Manufacturers sceptical over mandated RFID projects

Related tags Supply chain Supply chain management Rfid

According to Wal-Mart - which has mandated its top 100 suppliers to
RFID-tag their cases and pallets - radio frequency identification
(RFID) is the next logical step to enhance supply chain visibility.
Market analyst Forrester carried out a study to find out if
manufacturers see it the same way - and found out that many do not,
writes Anthony Fletcher.

Indeed, the results make for some interesting reading. Forrester​, which interviewed supply chain executives at $1 billion-plus companies, found that many firms do not expect RFID mandates to enhance supply chain visibility.

"Within our own firewall, there are enough warehouse information systems in place that we don't really lose things of great enough value that RFID would make sense,"​ said one CPG manufacturer. "What is important for us is to use RFID to tag containers for inventory visibility or to enable direct-to-store delivery."

In fact, some manufacturers believe that supply chain RFID projects can distract from efforts to match supply to demand. "RFID is forcing us to take our eyes off major efforts to minimise shocks to our supply chain,"​ said another manufacturer interviewed by Forrester. "My perspective is that we need to focus on events that exaggerate supply/demand shocks. Then the extra RFID data can be helpful."

The consensus among the manufacturers interviewed, it seems, is that production networks still suffer from a lack of visibility with customers and suppliers, and it is this that results in mismatches between supply and demand.

"The problem that we have is that the vast majority of retail clients don't have ways to manage their store inventory, so they walk around the store trying to find the voids,"​ said a food manufacturer. "Once, we visited one of their stores, which had stock-outs for their most profitable, best-selling item. We went back and realized that they weren't ordering that product; they were ordering the wrong stuff."

The conclusion reached by Forrester is that top suppliers are adopting RFID to appease their retail customers, but that mandate-driven RFID projects leave many of them unhappy. This is because many still struggle with the fundamental problem of matching supply to demand.

But retailers argue that consumers want to know what they are getting. They want their products to be traceable right through the supply chain, from where the raw materials come from to when the product was shipped, and these concerns are embodied in a new EU law that comes into force in January 2005.

The new EU-wide regulation will make it compulsory for food manufacturers to keep detailed records of everything that goes on within the supply chain. As a result, IT software within the supply chain, such as RFID is becoming commonplace as food manufacturers race to comply with the law.

RFID certainly promises many advantages. It can help fortify visibility with better data granularity and more timely updates, and goes beyond the traditional bar-code product identification to offer critical information, such as the product source, destination, and expiration date. The technology can also help combat counterfeiting and supply chain security breaches.

But to achieve all these benefits, companies need to first establish the mechanics of exchanging this data, as well as the business rules that will guide its use Otherwise they will be communicating this data along a broken network.

This point is well understood by Matthew Holland, MES product manager for Siemens UK. "If this enabling technology is to work, then it has to work at both the manufacturing and the retail end,"​ he said. "This is the Wal-Mart effect - big retailers driving forward RFID. But you need the systems in place - the technology is only as good as the systems you have in place."

Before any RFID deployment says Forrester, companies shouldmeasure how well they currently use demand signals in their supply planning, before chasing additional demand data through RFID. They should invest in data synchronisation, which is especially useful for taking into account disruptive events such as promotions or new product introductions, to ensure that the RFID data collected will be accurately communicated and acted on by trading partners.

The analyst says that manufacturers should also master collaborative planning with partners before attempting to share and respond to RFID data.

"What drives world class manufacturing is not the software as such, but procedures,"​ agrees Holland.

Related topics Food safety & quality

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