Companies that want to sell products to the U.S. Department of Defense soon will have to comply with a new condition of doing business with the multibillion-dollar buyer: wireless inventory tagging.
The Defense Department recently announced it would require its suppliers to use wireless tags based on radio frequency identification (RFID) technology by January 2005. The policy calls for Defense Department suppliers to put RFID tags on the “lowest possible piece” – each part, case or pallet, for example – and pertains to all items except bulk commodities such as gravel. The goal is better inventory management through faster, hands-off processing.
The department already is among the largest users of RFID technology today, says Scott Lundstrom, CTO at AMR Research. The department uses active RFID tags – which contain their own power supplies – to manage significant assets, such as containers full of munitions. The new edict calls for suppliers to use simpler, passive RFID tags, which require a monitoring device to power the tag.
What’s significant is that the Defense Department is extending RFID coverage to its consumer goods purchases. “People tend to think about the Department of Defense buying things like destroyers and bombs. The reality is they buy a lot of paper towels, food, air fresheners and cleaning products,” Lundstrom says. Defense Logistics Agency – the division that provides supplies to the military services – buys about US$24 billion in goods each year from more than 20,000 suppliers, AMR says.
In general, the Defense Department’s endorsement of RFID is good news because it represents another enterprise organization making the commitment to push the supply chain forward, says Jeff Woods, principal analyst at Gartner. But he cautions that all parties need to set realistic delivery expectations.
The Defense Department will have to work with its suppliers to figure out how to create an RFID-centric supply chain, Woods says. “It will take about five years to fully implement a ubiquitous tagging infrastructure throughout the supply chain,” he says.
That said, if the Defense Department follows through and aggressively redesigns its business processes around RFID, the department would be able to dramatically reduce labor, errors and handling costs in the supply chain, Woods says.
The department is not alone in using its clout to compel suppliers to adopt RFID technology. Wal-Mart Stores Inc. made the news earlier this year when it announced it would require its top 100 suppliers to start putting RFID tags on pallets, cases and cartons by January 2005. (Wal-Mart later expanded the edict to include all of its suppliers by 2006.)
Wal-Mart and the Defense Department share a number of common suppliers – but whether those suppliers can use the same systems to tag products for Wal-Mart and the Defense Department remains to be seen. Standards fragmentation could add complexity and cost to suppliers’ RFID rollouts, Lundstrom says.
Wal-Mart embraces the independent Auto-ID Center’s Electronic Product Code (ePC) standard, while the Department of Defense requires suppliers to support the 18000 series of standards from international standards body ISO, Lundstrom says. Suppliers can’t use the same processes for both installments, he says. “If you’re a supplier you need to encode two different standards,” Lundstrom says.
While it’s possible the differences between ePC and ISO 18000 will be resolved this winter as part of an update to the ISO standard, it’s not certain, he says. “If the (Department of Defense) and the major retailers don’t come together on a single implementation, a manufacturer’s cost to comply with both initiatives is going to be higher,” he says.