Reaping the long-term benefits of integrating RFID into manufacturing.
Whether or not you believe that radio frequency identification (RFID) technology will change the world, there’s no denying that RFID will forever change material handling and distribution as previously practiced. In fact, the change has already begun. By January 2005, most (though not all) of Wal-Mart’s top 100 suppliers had at least minimally complied with the demand for attaching RFID tags to products shipped to Wal-Mart’s distribution centers in Texas. Though Wal-Mart’s 2005 RFID deadline was not wholly met, industry analysts still credit the retailer with being among the first to jump-start interest among manufacturers and distributors in applying and using RFID technology.
No More “Wait and See”
Although RFID technology has been around for decades, many companies have adopted a “wait-and-see” attitude toward using RFID. And based on the short-term “sprint” approach of some companies to comply with Wal-Mart’s 2005 RFID mandate, it will likely be a while before RFID technology is widely adopted across the entire wholesale and retail sector.
Until recently, most of the mandate- or regulation-driven RFID implementation efforts were focused in warehouses and distribution centers (in some cases, at the end of packaging lines), a strategy that manufacturers realized had very few benefits for them. Today, the central issue for manufacturers is how to convert the potential of RFID into a business strategy that not only results in a sizeable return on investment, but also drives sustainable value. Many manufacturers now believe that the introduction of RFID into plant production lines presents a vast untapped opportunity for recovering investments, creating value and gaining a strategic advantage.
The biggest challenge lies in how to make use of the wealth of plant-floor information captured by RFID readers, barcode scanners, sensors and other smart devices. Simply deploying an RFID network is of little or no value unless the real-time information it provides can be accessed, managed and acted upon. Furthermore, to reap maximum benefits, manufacturers must cost-effectively integrate the new information captured by RFID into their existing control and information infrastructure. With current RFID hardware and software costs, such a solution offers the only way to get return on investment back from RFID applications.
An Example of Significant Economic Gain
Many of the companies most aggressively pursuing advancement of the technology can be found in the pharmaceutical industry. For these companies, RFID will be instrumental in enabling them to more easily and rapidly conduct drug recalls, identify the drugs throughout the supply chain, manage inventory and identify theft and/or diverted shipments.
Considering the potential health and economic consequences a major drug counterfeiting event could have on the industry, it’s not surprising that the FDA is urging wider adoption of RFID technology. In fact, the potential financial benefits alone are staggering. For example, according to a 2004 report from the Healthcare Distribution Management Association (HDMA) Healthcare Foundation, pharmaceutical manufacturers stand to gain between $500 million and $1 billion annually by adopting RFID and electronic product code (EPC) technology. Additionally, healthcare distributors stand to earn between $200 million to $400 million annually. The report also noted that estimated annual benefits to a pharmaceutical distributor with $10 billion in sales can be as high as $15.5 million.
By being better able to forecast product demand in real-time through RFID, companies can improve their performance across their entire supply network. Across any industry, companies with better demand forecast accuracy have 15 percent less inventory, 17 percent better perfect-order ratings, and 35 percent shorter cash-to-cash cycle times than their peers, according to benchmarking studies from AMR Research. Not so coincidentally, these same companies also lead their industries in bottom-line financial and market performance.
Before an industry—pharmaceutical and otherwise—can widely adopt EPC/RFID technology, the HDMA report noted that the industry must first establish a clear adoption path, create data access and sharing standards among companies, develop interoperable technology standards, and improve RFID’s read-reliability rates. Once that is done, companies must be prepared to pay one-time startup costs for EPC/RFID integration, hardware, tags and data processing software that will range between $15 million and $20 million for a large manufacturer and between $9 million and $20 million for a large distributor.
To help leverage this capital investment, manufacturers and distributors are turning to companies involved in making and/or providing RFID software, hardware, tags and consulting services. As companies in the early stages of RFID development are discovering, success in using RFID depends not only on having reliable technology, but also on how it’s integrated within a company’s enterprise system and business processes.
Tag, You’re (Not) It
A good example of an approach not to take in RFID deployment can be found by looking at some of those companies making the effort to comply with Wal-Mart’s RFID mandate. A study by consulting firm Incucomm found that nearly half the suppliers took a do-it-yourself approach to meet the requirements. It’s no wonder that many suppliers struggled to meet the January 2005 deadline.
Interestingly, one of the main reasons many of the companies opted to go it alone was because they simply didn’t know where to turn for help with their RFID and logistics needs.
Preparing for the Marathon
Several white papers are available on the topic of RFID in manufacturing, detailing how measurable value (ROI) can be extracted from operations by moving the RFID tag application further up in the manufacturing processes and the potential opportunities to leverage RFID on the plant floor. The key areas that will be immediately impacted as a result of RFID initiatives include manufacturing information management; manufacturing execution, quality control and compliance; tracking and genealogy; plant asset management; inventory visibility; and labor usage.
Material handling equipment is crucial at every step, especially inventory visibility. To achieve true supply chain synchronization, manufacturers that rely on contract manufacturing must gain greater visibility into their suppliers, as well as into their customers.
Depending on their investments in automation and manufacturing execution systems, manufacturers can use RFID in varying scales, either locally or across the entire facility, to provide visibility of incoming raw materials, work in process, production sequencing, packaging, palletizing and warehousing operations, as well as final shipping.
Conveyors and automatic storage and retrieval systems equipped with RFID readers and antennae are just the beginning. As equipment becomes more robust, material handling suppliers will standardize on other RFID-enabled equipment, such as forklifts, eliminating the need for dock-door stations.
Armed with this information and knowledge of RFID applications, material handling equipment suppliers can be a resource for their customers as they take steps to implement RFID within the product manufacturing and material handling processes.
|Meet the Author
Andreas Somogyi is business development manager of RFID solutions at Rockwell Automation, based in Mayfield Heights, Ohio, and on the Web at www.rockwellautomation.com.