Effectiveness and Efficiency of RFID in Supply Chain Management

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.

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.