RFID: State of Play

BM. RFID is one of the hottest technology topics right now. What is it about RFID that has made it such a priority technology to companies such as Wal-Mart and Metro? How will it improve their operations?

NM. Let’s look at inventory for starters. The real challenge with stock is that you know when it left your building and you know when it arrived at the other end; what you don’t know is what happened to it in between. There’s a lot of stock lost between the distribution centre and the shelf. One of the leading retailers recently said that whilst they can beat up their suppliers to get stock to the DC in the most efficient manner, they still lose about nine percent between the DC and the shelf. So where does this extra stock end up? Most of it gets lost in the stockroom at the back of the store. Given that the stock room in most supermarkets is often in an awful mess, it is often very difficult to locate where stock is,. This is where RFID comes in. It’s about reducing inefficiencies in those final steps of the supply chain.

Nobody goes for RFID for the sake of it; it’s just that RFID is one of those mechanisms that can help you deliver real-time information to help make you more efficient. Barcoding is another that offers certain benefits – and in fact, anyone looking at implementing an RFID project should also be looking at how they can improve their barcode operations, because obviously this is a cheaper option. Both systems have attractive value propositions. The companies that are going to find it easiest to build a business case for RFID are those companies that have not yet installed a barcoding system. If you’ve already got a barcode system, you’ve already taken steps to improve the efficiency of your operations, and therefore the incremental gains that are possible by implementing RFID are not as great as they would be if you have nothing at all and are working off manual systems.

BM. It has been said that acceptance by logistics providers holds the key to widespread RFID adoption. Why is there resistance from 3PLs? And what will it take to overcome this resistance?

NM. RFID is not a new technology; it’s been around for years in industries such as automotive, and in fact I was using RFID 30 years ago when I was at Rover to track body parts around the plant. However, the reality is that 3PLs have been reluctant to adopt the technology, and I find this quite disheartening. A few years ago, I had a conversation with a leading logistics provider where I recommended that they look to position themselves as an RFID provider; they chose not to do this, and as a result lost the big account they were working towards and were subsequently bought out by the company they lost out to.

The problem is that 3PLs have been slow to pick up the expertise and experience needed to make RFID work. One of the reasons is that the margins they operate under on a daily basis are not that great, and so it becomes very hard for them to take a speculative punt on a new technology like RFID given the amount of investment they’d have to put in before they could reap any benefit. Not too many companies are currently making money on their RFID investments.

BM. What other challenges remain to be overcome for RFID to really take off?

NM. It will take a mindset change. People need to stop thinking about RFID, and start thinking about how they are going to improve efficiencies in their supply network. There are too many companies spending too much time deliberating over the technology rather than thinking about what it is capable of. Companies should be looking at how to address their key business issues; they might find that RFID solves one of these, but that barcoding solves another three and simple business process improvements solve the rest. For instance, when Tesco did their original evaluation for RFID, they got more value out of the evaluation process than they bargained for and actually made their money back before they’d even bought a tag! They were able to learn about their inefficiencies and improve their business processes, because the RFID evaluation process made them examine – at a much greater level of detail – the types of business that they undertake.

I think companies need to worry less about the pros and cons of RFID and whether or not it is right for them, and more about what tools and business changes they need to make to drive the business forward and improve efficiencies. Once you’ve identified the needs, you can then start to identify the potential solutions.

BM. And what will be the business impact of widespread RFID deployment – across Europe and beyond?

NM. As I say, a lot of the benefits are going to be delivered whether RFID is used or not. The sheer process of evaluating how they might implement RFID will force companies to re-examine the business processes they operate under and identify inefficiencies. This is what will make a difference to the industry. I think it will have widespread impact, but I don’t think this will just be because of people implementing it; it’ll be because of the mindset change that it’s going to create in the way that we work as a supply network. It’s more of a catalyst for change rather than the instrument of change itself.