Canadian Transportation & Logistics, May 2006
Highlights from the 2006 Canadian RFID Conference
2006 a breakout year in RFID?
Gen 2 standards will set the pace for deployment
According to Mike Wills, vice president and general manager of global service and RFID Technologies, Intermec, 2006 will be a breakout year for RFID technology.
Driving the explosion is technology that has matured and that has seen breakthroughs at the product level, he said.
In 2005 there was major scale based manufacturing supported with product launch plans. Competitors established early leads in pilot programs.
"Standards are in place on a global basis. EPC Gen 2 becoming a global RFID standard in 2005 was a fundamental key milestone. Scale-based capital investment can perform now that available technology is coupled with technological maturity," he said.
Gen 2 follows the "Gen 1" RFID standard, developed by EPCglobal, which defined the Electronic Product Code (EPC) Network as the global standard for asset identification.
Gen 2 was developed to establish a single set of global standards to facilitate and simplify global supply chain visibility, and minimum application performance requirements.
Bill Allen, director of strategic alliances, Texas Instruments, Inc., said the EPC standard is solidified, with ISO 18000-6c in the final balloting process.
"Does EPC Work? Retailer Metro reported an 11% reduction in out of stock situations, and Wal-Mart a 16% reduction," noted Allen.
Product certifications are available for readers and tag chips, and working groups in hardware, software and business are making continuous progress, he added.
Chips are available for inlays, which are flowing into the market. Handheld readers are available as well as various tag printers.
"Businesses are pursuing RFID without any influence of a mandate. Shareholders have an insatiable appetite for earnings growth. RFID brings a platform of technology vs. decades of (similar) business problems, and a completely new set of solutions," said Wills.
He added that there are expectations that the RFID market will hit $8.1 billion globally by 2009, up from $2.4 B in 2005. The 2010 market will be fuelled by ongoing services, tags and the early phases of item level tagging.
What's still needed, though, noted Allen, is more security for back end data.
"Back-end data is more precious than RFID transactions. Databases need high security, and there needs to be more consumer education on the myths. The truth is, RFID can be very secure.
But security evolves over time - what's good in 2006 may not be sufficient in 2010," he said.
"RFID in the (supply chain context) is expected to see 49% growth this year, with ultra-high frequency experiencing the highest growth trajectory, fuelled by closed loop supply chain management applications," said Wills.
In fact, with regard to RFID as applied in distribution and logistics, some 53% of executives polled have budgeted and will start using RFID in the next 12-24 months to streamline their operations, he noted, citing an Aberdeen Group December 2005 report.
In warehousing, RFID applications are making headway in conveyor, entryway, stretch wrap and overhead scanning, as well as with forklift readers. UHF (ultra-high frequency) will dominate pallet and carton level tagging in supply chain.
"Supply Chain has a large opportunity area and a high growth rate," said Wills.
But understanding the physics of the technology is the first step to a successful implementation, said Bob Moroz, president, R. Moroz Ltd.
Moroz and colleagues provided an RFID demo to attendees of the 2006 Canadian RFID Conference in order to dispute some of the myths about tag performance.
"RFID is an enabling technology and a highly capable technology when implemented carefully. It's a technology that challenges current business practices but is proven and able to deliver a measurable ROI in most cases," said Moroz.
He noted there is no perfect frequency (low frequency has better penetration while high has a better read range, a function of tag and reader design.)
"It (RFID) challenges the current business practice because it generates more info that may need to be better managed."
But physics, process and systems need to work together for success in RFID, he said.
Moroz compared the technology to the introduction of cars requiring the construction of better roads.
"From Canada's standpoint, though, we've got to do something to get in the game, because we're sitting on the fence in terms of RFID introduction," he added.
RFID AN OPPORTUNITY TO "SCRATCH YOUR HEAD AND THINK HOW YOU CAN DO IT BETTER"
By Lou Smyrlis
With the current emphasis on the high cost of RFID adoption - the cost of tags, the cost of implementation, the cost of training, etc. - users would do well to keep in mind that the technology also has the ability to considerably reduce supply chain costs, according to Bill Allen, director of strategic alliances, Texas Instruments, Inc., RFID Systems.
