Yankee Group analysts have predicted that by
2008 $4.2bn will be spent on radio frequency identification
technology services, and warned that enterprises should ready
themselves for the technology.
There are three RFID strategies for enterprises to take, said
senior analyst Michael Dominy, who defined these three categories
as compliance, conservative and committed.
Compliance is the method that is referred to in the industry as
"slap and ship" said Dominy. To fit into this category, an
organisation would only place RFID capabilities within a single
distribution centre. A consumer-goods manufacturer supplying
Wal-Mart Stores 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.
One downfall of this approach is that as volumes increase and
with limited RFID tracking resources, organisations are left unsure
where those volumes are occurring and additional funds may have to
be spent on logistics.
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, 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.
However, there are risks involved in this type of strategy. For
example, if the adoption rate of RFID is very slow, the
organisation could have got away with just having one distribution
centre outfitted with RFID capabilities. Dominy estimated the cost
of implementing a conservative approach is in the $7m to $10m 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 organisation has RFID implemented at
all its distribution centres.
"Obviously the costs are much higher," Dominy said. "For a $5bn
manufacturer, we would estimate that the costs would be in excess
of $30m 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 clout 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 ideal,
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
analyse the current flows and figure out an alternative way to do
it," Dominy noted.
Although there are many benefits to implementing the technology,
there little point for a company to consider RFID if they do not
have their data synchronised, said Kosin Huang, a senior analyst at
the Yankee Group.
"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."
To fight the industry-wide problem of cultivating bad data -
which costs the industry tens of billions of dollars a year in
supply chain errors - the Uniform Code Council registry (UCCnet)
was introduced.
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.
Number one is for companies to clean up their data, get the data
synchronised and ready.
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 to 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.
Lindsay Bruce writes for ITWorldCanada