RFID: evolving standards in manufacturing
MANUFACTURING'S heavy reliance on many different processes outside its control has made it difficult to obtain optimal information in today’s typically diverse and distributed organisations.
This includes areas such as supply chain management, forecasting, sales and operations management, distributed order fulfillment, and service – in short, the entire manufacturing value chain.
Having to rely on so many outside partners, suppliers, and buyers while not being able to track performance throughout supply chains jeopardises the profitability of manufacturing companies globally. Meltdowns from lack of visibility through channels make the world's largest manufacturers look for technologies that can minimise risk by providing greater information.
Enter RFID
Radio Frequency Identification Code (RFID) is a technology that uses radio-frequency waves to transfer data between a reader and a movable item for the purpose of identifying, categorising, tracking, and monitoring products.
RFID tags are comprised of microchips with antennas that broadcast their status to remote readers. Since the technology relies on radio frequencies to communicate, it's not necessary for RFID readers and tags to be visually inspected; the communication between reader and tag is electronic. As a result, one of the key limitations of bar codes – having to visually align each code with a reader – is overcome.
Identification technology that requires visual recognition of a tag by a reader is called line-of-sight, and is increasingly seen as a limitation to efficiency when scanning thousands of products as they move through a warehouse. Since RFID is based on radio frequencies, it overcomes this line-of-sight restriction that impacts the upper thresholds of a bar code-based manufacturing strategy and its resulting efficiency thresholds.
The implication for manufacturers that rely on pick, pack, and ship production centres is immediately apparent from this definition. Any manufacturer with a widely diverse supply chain can readily see the benefits of RFID in handling transactions.
Obstacles to adoption
Despite its obvious advantages, manufacturers face numerous obstacles to deploying RFID in their organisations:
Manual versus automated application of tags – because tags damage easily, early adopters are finding that they often have to re-apply tags manually to make sure they are applied properly. Initial tests with automating the tag process have proven unpredictable.
Costs of start-up – AMR Research puts this figure at a median value of US$16m for any company to implement RFID throughout its manufacturing organisation. Also, the ROI for RFID according to the research firm is not as conclusive as other strategies. This is forcing many companies to reconsider RFID in the near term.
Requires dedicated production lines – the majority of manufacturers that are looking to make RFID a core part of their businesses have no choice but to create dedicated production lines. This is also true for manufacturers with major customers that happen to be among the larger retailers, or another market maker that defines market standards. This forces the inventory-management issue of RFID-tagged products versus those that aren’t. The inventory handling costs incurred with tagging non-RFID versus RFID-enabled products is significant.
Making RFID definitions machine and human readable – another challenge many manufacturers face is making RFID-tagged products identifiable by humans and also via bar codes. The concept of being entirely RFID-enabled and not needing human interaction is not happening even with early adopters. Instead there are multiple proof points throughout the production, fulfillment, and logistics phases of any manufacturing company’s efforts.
Fortunately, none of these obstacles are without a solution. In building a business case for RFID, consider the following recommendations:
Look first to revenue enhancement to drive ROI. Collaboration strategies, “learning” distribution channels’ dynamics, and improving customer responsiveness can make RFID pay its own way alone. Cost reduction alone shortchanges RFID’s full capabilities.
Define a pilot’s goals to include inventory management and turns first. Minimising downtime for physical audits, using RFID to first benchmark then manage inventory turns is one of the best cost-reduction strategies.
Look at RFID long-term as a viable tool for predicting order management ranges. Using RFID as a data-capture tool for synchronising product data (called product information management) is a topic that is worthy of its own article. Using the data included in RFID tags, manufacturers will be able to execute order management more precisely than ever before.
Tagging the future
RFID's role in manufacturing continues to be accentuated due to the market dynamics defined here, in addition to the fragmentation of distribution channels in retail and the moves by some larger retailers to assert dominance of their supply chains.
In many respects, the definition of RFID as a standard by market makers in the 21st century resembles the adoption of Electronic Data Interchange (EDI). Both are aimed at streamlining critical, channel-oriented tasks, and both play a role in order management. In addition, both are comprised of an abbreviated set of commands that make their widespread use possible, and both show signs of stabilising as a critical component of any manufacturer's supply chain, order management, and services strategy.
RFID's adoption curve will be much like EDI's in that the latter is well on its way to becoming a market standard.
*Louis Columbus is business development manager with Cincom Manufacturing Business Systems .
11-Oct-2005