Despite considerable supply chain efficiency improvements over the past decade there are still several areas that require improvement. According to Allen, retailers remain plagued by out-of-stocks that result in a 7% walkout rate amounting to $7-$12B in lost sales per year. Supply chain theft rates also remain massive, having reached 1% of sales. Retailer theft is as high as 2% of revenues. And many companies remain mired in expensive manual processes with labor costs reaching 89% of DC costs. More than 30% of labor costs are tied up in receiving alone due to manual order processing. It's estimated that 50% of receiving is still done with pen and paper.
"Supply chain costs are overhead expenses. They contribute nothing to bottom line profits and the only way to gain profits from supply chain costs is to reduce costs. The worldwide estimate for retail supply chain costs is $3 trillion dollars. That's a lot of opportunities for technologies such as RFID to reduce costs," Allen said.
RFID's ability to provide a real time link between units and data throughout the supply chain can deliver a measurable ROI in most cases when implemented intelligently, but it also challenges current business practices, Allen warned.
"It's an opportunity for you to rethink how you are managing your processes. It forces you to scratch your head and think how you can do it better," Allen said.
He cited the example of leading UK retailer of clothing, food and housewares Marks and Spencer which turned to RFID tagging to reduce the costs of tracking 4 million trays of chilled foods through its supply chain. The 10-year cost of the system, with tagging done at the tray level, is 1/10 of the original bar code solution, and provides an 80% reduction in touch labor.
In similar fashion, Bloemenveiling, Holland's largest flower auction with 100,000 flower trolleys and 37,000 transactions per day, looked to RFID technology to reduce order processing time and increase accuracy by automating the entire fulfillment process. The tagging was done at the carton/trolley level and delivered a significant reduction on order processing time and 99% order accuracy.
As impressive as these case studies may be, Allen also warned that RFID is not the right solution to every problem.
"It's not a cure for bad business practices. If you have a bad supply chain, RFID won't make it better. It may even make it worse," he said.
Mike Nichols, manager, systems consulting RFID, Intermec Inc., advised starting with a small pilot project, perhaps in a problem area that is costing money. That way the costs can be compared to the cost of implementation.
"How much more money are you going to lose by waiting (to implement RFID)?)," he asked, adding that when deciding whether to implement, it's important that all the benefits be taken into consideration - better asset utilization, operational efficiency, and inventory management and reduced touch labor, for example, as well as improved visibility, financial management and customer service.
"If you have too narrow a view, you will never see the benefits making the investment worthwhile," he pointed out.
RFID and innovation
Intersecting invention and insight
By Julia Kuzeljevich
RFID has dramatically changed the landscape of business, said Daniel Fortin, president, IBM Canada. Fortin was keynote speaker at the recent 2006 Canadian RFID Conference, held in Markham, Ontario, and sponsored by Canadian Transportation & Logistics.
Citing ideas from Thomas L. Friedman's The World is Flat, Fortin noted that we're living in a changing climate of world economics where massive world economies are rising very quickly. Commoditization becomes a standard in the industry. Competing means taking advantage of these opportunities.
"How does an enterprise differentiate itself in a world where every product, service can be copied?
A recent survey of 750 CEOs at all sizes of enterprise revealed that in 2004, only 400 CEOs wanted to (openly) discuss their strategies and priorities, and this doubled only two years later," he said.
"Where their priorities in 2004 were top line growth, cutting costs, and better asset utilization, in 2006 CEOs responded that they were looking at the next level of planning, where innovation will be the major differentiator. Some 50 % said they'd need a transformation in their business that they'd never accomplished before," said Fortin.
But innovation is not just about products but about sources, he stressed.
"It's about bringing change to the core of your business, examining various processes within and deciding to do some heavier lifting, i.e. to get rid of, to outsource, etc. We have all kinds of tools at our disposal today. Technology is just an enabler but what's really important is business insight, and the creativity of people within that insight," he added.
"At IBM we recognize tremendous potential around RFID and have opened an RFID center. Those who succeed in the 'flatter' world will use technology to enable their products and services and their business model towards a sustained leg ahead of their competition," Fortin concluded.
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