Transforming and Expanding Track and Trace in the Chemical Supply Chain

EPC/RFID technology can be used to monitor the movement of raw materials as well as intermediate and finished products during shipping. Here's how...

By Sue Hutchinson

We've come a long way since radio frequency identification (RFID) technology was first used to track military planes in World War II. Today, by combining RFID with the electronic product code (EPC), the technology has many new uses — from improving efficiency in the retail supply chain to protecting patients from receiving counterfeit drugs.

EPC is a unique number that is assigned to a particular item, pallet, or container to connect it with important details such as date of manufacture, origin, and transport history. The same EPC/RFID technology used in other industries can have a dramatic effect on the chemical industry today. There are several key concerns faced by the industry as it produces, sells, protects, tracks, transports, and delivers $459 billion worth of chemical substances. EPC/RFID can uniquely meet and solve these challenges by transforming and expanding the methods used to track and trace materials from one end of the chemical supply chain to the other. The top concerns are globalization, the need to track hazardous materials, an increase in transportation costs, and a rise in stringent regulations.

With slim profit margins and a fluctuating cost of raw materials, the industry needs help. Today, chemical companies are exploring how EPC/RFID can solve these challenges, decrease costs, and reduce inefficiencies in the supply chain.

Throughout 2006, three major chemical companies — Dow Chemical, Rohm and Haas, and Dow Corning — participated in the study that focused on the benefits of using EPC/RFID in the industry. As a result of this study, the EPC Value Model for the Chemical Industry was created to help chemical industry manufacturers assess their expected benefits from using EPC/RFID within their company and with their global trading partners. This detailed model was constructed jointly by the Stanford Global Supply Chain Management Forum, Eindhoven University of Technology, and the project's sponsor, EPCglobal North America.

The EPC Value Model for the Chemical Industry consists of 13 interactive worksheets where the user inputs information such as annual revenues, percent profit, percent of total inventory dedicated as safety stock, and the costs of tags and readers. A user guide containing detailed instructions is included with the value model. Applicable business drivers are selected from a list that includes business issues (e.g., globalization and increased transportation costs) and business drivers (e.g., operational efficiency and management of hazardous products). Based on the information provided, the models will reflect the financial impact EPC/RFID may have on a company's business drivers and issues and help the company estimate the ROI it can expect from the technology and when it can expect it.

For example, by using GPS (a satellite navigation system), RFID (a data carrier), and EPC (a simple, compact "license plate") together, chemical companies can track their most valuable assets, tankers and rail cars carrying chemicals. The unique EPC number is embedded in an RFID tag's microchip, and it enables standardized physical object-to-system communications. Hazardous substances can be automatically identified without further inspection. By incorporating temperature and shock and vibration sensors, information about conditions encountered by the shipment and their impact on the chemicals can be gathered automatically. This track-and-trace data provides the state and location of the shipment. The EPC Information Services (EPCIS) standard would allow chemical companies to share this real-time visibility information within their company, with their suppliers, and with their customers. The technology significantly adds to the safety of goods in the supply chain, providing real-time visibility with close tabs on chemicals that may be continents away and efficient methods to manage hazardous products responsibly, while complying with stringent regulations. Managing the tankers and rail cars (known as asset management) is also essential since delays add setbacks and unexpected costs.

Similarly, passive tags can be used on pallets, cases, and totes for automatic identification that provides faster reads than bar codes, expedites material handling processes, improves production planning, and improves efficiency in managing limited lifespan inventories. For all companies, EPC/RFID technology can be used to monitor the movement of raw materials as well as intermediate and finished products as they are shipped to various locations. It can help companies lower stock-outs and monitor consumption and stock levels at customer sites, improving their ability to manage vendor-managed inventories. The technology also benefits customers since they can immediately determine if the correct items were received. It also can hasten the unloading of the shipment since the delivery has been easily identified. Additionally, EPC/RFID presents the opportunity to provide superior service. This is of significant importance considering the fluid relationships in the chemical industry supply chain, where customers and trading partners often buy and sell to each other and the same competitors.

Just the Facts about Supply Chain Issues

The chemical industry faces four major concerns as it produces and transports chemical substances. Let's review each below.

• Globalization has had a two-pronged effect on the chemical industry. It has both forced chemical manufacturers to reduce prices to stay competitive, and it has provided companies with new business opportunities to enter new markets. For example, last year, Deutsche Bank Research reported that China is becoming an increasingly important consumer of chemicals with a consumption rate increase of 12 percent per annum, a three-fold increase compared to consumption in the U.S.

• Hazardous materials only compose a small percentage of the overall output from chemical manufacturers, but these toxic and/or flammable compounds pose a huge risk to their producers and residents living close to chemical facilities.

• Increased competition for transportation capacity, higher fuel costs, along with controlling the rising costs of demurrage (the costs chemical manufacturers incur when a ship, truck, or rail is deterred beyond the allowed time for unloading and loading) are concerns for chemical manufacturers, who mainly use trucks and trains for transport. Earlier this year, transportation cost containment was found to be a key goal in a survey jointly conducted by Stanford University and Eindhoven University of Technology as part of a project sponsored by EPCglobal North America.

• Finally, since September 11, 2001, there has been an increased focus on stringent regulations to protect against security and safety breaches in the industry. That focus is on top of the environmental factors that chemical manufacturers have long considered.

Sue Hutchinson is director of industry adoption, EPCglobal North America, 1009 Lenox Dr., Lawrenceville, NJ 08648. She joined EPCglobal North America in 2003, bringing with her more than 20 years of experience in high-tech product management and technology transfer. Her specialties include product and portfolio planning, customer relationship management, and analytics and database marketing. She earned a bachelor's degree in management science and a master's degree in industrial and management engineering at Rensselaer Polytechnic Institute. EPCglobal North America is a neutral, not-for-profit industry organization representing more than 500 global commerce leaders in the U.S., who together are focused on improving global supply chains by use of RFID and EPC. More information is available by calling 937-291-3300 or visiting www.EPCglobalNA.org.