Yankee Group analyzes present and future of RFID

By 2008 there will be US$4.2 billion being spent on radio frequency identification (RFID) technology services, Yankee Group analysts said during a teleconference late last week, which outlined how enterprises should ready themselves for the technology.

There are three RFID strategies for enterprises to take, said Michael Dominy, a senior analyst at the Boston-based analytics firm. Dominy defined these three categories as compliance, conservative and committed.

Compliance is the method that is referred to in the industry as “slap and ship,” explained Dominy. To fit into this category, an organization would only place RFID capabilities within a single distribution centre. A consumer-goods manufacturer supplying Wal-Mart and then shipping that volume out of that single distribution centre into the Wal-Mart market is an example of how the compliance strategy works, Dominy noted.

One downfall of this approach is that as volumes increase and with limited RFID tracking resources, organizations aren’t sure where those volumes are occurring and additional funds may have to be spent on logistics, he added.

The conservative approach, or what Dominy calls the “middle of the road strategy,” describes an enterprise that outfits all the relevant distribution centres in its geography, such as North America, with light-level RFID capabilities that allow for the flexibility to implement and ship from any of the distribution centres in any of the markets, he explained.

However, there are risks involved in this type of strategy. For example, if the adoption rate of RFID is very slow, the organization could have gotten away with just having one distribution centre outfitted with RFID capabilities, Dominy said. He estimated the cost of implementing a conservative approach is in the US$7 million to US$10 million range for a network of five to seven distribution centres.

The final and most involved approach is the fully committed strategy defined as when an organization has RFID implemented at all its distribution centres — at least in North America.

“Obviously the costs are much higher,” Dominy explained. “For a US$5 billion manufacturer, we would estimate that the costs would be in excess of US$30 million to implement a strategy such as that.”

The risks associated with a committed approach are the same as with a conservative strategy, but from a benefits perspective, a committed enterprise could definitely handle ramping customer requirements and it would also have leverage because it would be one of the few big buyers of RFID technology early on, Dominy added.

Improving inventory and asset management, improving yard management, processing efficiencies and in-transit visibility were all benefits listed by Dominy associated with RFID. The “Nirvana or Holy Grail” around RFID however, comes from using the technology to drive collaborative planning and execution processes.

“Analyzing the extended supply chain flows, figuring out an alternative…and then actually implementing that alternative. You can’t actually execute the improved supply chain flow until you analyze the current flows and figure out an alternative way to do it,” Dominy noted.

Although there are many benefits to implementing the technology, there isn’t much point for a company to think about it if they don’t have their data synchronized, according to Kosin Huang, a senior analyst at the Yankee Group.

When a company has bad data, it undermines efforts so that it can’t really maximize its supply chain investment if it actually invested in RFID, Huang said. “It also increases the inefficiencies and makes the problems worse.”

“An example is that RFID tags could really be rendered useless if [they are] based on bad data,” Huang noted. “If RFID enables you to track what goods and shipments will arrive and when and where, but that information for the item is wrong, you end up tracking the wrong products, so you become more efficient at tracking the wrong thing.”

For instance, if 30 per cent of a retailer’s inbound shipments contain items whose numbers don’t actually match the numbers on file, having more visibility as to when they arrive using RFID tags won’t really matter, Huang added.

To fight the industry-wide problem of cultivating bad data — which costs the industry tens of billions of dollars annually in supply chain errors — the Uniform Code Council registry (UCCnet) was introduced. The UCCnet, according to Huang, ushered in a standards compliance to ensure that data integrity is maintained by having all buyers and sellers synch their item information up to this centralized repository.

“Every time a manufacturer decides, ‘Hey, I want to change product information’ they can synch their data up [and] publish their data to the UCC and retailers and distributors can then subscribe to that information, keeping the trading data in synch so you can reduce those order errors [and] invoice and shipment errors,” Huang added.

Yankee’s Dominy gave enterprises planning to implement supply chain management technologies a timeline to show them where they should be now and in the near future.

Today, Dominy said that enterprises should have a supply chain technology roadmap in place that focuses on integrating and consolidating the internal supply chain technologies.

Overall in 2004, there are three major things Dominy said companies should be doing.

Number one is for companies to clean up their data, get the data synchronized and ready because “that is how you are going to be more efficient in the extended supply chain processes,” Dominy said.

Secondly, Dominy advised companies to define their network supply management technology roadmap and build a business case to support it.

“The third thing you should be doing in 2004 especially if you are a supplier to a top 100 supplier to Wal-Mart…start doing your RFID assessment now and building your migration roadmap for RFID deployment,” he added.

Lastly, from 2005 through 2008 companies need to begin implementing their network supply management technology roadmap. On top of that, companies need to build collaborative planning capabilities to make sense of the analysis and decision-making processes.

“You have to understand how the flows are working [in] your supply chain and how your supply chain operates today…before you start changing things from an execution standpoint,” Dominy said.

The projected US$4.2 billion that the Yankee Group said will be spent on RFID technologies by 2008 is dependent on falling tag costs, Dominy said. He noted that Alien Technology Corp., a provider of RFID products, announced late last month a US$0.20 tag, which Dominy said is well in advance of Yankee’s current projection of tag prices.

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