO) have adopted RFID in their
standards.
The most prominent industry standards for RFID are the
EPC global specifications and standards for supply chain. EPC global Inc.
manages standardization for encoding information on RFID tags. This is
the same institution that manages UPC information in bar codes, sets the
standards for how basic product information is encoded in the RFID
chips. EPC global Inc is a nonprofit organization that was initiated in
2003 by the MIT Auto-ID Center in cooperation with other research
universities to establish and support the EPC network as the global
standard for the automatic and accurate identification of any item in
supply chain. EPC global will establish the standards on how information
is passed from RFID readers to various applications, as well as from
application to application, in the supply chain. ISO also has RFID
standards. ISO is a network of the national standards institutes of 157
countries, on the basis of one member per country, with a Central
Secretariat in Geneva, Switzerland, that coordinates the system. ISO
occupies a special position between the public and private sectors. This
is because, on the one hand, many of its member institutes are part of
the governmental structure of their countries, or are mandated by their
government. On the other hand, other members have their roots uniquely
in the private sector, having been set up by national partnerships of
industry associations. The ISO18000 series covers both Active and
Passive RFID technologies. The data content of RFID is covered in ISO
15418, 15434, 15459, 24721, 15961, and 15962. The conformance and
performance standards are covered in ISO 18046 and ISO 18047 series for
both active and passive RFID technologies.
Data synchronization in RFID
Data
synchronization is another important element of supply chain to be
addressed by RFID. Companies require detailed information about their
products and supply chain, and the ability to share that information
with their trading partners in order to facilitate various business
transactions and the movement of goods and services. Two distinct
information networks have been developed: the Global Data
Synchronization Network (GDSN) and the EPC global Network. The GDSN
ensures the quality of static information about commercial entities and
product/service groups among partners for collaborative trading. The
EPC global Network provides access to dynamic information about the
movement of individual items as they pass through the supply chain. The
EPC global Network and the GDSN each provide significant benefits in
their own right. Moreover, for companies striving to achieve a fully
collaborative business model, the combination of the EPC global Network
and the GDSN can provide a comprehensive, integrated approach to
electronic collaboration and, as a result, can be complementary in the
effort to optimize global trading relationships.