Inventory management benefits spur RFID adoption rates

The number of radio frequency identification (RFID) deployments by manufacturers has fluctuated in recent years. There are new uses and advances in RFID technology, but shrinking IT budgets and competition from barcode technology are slowing down manufacturing adoption rates.

Since 2003, many manufacturers and suppliers have been gearing up -- or were admonished to gear up -- for what was to be a significant spike in adoption of radio frequency identification (RFID) technologies. This spike in adoption of RFID was largely as a result of mandates from market leaders, notably Wal-Mart.

According to conventional wisdom then, Wal-Mart was going to persuade (or compel) its primary suppliers to tag everything under the sun with RFID. Wal-Mart would then use RFID tag readers and ancillary hardware and software to manage supply chains, retail stocks and costs more effectively.

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Similar mandates were seen from the U.S. Department of Defense (DoD), which reportedly planned to use RFID to manage and deploy assets more efficiently.

But reality begged to differ. Reasons abound, notably the costs of RFID enablement that were higher than anticipated, and the inability or unwillingness of suppliers to bear those costs. Another reason: Mandates forced the deployment of RFID technologies that were not yet ready to deliver the benefits Wal-Mart, the DoD and others hoped to realize.

This was a particular problem for companies in retail, pharmaceuticals and other areas attempting to pursue item-level RFID tagging, "one step beyond" tagging cases or pallets of goods. When many small items are close together and are moving at high speed, e.g. on a conveyor belt, RFID tags are difficult to read accurately.

In addition, many potential RFID users, especially in retail, were already achieving many of the benefits promised by RFID through the use of barcode technology. So-called 2-D barcodes hold a fair amount of useful information, and barcode deployments are more familiar to more people and often cheaper than RFID-based alternatives.

(No, barcodes cannot do everything RFID can do. Nor can RFID do all of the things barcodes can do. That's why several vendors sell tools and solutions that support both barcodes and RFID.)

RFID adoption growth slow but steady

By 2007, most prognosticators were saying that not only had RFID adoption stalled, it was in danger of never un-stalling.

Then, once again, reality begged to differ.

In 2008, growing numbers of smart, aggressive companies (many of which were outside the U.S.) began trumpeting the business benefits they were seeing from their early, focused RFID technology deployments. In December 2008, for example, ADT Security Services Inc. announced that BGN, the largest book retailer in the Netherlands, had used item-level RFID to increase inventory visibility from 65% to 97.5%. BGN said it had also achieved 100% inventory accuracy while reducing the time and cost required to do inventory counts, letting those employees spend more time selling and helping customers. And BGN said it had increased sales revenues, too.

I've spoken with Jan Vink, BGN's CIO. Despite his title, Vink couldn't care less about the bits and bytes, the speeds and feeds, or other specs differentiating the multiple types of RFID software. What Vink does care about is higher inventory visibility, decreased inventory management time and cost requirements, and increased sales. These are the same concerns of his business colleagues who don't have any reference to "information" or "technology" in their titles.

Meanwhile, advances in RFID technologies continue. Tag readers are faster and more accurate and can operate over a greater range of distance, angle and environment. And costs continue to come down. NEC Corp., for example, began taking orders in July for new RFID tag reader/writers priced at less than 10% of most current alternatives – 10,000 Japanese yen, or just over US $100 each, in quantities of 10,000 units or more.

NEC has also reportedly developed software and servers that can read and write multiple tens of thousands of pieces of data per second and plans to lease same to RFID-using customers. NEC wants to grow the RFID market beyond traditional asset-tracking and supply chain applications, particularly in retail. The company also aims to generate some 100 billion yen, or US $1 billion, in sales during the next five years with these new RFID offerings, according to published reports.

Business benefits of RFID in manufacturing

All of this is interesting but maybe not directly relevant to you and your business. So the first question that you, as a manufacturer, should be asking is: Where does RFID makes business sense? Answering this question requires two things:

  • An accurate assessment of business goals and needs.
  • Timely, accurate information about what RFID can and cannot do well, and at what (true and complete) cost.

Vendors, consultants, industry analysts and other RFID users all offer some of the information and insights you'll need. But ultimately, it's up to you and your team to craft the answers that make the most sense for your business.

You can use those answers to build lists of questions for candidate vendors and suppliers of relevant knowledge, deployment assistance and other services. You'll also need metrics to determine and to report on the costs, benefits and other relevant findings. Service-level agreements (SLAs), internal to your company or between your company and its suppliers, will also help get and keep all things RFID-related on track.

Realizing RFID's business value

At the end of the day, RFID isn't really about tags, readers, frequencies or wavelengths, although all these things matter. RFID delivers the greatest business value when its focus is on the generation and leverage of real-time, fully integrated data that enables better business decisions and nimbler business actions.

Achievement of that goal demands RFID deployments that can be easily integrated with key business applications and processes, in ways that improve them and increase their business value. Those are the things that should determine whether, where and how your business deploys RFID -- and whether, where and how RFID adoption will restart its upward climb.

About the author: Michael E. Dortch is the principal analyst and managing editor of DortchOnIT.com, "an independent voice for technology-dependent people." For more than three decades, he has been an IT industry analyst, consultant, journalist and "evangelist" focused on translating technologies into business value. He can be reached on the Web at www.DortchOnIT.com, via Twitter at @DortchOnIT, or via email at medortch@dortchonit.com.

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