How RFID can help optimise supply chain management (page 1 of 3)

The concept, as we would recognise it, has its roots in the Toyota Production System (TPS) of the 1950s and has been refined and improved significantly over the years to the point where one might expect that the most sophisticated devotees today have optimised their supply chains.

The journey towards perfection, however, never ends. In the very near future, the adoption of sensor-based Radio Frequency Identification (RFID) technology will allow the creation of the real-time, sensor-connected manufacturing plant. By adding RFID tags to every product, tool, resource and item of materials handling equipment, manufacturers will be able to get better demand signals from customers and the market.

At its core, RFID is simply an enabling technology that has the potential of helping retailers provide the right product at the right place at the right time, thus maximising sales and profits. RFID provides the technology to identify uniquely each container, pallet, case and item being manufactured, shipped and sold, thus providing the building blocks for increased visibility throughout the supply chain.

The technology will bring benefits to a wide range of industries, as we shall see, but one of the main drivers of RFID adoption has been the retail sector, led by Wal-Mart in the US. Phillip J. Windley, an Associate Professor of Computer Science at Brigham Young University, estimates that US retail giant Wal-Mart alone could save $8.35 billion annually with RFID - that's more than the total revenue of half the companies in the Fortune 500.

His massive total is made up as follows: $600 million through avoiding stock-outs; $575 million by avoiding theft, error and vendor fraud; $300 million through better tracking of a billion pallets and cases; $180 million through reduced inventory; and a huge $6.7 billion by eliminating the need to have people scan barcodes in the supply chain and in-store. Small wonder, then, that Wal-Mart is investing $3 billion in RFID over several years and is one of the leading proponents of RFID implementation.

RFID is a system of small electronic tags (comprising a tiny chip plus an antenna) that transmit data via a radio signal to RFID readers and related hardware and software infrastructure. The transmitters can be placed anywhere that tracking the movement of goods adds value to the commercial process: on containers, pallets, materials handling equipment, cases or even on individual products.

The information on tags is read when they pass by an RFID reader, and that movement is captured and managed by the infrastructure. In this way, organisations are able to link the physical world to the digital world without any human interaction. Whatever actions are then triggered depends on the individual application, from basic stock replenishment at one end of the spectrum to facilitating the ultimate lean supply chain at the other.

RFID promises to revolutionise supply chains and usher in a new era of cost savings, efficiency and business intelligence. The potential applications are vast as it is relevant to any organisation engaged in the production, movement or sale of physical goods. This includes retailers, distributors, logistics service providers, manufacturers and their entire supplier base, hospitals and pharmaceuticals companies, and the entire food chain.

It has the potential to improve efficiency and visibility, cut costs, deliver better asset utilisation, produce higher quality goods, reduce shrinkage and counterfeiting, and increase sales by reducing out-of-stocks.