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