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Abstract
In June 2003, Wal-Mart asked its top 100 suppliers to begin using radio frequency identification (RFID) tags on pallets and cases beginning January 2005. Since that announcement, the business value of RFID in the consumer packaged goods supply chain has been periodically questioned. Recently, a Wall Street Journal article asserted that RFID is not living up to its hype, and in reality is not providing the promised tangible business value throughout the supply chain. In light of such claims, this paper examines the business value of RFID in the supply chain and presents a model of RFID assimilation which proposes that the creation of business value is dependent upon the depth of assimilation (extent of use). The model is grounded in industry observations of the difficulty of early adopters to fully realize the benefits of RFID assimilation. The model conceptualizes RFID assimilation as occurring in three waves: the first wave of the model is Technology Deployment, the next wave of Data Understanding, and, lastly, the final wave is Business Value Creation. In this paper, the first two waves of the model are explored briefly with the emphasis placed on proven business cases and potential opportunities for RFID to provide business value in the supply chain.
Summary
In short, RFID’s advantage lies in the visibility provided in the supply chain space. Units and items can be counted in seconds compared to manual counting, with an ID, timestamp, and reader ID. This visibility, and the ability to capitalize on the information provided through that visibility, are where the value of RFID lies.
The model for assimilating RFID into a business consists of three phases: Technology Deployment -> Data Analytics -> Proven Business Value.
In the Technology Deployment phase, it must be decided if RFID tags will be applied in the manufacturing process or the distribution process. Once that’s been decided, the benefits will come in the form of quick data collection without needing a line-of-sight to each individually tagged unit.
In the Data Analytics phase, the company deploying RFID must understand the information they’re now provided. As mentioned, an ID, timestamp, and reader ID are provided at minimum but will not necessarily be in a user-friendly format. So, the first step is to cleanse the data.
Lastly, in the Proven Business Value phase, it must be analyzed whether or not any value was created. But this can’t be analyzed until the first two phases of RFID assimilation are followed.
Business cases that show RFID’s value are included in the paper as well. For some examples, Walmart’s out-of-stocks were reduced by 26% using RFID without changing any stocking processes. Unnecessary manual orders, which are placed by store associates if an item can’t be found in storage, were also reduced by 10% using RFID to take inventory of the storage areas.
A more niche use of the technology can be found in Procter & Gamble’s case, who used RFID to tell if promotional displays were put up in a timely manner for a new product’s promotional launch. On top of that, they took advantage of the technology to assess if products were restocked when needed.
