Incorporating and using RFID in logistics

RFID technology has the potential to improve supply chain management (SCM) and logistics software, but high cost and low demand has slowed adoption of RFID in logistics.

A few years ago, Wal-Mart sent the supply chain management (SCM) logistics industry into a tizzy when it declared

radio frequency identification (RFID) to be its supply chain and logistics standard. Software vendors scrambled to build functionality for RFID in logistics, SCM, warehouse management, and transportation software compatible with RFID. Today most of SCM software products have RFID capabilities.

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Since then, Wal-Mart has backed off its demand for RFID from suppliers, according to Greg Aimi, research director for supply chain at AMR Research, and RFID in the supply chain simply hasn't evolved as initially envisioned.

Originally the idea was to put RFID tags onto every individual item as it was manufactured -- tubes of toothpaste, sweaters, industrial parts, anything -- as well as on the pallets and containers that moved them around. This would enable visibility of a product at every point in the supply chain where it passed near an RFID reader. The result would be nearly perfect supply chain visibility for each individual product, the Holy Grail of SCM.

Initially, the cost of the technology, particularly the RFID tags, was too high. But the tags were just one part of the problem. "What really was lacking was a pervasive network of readers around the world," said Aimi. Readers were needed on every loading dock, terminal, and warehouse where items would pass. By contrast, bar code scanners are everywhere.

Even third-party logistics (3PL) providers that have implemented SCM-logistics systems that can handle RFID are not reporting great demand for RFID from customers.

There is, however, some RFID action with the various containers that move things around distribution centers in closed-loop asset tracking situations. "You put an RFID tag on a piece of warehouse equipment and get multiple trips out of the tag," said Simon Ellis, practice director for supply chain strategies at IDC. The cost of each tag gets amortized across multiple trips.

Someday the cost of RFID tags will drop to a few pennies or less and RFID readers will be pervasive around the world. Then, a supply chain manager could track an item from its manufacture in China to its arrival at a distribution center in North America and, ultimately, as it passes through checkout at a store in Boston. But that kind of visibility remains a long way off.

About the author: Alan Radding researches, analyzes and writes about business and technology. His articles have appeared in The New York Times, BusinessWeek and numerous technology publications and on websites such as SearchManufacturingERP.com.

This was first published in December 2009

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