RFID and Logistics: Four Trends You Need to Know

Trends are born, live and die, according to the demands of the market. In the supply-chain world, relentless competitive forces are constantly pushing and pulling processes, technologies and strategies. Although these major trends will continue to influence manufacturing and logistics operations for the foreseeable future, here are four trends to watch for.

Trends are born, live and die, according to the demands of the market. In the supply-chain world, relentless competitive forces are constantly pushing and pulling processes, technologies and strategies. Whether you are the raw material supplier, manufacturer, distributor or customer, it pays to recognize trends: ride them, or if they pose a threat, tame them. In the last decade globalization, industry consolidation, and outsourcing prevailed.

Although these major trends will continue to influence manufacturing and logistics operations for the foreseeable future, here are four trends to watch for.

Trend One: The High Cost of Fuel
Improving the efficiency and effectiveness of transportation spending is a hot topic for logistics operations. Approximately 80 percent of North American freight expenditures are on motor carriers. Other transportation modes also depend on petroleum-based fuels. Trying to figure out ways to save on transportation, since oil prices have risen to record levels, will become critical.

Manufacturers and distributors will seek to save by improving their shipment consolidation and pooling opportunities. Operations will step up their efforts to synchronize production, fulfillment and transportation planning processes so that they will be able to select less costly service modes. They will also become more sophisticated in the way they source and contract freight carriers.

Carriers and enterprises operating private fleets will redouble their efforts on route and scheduling optimization. Awareness of the need to effectively manage inbound shipments will increase. Savvy operations realize that prepaid freight terms on inbound shipments don’t mean that they do not end up paying for freight. Logistics operations with foreign supply chain links will become more sophisticated in handling the intricacies of global transportation management.

In the past few years, major supply chain software vendors have taken a new look at the Transportation Management System (TMS) marketplace. A new, web-based generation of TMS software is available on a traditional licensed or on-demand service basis from vendors such as Manhattan Associates (http://www.manh.com/), HighJump (http://www.highjumpsoftware.com/), and Oracle (http://www.oracle.com/).

Trend Two: Developing a Flexible RFID
June marked the third anniversary of Wal-Mart’s announcement that it was going to require its top 100+ suppliers to start applying RFID tags to cases and pallets by January 2005. This announcement took the supply chain world by storm. Wal-Mart was followed by similar initiatives by DoD, Target, Best Buy and others. RFID’s near term prominence in the supply chain seem assured. While Wal-Mart is moving towards incorporating third-tier suppliers into their programs, things haven’t progressed as quickly or smoothly as anticipated.

First, it took EPCglobal (http://www.epcglobalinc.com/) longer than expected to ratify a new set of ultra-high frequency standards (UHF) that were the basis for most compliance mandates. Equipment and tag manufacturers then also took longer than expected to ship products compatible with this new generation (Gen-2) standard. While Wal-Mart and other initiatives allowed suppliers to use older generation (Gen-1) tags, there wasn’t much enthusiasm for using technology destined for obsolescence. Performance and cost for Gen-1 solutions made it tough to justify RFID outside of pilot testing. Gen-1 UHF tags don’t work well near metal and liquid, and many pilot tests struggled to get production level read rate. While preliminary results with Gen-2 solutions indicate significant improvements, performance still remains an issue in many cases. EPCglobal recently announced that they intend to develop and ratify a new high-frequency (HF) standard to provide an alternative for item level tagging.

Wal-Mart is continuing to move ahead with its rollout of RFID throughout its distribution centers and stores. But there still remains a fair amount of confusion, hesitancy and skepticism on RFID within certain quarters of the supply-chain world. Most suppliers laboring under compliance mandates are still trying to do as little as possible with the technology.

In many ways, RFID in the supply-chain world has been a victim of the forcefulness of the Auto-ID Center’s original visions and the intensity of compliance mandates. The original direction and value proposition seems so clear to many supply chain professionals that the rapid proliferation of RFID throughout the supply chain seemed assured. We didn’t realize that like the introduction of bar codes in distribution over thirty years ago, this technology will evolve at a pace and direction that cannot be neatly orchestrated.

It is now time to adopt a new, more flexible view of RFID in logistics that isn’t based solely on the vision espoused by EPCglobal and other major RFID proponents. This doesn’t mean that this vision is invalid or unattainable. Only that supply chain operations ought to start treating RFID as an application as the bigger picture plays out. Specifically, they need to take a look at whether and how to employ RFID on a case by case basis.

For manufacturers and distributors that must meet a RFID mandate this means figuring out how best to apply tags to cases. Wal-Mart starts out with a handful, but eventually ramp up to complete network coverage. Automation will eventually replace the ‘slap and ship’ approach employed by many suppliers as volume increases become overbearing. 

 High value and regulated products will receive special consideration. We are already seeing this with pharmaceutical firms protecting specific product lines that are highly susceptible to counterfeiting and diversion through RFID tags. High apparel retailers will continue to improve the likelihood that the right color/style/size is on the right display rack. Fleet operators will also employ RFID to assist in maintenance management even using them to ensure that tires are properly inflated.

Logistics operations will look at employing RFID to track mobile assets. Combined with a real time locator system (RTLS) from providers like RF Code (http://www.rfcode.com/), RFID tags can help track the location of trailers and containers in the yard, or fork lifts and specialty equipment within the facility. A solution like this will not only enhance visibility, but will also increase security and reduce labor associated with asset tracking.

Trend Three: Disaster Planning
Contingency planning has never been at the top of the list for most logistics operations. But there is nothing like a major nature disaster to get people’s attention. With another Atlantic hurricane season in swing, many operations have made a considerable effort to look at how their supply chain could continue to function if the worst case scenario occurred. While it was a major wake-up call, Hurricane Katrina is only one driver in the increased interest in contingency planning within the logistics community. The West Coast port slowdown of 2002 was a rude awaking for operations depending on Asian and Pacific Rim ocean freight. If these events weren’t disruptive enough, the potential impact of a major out break of avian flu or a devastating terrorism strike brings home the point how fragile supply chains can be.

Given this background, it is not surprising to find that many enterprises have increased their supply chain contingency and crisis planning efforts. Most orga
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