RFID In The Supply Chain

Supply Chain Technology

By Carmen Pang,Executive EditorImplementing RFID In The Supply ChainWal-Mart’s requirements
for its suppliers to be RFID-compliant spurred interest in the textile industry.

At the heart of RFID technology is the RFID tag (a miniature computer chip with an antenna),
which stores a code that provides a variety of information. The code is deciphered by an RFID
reader, which is capable of reading the tag and capturing the information from a distance.When
Wal-Mart, the world’s largest retailer, announced last year that its top 100 suppliers will have
until January 2005 to become RFID-compliant, it created quite a stir. Watching the move, Wal-Mart’s
competitors started wondering if they should be looking at implementing this technology in managing
their supply chain as well. Within a short period of time, the buzz surrounding RFID (which stands
for radio frequency identification) technology soared to a level that some industry experts liken
to the heady days of the 1990s.As a technology, RFID is nothing new — scientists first started
looking into the commercial applications of the technology in the 1970s. However, it wasn’t until
the ’90s that standards were developed and the technology bore fruits in its commercial deployment,
such as in automatic toll collection on highways and keyless entry in automobiles. On the other
hand, applications in manufacturing, such as in supply chain management (which is the case with
Wal-Mart), are only now being adopted.Following is an interview with Marshall Gordon, industry
executive for retail, apparel and footwear at SAP America Inc. SAP is a partner in the Metro AG
Future Store Initiative, which was presented at the National Retail Federation Show in January. The
initiative has equipped a store in Germany with a number of technologies, including RFID, to study
their potential commercial applications.TW Asia: Why is RFID being implemented now?Gordon: RFID is
not new. The challenge has always been to identify when it is appropriate to apply the technology
to your particular supply chain model. While the costs of many of the components of an RFID system
have come down, the cost of what I call the “disposable component, ” which is the chip itself, is
of greatest interest. The price of the RFID tag went from about $1 each in 2000 to somewhere
between 25 cents and 40 cents in 2003. It’s expected to drop further to somewhere around 5 cents,
which seems to be a general target for the next few years. The prospect of a 5-cent tag makes RFID
a compelling option in many consumer product, apparel, footwear, and textile applications.The other
important improvement from a textile standpoint is that the durability of available tags has
greatly improved over the past few years. The high heat and moisture challenges we have in textile
processing are now manageable.TW Asia: What are the benefits of RFID?Gordon: The technology itself
offers an opportunity to “scan” many items simultaneously because it does not need individual line
of sight for each item. Thus, a pallet arriving in a warehouse with 10 cases is scanned once,
reading all 10 cases simultaneously — including the two in the center of the pallet hidden from the
human eye.Additionally, the ability to store more information on a tag than a bar code enables
application of the EPC (electronic product code) to identify items uniquely, versus just by SKU.
What it is, when and where it was made and where its components came from are types of information
manufacturers might save on a tag. This information is useful, for example, if you have a recall
situation. Let’s say you are recalling fire retardant blankets from a store, with RFID tags
attached to the blankets, you know the manufacturer and fabric lot origin of each blanket. A recall
can be targeted — instead of recalling every blanket, you’re only recalling those that truly are
harmful based on their fabric lot origin. The recall is far more effective, less costly, and you
don’t have to clear the shelves of every retailer in every market.

Marshall Gordon, industry executivefor retail, apparel and footwear, SAP TW Asia: How does it
benefit textile manufacturers?Gordon: Many opportunities across inventory management, batch
management and logistics exist. One opportunity with RFID is automating basic tracking of products.
Current manual processes require employees scanning and recording data as items move. RFID can help
automate this. For instance, if a pallet of yarn has an RFID tag on it and your forklift has an
RFID reader aboard, your driver has immediate information of the contents of the pallet when he
pulls close enough for the reader to communicate with the tag. Based on that, he knows where that
pallet belongs. When it is time to load a knitting machine with yarn, RFID helps locate the pallet
stored in the warehouse, wherever it may have been moved, and alerts the driver to its current
location.Another benefit is in the area of batch management and quality assurance. For instance,
the possibility of mixing lots of yarn on a knitting machine will be reduced as you now match a
particular lot of yarn with the knitting machine and the production order. The reader on the
knitting machine will alert the operator if yarn entering its perimeter is incorrect.Finally, the
logistics benefit comes from automating the manifest as a container is being loaded. As a roll of
fabric passes thru the RFID-enabled dock door to the truck, that roll is automatically added to the
manifest. If you were to have the truck pass through a second canopy on the way out of the yard,
you can again match what’s on the truck with the manifest.TW Asia: What should suppliers do to
prepare for implementation?Gordon: Avoid the hype — There’s a lot of interest and a lot of
misinformation and hype out there. It’s very critical that the first goal for everyone is
education. There is plenty of material to help you learn; stay up to date and understand what’s
going on.Build the internal business case — Every company is somewhat unique and you must
understand how RFID contributes to your specific processes. Remember, technology is the enabler —
your processes must be your focus and you must be able to take advantage of what the technology
offers.TW Asia: How difficult is it to implement?Gordon: It’s a matter of having the proper
expectations and allowing enough time for disciplined testing and piloting the technology — don’t
wait until you’re forced to do something and scurry around paying for it. Implementation is not
overly complex, but it’s engineering — there’s an awful lot of physics involved from the standpoint
of testing conveyor belt speeds and reader fields of overlap, determining the distance between
readers and how pallets are tagged, etc.TW Asia: How do suppliers know if the investment will pay
off?Gordon: As I mentioned already, you need to roll up your sleeves and take a critical look at
your business to understand what can be improved and what that is worth. Also, watch the folks
ahead of you who are investing. For Wal-Mart to enable its facilities, the amount of money it
spends will be enormous; I think they’re going to be pretty serious about it and have done some
pretty significant due diligence. Go slow if you can but as you watch your supply chain and others
in the industry go down that path, I think you’d be foolish to not have some understanding of what
they’re doing and why. At least have an understanding of your future target.

Spring 2004