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Inside Supply Management Magazine Masthead


Using RFID Strategically


Johan Sauer
Johan Sauer is general manager, master data management division, Click Commerce, Chicago.

March 2006, Inside Supply Management® Vol. 17, No. 3, page 34

The potential and value of RFID technology lies with the ability of supply managers and their trading partners to discover unique applications through knowledge sharing and group planning. Supply managers will be surprised at the wealth of new avenues to pursue.

Leading supply managers are finding ways to create RFID (radio frequency identification) "killer applications" within their own value chain ecosystems — ones that actually turn RFID into a true business process improvement catalyst. Mass customization, stocking efficiencies and increased inventory visibility across the value chain are just a few examples of "killer apps" made possible through RFID.

It's not enough to simply brainstorm within a single department, however. To really define opportunities for creating business value, supply managers need to make the effort to involve stakeholders outside the supply management and manufacturing process — even outside the company itself. The greatest challenge to RFID is a failure of imagination.

Address the RFID Value Proposition

RFID can begin to generate major process efficiency and associated ROI once an organization and its trading partners clearly define the answers to five key questions.

What business problems can RIFD address? Every organization has its priority list of business issues it needs to address. Unfortunately, RFID is often considered simply a technology upgrade instead of a strategic tool to solve one or more of these issues. By clearly framing the problems that can be solved through improved upstream and downstream supply chain visibility, the company can begin to see the benefits of an RFID investment.

Does the company seek to reduce its working capital by improving forecast accuracy and inventory visibility? Does it want to lower labor costs by reducing inventory check-in time for store deliveries? Is the goal to reduce manufacturing errors or improve in-stock position on store shelves? Each of these business challenges can be met, at least in part, with RFID.

What internal/external changes are required to deliver the result? Insanity, as the saying goes, is defined as doing the same thing over and over, but expecting a different result. So it is with business processes. Change is required if a company truly wants improved results. Drivers for change include process, people, technology and facilities. Because most initiatives require the involvement of all four factors, change itself is never easy. It requires the support of people who have been doing the same thing, the same way, for many years.

One successful approach to implementing organizational change is to focus on three phases:

  • Open with the "crawl" phase to prove the concept, validate the workflows and data needs and confirm the business case. (Be sure to include the loudest critic, be it an individual or group.)

  • A "walk" phase immediately follows, but may require more complete technology or a higher level of cooperation between trading partners that can only be accomplished with time.

  • The "run" phase is a fully developed solution that can deliver the value proposition at scale, allowing for full cutover to the new process. A key element of the "run" phase is to install economic disincentives to doing things the old way.

What are the performance metrics? It's unlikely that appropriate performance measures will be in place to immediately monitor and justify the new process model. Therefore, it's critical to determine what will be measured, how the data will be captured, who will be responsible for collecting it and what constitutes success.

Two major obstacles to successful RFID initiatives are a lack of understanding between partners about what data should be shared and reluctance to share data when it's available. Yet, without a clear performance scorecard, it is extremely difficult to attribute direct value to the change initiative.

The ability to quantify the value created by RFID is essential if we are to overcome the widely held belief that RFID is "too expensive." RFID infrastructure has been expensive given its limited implementation, high tag and reader costs and limited value creation. But that is changing. The $0.10 tag is a reality. The affordable reader is a reality. Gen 2 tags and readers have improved read rates over longer distances and at higher speeds. So widescale implementations are becoming more affordable. That coupled with a quantifiable and repeatable value proposition sets the stage for success. The return is increasing; the investment is decreasing. One day soon they will be right-side up.

How should RFID capabilities be correlated with the desired outcome? Once the business problem, change factors and measures of success are set, it is possible to apply RFID's unique capabilities to the situation. The best-practice approach links the economics, usage and capabilities to the desired business process outcome. By doing so, the probabilities of both business and technical success are greatly enhanced.

The best partners in the journey are those that can drive improvements in business processes, as well as RFID consultants and suppliers that understand the technology. Involve these sources in the planning, and supply managers will discover that RFID can actually deliver results that far outpace conventional thinking.

To contact the author or sources mentioned in this article, please send an e-mail to

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