The impact of RFID technology on supply chain performance

¶ … RFID on Supply Chain Performance

The impact of Radio Frequency Identification (RFID) on logistics, supply chain, services and complex manufacturing globally is evident in how pervasive tis adoption has been. Typically technologies that are designed to accelerate and streamline material handling experience a lag time of adoption, with early adopters often distancing themselves from the majority by decades (Balocco, Miragliotta, Perego, Tumino, 2011). This has not been the case with RFID, where the impact on organizational performance can be readily measured and assessed from a Return on Investment (ROI) standpoint as these collections of technologies deliver exceptional gains in business process management (BPM) and optimization (Lee, Lee, 2010). The role of RFID also continues to evolve throughout enterprises, as the value of this technology is having contributory effects across each area of manufacturers' value chains. The bottom line is that RFID is a revolutionary technology that can deliver strong performance gains throughout each phase of supplier enablement, supplier quality, fulfillment, production and service.

Abstract

Of the many subsystems, processes, and procedures that enterprises rely on, supply chains are the most essential for continuing profitable operations globally. The scalability of any business is directly proportional to the accuracy, clarity and value of information shared throughout its supply chains (Boeck, Samuel, 2008). The emergent role of Radio Frequency Identification (RFID) in supply chains is proving to be a highly effective enabler of greater accuracy, efficiency and performance (Attaran, 2007). The more compliance and regulations there are in a given industry, the more effective RFID is becoming as an enabling technology of greater traceability, auditability and reporting of quality standards performance (Kumar, Swanson, Tran, 2009). Highly regulated industries that require intensive levels of reporting including healthcare are a case in point (Kumar, Swanson, Tran, 2009). The same benefits of highly regulated manufacturers of auditability and traceability also apply to business models that have an exceptional level of inventory turns and require rapid inventory transactions to drive a higher Return on Sales (ROS) (Vijayaraman, Osyk, 2006).

Best practices in RFID implementations across supply chains are increasingly relying on analytics and the generating of specific Key Performance Indicators (KPIs) that reflect the technologies' contribution to cost savings and generating revenue. The focus on measuring the total cost of RFID from the perspective of hidden costs and their long-term impact on the Cost of Capital also are being measured by best in class firms today and over the last nine years (Barut, Brown, Freund, May, Reinhart, 2006).

Analysis (3.5 pages)

In evaluating the analytics and KPIs that are most relevant to the use of RFID throughout manufacturing-centric businesses that have supply chains multiple layers deep, it's useful to first look at the RFID benefits to supply chain partners. There are multiple benefits for manufacturers, logistics partners and retailers that when taken together provide an experience effect of performance gains only seen with technologies that quickly gain commercial adoption (Boeck, Samuel, 2008). RFID continues to show pervasive adoption thanks in part to the data and integration standards that are now prevalent throughout global supply chains, further accelerating the time-to-value for those companies adopting these technologies. Table 1, RFID Benefits For Supply Chain Partners provides an overview of the key benefits for each member of a typical manufacturing distribution channel and supply chain.

Table 1: RFID Benefits For Supply Chain Partners

Manufacturers

Logistics Providers

Retailers

Shorter shipment loading times

More efficient order selection and order fulfillment

Better store planning, programming and merchandising with real-time data

Greater shipment accuracy

Better order fill rates

Improved Point-of-Sales productivity and accuracy at checkout

Better consumer sales data from retailers

Less inventory shrinkage due to more efficient inventory tracking

More accurate returns

Reducing the level of counterfeiting of products and diversion throughout channels

Fewer administrative and other human errors caused by mislabeling products

Improved reverse logistics

Improved support for Vendor Managed Inventory (VMI)

Lower labor requirements

Greater inventory accuracy and velocity

Easier product safety recalls

Less vendor fraud and higher levels of vendor auditing

Optimized store in-stock levels

More accurate demand planning

More accurate inventory

Reduced internal and external shrinkage

Shorter order lead times

Less time and lower cost for managing inventory

Lower labor requirements

Less need for safety stock

Higher routing efficiency throughout warehouses and distribution networks

Automated receiving, vendor payments, and shipments to store locations

Better and more productive use of labor

Better security for distributing medical products

Better use of reusable distribution assets including pallets

Increased revenues due to more efficient service to customers

Automated receiving, vendor payments and shipments

Lower detention. demurrage changes

Less time and lower cost of cycle counting, receiving, picking and shipping

Increased capacity through more efficient operations

More efficient gray-market containment

Fewer charge-backs for inaccurate delivers

Fewer penalties for execution errors

Better ways to measure execution & effectiveness of display programs

Sources: (Attaran, 2007) (Balocco, Miragliotta, Perego, Tumino, 2011) (Barut, Brown, Freund, May, Reinhart, 2006) (Lee, Lee, 2010)(Vijayaraman, Osyk, 2006)

The factors shown in Table 1 are driving the majority of adoption for RFID technologies today, signaling a shift in how operations executives view this technology. In conjunction with the shift in approaches to managing distribution and supply chains, there is also a greater focus on identifying the specific analytics and KPIs that align with the four most dominant business strategies the majority of RFID adopting organizations align their efforts with (Vijayaraman, Osyk, 2006). These four strategies include increasing revenue, reducing operating costs, optimizing asset employed, and enhancing safety and quality control (Kumar, Swanson, Tran, 2009). Of these four strategies, the one gaining the greatest support from an RFID perspective is reducing operating costs (Kumar, Swanson, Tran, 2009). Evaluations of large-scale RFID implementations have also shown that when investments are made in widespread scalability of software, tags and readers, and forward planning is completed on system integration, the total shareholder value of an implementation increases (Lee, Lee, 2010). The greater the investments in analytics tools and applications, and corresponding investments in training and development to get the most from these resources, the greater the probability of RFID project success (Balocco, Miragliotta, Perego, Tumino, 2011).

Across each of the four strategic business objectives of increasing revenue, reducing operating costs, optimizing assets employed and enhancing safety & control, the most challenging area is increasing revenues using RFID (Lee, Lee, 2010). There ar4e several factors that contribute to the difficulty of using RFID to increase revenue, the most significant being the need for reducing order cycle types, automating replenishment, and ensuring a higher level of collaboration is achieved throughout the supply chain network (Attaran, 2007). The focus on these specific macro-level metrics leads to improved customer service and increase on-shelf availability of products over time as well (Boeck, Samuel, 2008). Attaining increased revenues as a result of investments in RFID is also predicated on having a scalable and reliable analytics platform that can deliver real-time metrics of performance for RFID-enabled workflows and processes (Li, Godon, Visich, 2010). Table 2, Metrics of Company Performance Influenced by RFID Supply Chain Performance provides a summarization of company-specific, sales, customer service and warranty & returns metrics including results achieved.