RFID-chipsRFID (radio-frequency identification) has most often been advertised to retailers as a way to reduce shrinkage, labor costs at point-of-sale (POS) and distribution center (DC), out-of-stock conditions, and inventory. What's the point, though, for commerce between businesses, where so much of the logistics is already digitized and/or outsourced?

There's plenty of point; in fact, RFID sometimes pays off even more for business-to-business (B2B) operations than in retail-facing ones.

Key concepts

As an ec-bp reader, you're already familiar with the benefits of supply-chain integration. You're doubtless involved in some combination of P2P (procure-to-pay), ERP (enterprise resource planning), CRM (customer relations management), EDI (electronic data interchange), and all the rest of the alphabet soup of logistics and operations. You've got analytic dashboards and bigdata plans.

One of the biggest failures in this march toward automation is the connection between the physical and digital worlds. With the perfection of online automations, it's increasingly feasible for a director to pinpoint that a particular pallet of merchandise was just delivered to a particular store's loading dock, and is scheduled to be on the shelves in a few hours. That's the system working as it's designed to do.

The breakdown has to do with what's on that pallet: what if it was packed incorrectly at the factory? How do you control that there was no shrinkage along its delivery path? Are you sure that its environment was adequately controlled (for temperature, humidity, and so on) all the way?

RFID is the best technology we have for answering such questions and aligning your digital records with the physical reality of your logistics.

Flexible technology

RFID is an entire toolbox of wireless AIDC (automatic identification and data capture) techniques and practices. The fundamental idea is that small, inexpensive radio transceivers can be attached to physical items ranging from livestock to school uniforms to replacement airplane parts. With an RFID element attached, a physical object will be automatically tracked, located, and monitored.

The RFID toolbox ranges over a wide span of prices, durability, and sizes. Mass-market elements can be manufactured for pennies. Others can be married to computing cards and chips that give them the ability to monitor any burdens--high temperatures, radioactivity, corrosive chemicals--encountered during their lifetimes. For most supply-chain situations, the fundamental complement to RFID is EPC (electronic product code), the "next-generation barcode". Where the UPC (universal product code) automates identification of, for example, a box of cake mix, the EPC standard provides not only for UPC-level detail, but unique IDs which can specify exactly which individual box of cake mix is at hand.

Supply-chain automations have largely succeeded at elimination from white-collar offices of paper-and-pencil methods and the errors and costs they carry. If the back-door "hand-off" between you and other businesses still depends on written manifests, bills of lading, and "travelers", though, you're vulnerable to those errors.

The bottom line

RFID has a bad reputation in some parts of e-commerce. Walmart rather famously rolled out a number of RFID initiatives in the last decade, but had to retreat in October 2007 and January 2009 from its earlier ambitions. This was an evident disappointment to such suppliers as Procter & Gamble and Kimberly-Clark, which claimed significant benefits from the programs, while other suppliers including Sara Lee judged the technology too expensive and unreliable.

RFID is undeniably a success in many individual applications. Annual growth in worldwide deployment of RFID has been running at around 10-20%, and has been estimated to keep at that level for up to the next five yearsAbundant academic analyses and strong results from such early adopters as American Apparel demonstrate that, at its best, item-level RFID tagging can significantly improve inventory control, out-of-stock averages, and distribution labor costs. As Walmart's difficulties with it suggest, though, RFID remains experimental for most supply chains: material prices are high enough to keep return-on-investment calculations delicate. As rich as the marketplace for individual RFID goods and services is, adoption of RFID for large organizations demands considerable commitment, flexibility, and resourcefulness. As one commenter summarizes, "RFID promised to revolutionize ... supply chains. ... [What actually happened:] RFID has gained only modest adoption ..."

As exciting as the potential of RFID is, then, it remains a problematic bet in 2012. It's clearly a part of the best supply-chain practices of the future. The best question to consider for now is not, "RFID: yes or no?", but, "How can we make RFID work for our organization, and best position ourselves to exploit it in the future?" To answer this latter, start now to investigate:

  • How you can define requirements for RF (radio frequency) interference in your particular environment. Many deployments of RFID have encountered problems with interference from DC walkie-talkies, forklifts, and other equipment;
  • Talk with partners about the RFID technologies that work for them. This conversation is particularly important when crossing national boundaries, because different countries license different RFID techologies;
  • How your company will judge success of an RFID project; and
  • What the implications and mitigations for consumer privacy are for your chosen RFID technology. You'll probably need to specify a way to remove or de-activate RFID elements at the retail level.

What's the state of the RFID art? In the near-term, its great potential will be realized only by companies that manage it carefully. RFID is not yet an "automatic win".

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