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Oracle Corporation

Radio frequency identification is an emergent player in the business environment.Enterprises can achieve significant business value by utilizing RFID – or be left behind inthe RFID revolution.

RFID in the News

Pick up a newspaper today and RFID is in the headlines. We are not just talking about trade publications, but some of the nation’s leading newspapers, including the Wall Street Journal and the New York Times. Airlines are using RFID in the travel and transportation industry. Delta Airlines has announced plans to invest $25 million in RFID to track baggage in an industry that handles over 2 billion bags annually. McCarran International Airport in Las Vegas handles nearly 70,000 passengers and more than 460 flights each day, making it the seventh busiest airport in the country. McCarran made the commitment to improve customer safety and satisfaction, as well as meet the U.S. Transportation Security Authority mandates for screening all passenger bags by utilizing RFID tags. RFID tags are printed and attached at the ticket counter. Each tag carries a unique identifier that is read by RFID readers while the bag is transported to conveyor belts to route it to screening machines and then on to the appropriate plane. The new system provides McCarran with nearly 100 percent accurate baggage tracking as well as end-to-end asset visibility. Despite ever-growing airport traffic, officials are reporting a continuous and significant increase in passenger satisfaction. The new RFID baggage handling and tracking system is helping reduce operating costs while it provides an effective system for enhancing passenger security.

The U.S. State Department will soon begin issuing passports with RFID chips embedded in the passport cover. These chips would store basic data including the passport holder’s name, date of birth and place of birth. The chip, smaller than the width of a human hair, could also store biometric data, including digital fingerprints, photos and iris scans. This would allow immigration officials to compare the information on the chip to the rest of the passport and to the person actually carrying it. In addition, several states have begun discussions about attaching RFID tags to driver’s licenses.

What began in the supply chain, with the announcement of the Wal-Mart and Department of Defense compliance mandates, has expanded to other retailers and other industries. Target is expecting all of its vendors to ship RFID-tagged pallets and cases by spring 2007. Kroger, CVS and other big retailers are also preparing to launch full-fledged mandates of their own. In the “do-it-yourself” industry, Lowe’s, Ace Hardware and Home Depot are all testing RFID. In consumer electronics, Best Buy announced that its major suppliers will need to tag cases and pallets by 2006. In Europe, Germanybased Metro Group, the world’s third largest retailer, along with France-based Carrefour Group and U.K.-based Tesco and Marks & Spencer, are driving RFID adoption.

With all of the push to implement RFID, why are so many people telling us that there is no business value for RFID beyond the Wal- Mart and Department of Defense compliance mandates? In reality, RFID can and will yield immediate results for adopting enterprises. Let’s take a quick look at the anticipated business value that Wal- Mart will derive from its RFID implementation:

• Eliminate labor to scan bar codes on cases and pallets;
• Provide on-shelf monitoring to decrease stock-outs on selling floor;
• Provide product visibility to reduce product shrinkage and vendor fraud;
• Track 1 billion pallets, which will decrease distribution center costs; and
• Provide inventory visibility, which will allow for an estimated 20 percent reduction in inventory levels.

For Wal-Mart, the most immediate benefit is the labor savings achieved during the receiving operation. During the receiving operation, the expected receipts contained on the advanced shipping notice (ASN) are matched against the receiving detail that is automatically read by RFID at the receiving dock door. The system then uses the actual receipts to automatically generate put-away or crossdocking instructions for the received product.

Many analysts feel that labor reduction will deliver the most significant value to the enterprise. However, the elimination of stock outs can deliver enormous value to an enterprise’s bottom line and to its shareholder value. Not only can the elimination of stock-outs increase sales, they have the added potential of having your product on the shelf while the competitor’s product is absent – a first step in generating brand loyalty.

Where Can You Find Business Value for Your RFID Implementation?

The value proposition for your company will depend on whether you are in an industry that is moving rapidly toward broad adoption of RFID, such as automotive, consumer packaged goods and retail, or one that is moving slowly, such as engineering and construction. Within the automotive industry, RFID provides improved inventory visibility throughout the entire manufacturing process. This improved inventory visibility supports optimized internal assembly operations, allowing for easier vehicle customization. RFID can support automated work instruction display based on the arrival of the assembly unit at a workstation, or RFID can actually drive the robotic processes by providing the assembly instructions, such as paint color, directly to a robotic spray unit.

Within manufacturing environments, RFID can reduce safety stock and inventory levels by maintaining a perpetual inventory of all work in process (WIP). The utilization of RFID at the assembly completion point of the production line allows for the automation of the line supply process. As completed assemblies pass an RFID reader at the end of the production line, the system will automatically decrement components from WIP and order additional components from reserve inventory, thereby lowering order cycle time and eliminating line stoppages. In addition, RFID can also support automated data capture of lot and serial numbers.

Within the automotive industry, RFID-sensor-based technology is being utilized to improve vehicle safety and performance. RFID sensors can be used to monitor tire pressure, engine temperature, coolant temperature, tire wear, brake wear, fluid levels and so on, then transmit the information to the driver.

The benefit of RFID in other industries is just as compelling. In the pharmaceutical industry, RFID will prove very beneficial, especially in the following key areas:

• Product counterfeiting: Drug counterfeiting is a serious health issue, particularly in poorer regions of the world. Each dosage unit would have a unique EPC that allows it to be authenticated at any point in the supply chain by querying against a database that identifies all authentic units of the drug.
• Product recalls or track and trace: In the event that a product recall is initiated, pharmaceutical organizations would be able to respond more efficiently and quickly in identifying the recalled product. The EPC allows information about a drug’s current location, all historical locations, the time spent at each location, record of ownership, packaging configurations and environmental storage conditions to be recorded and accessed by all supply chain partners.
• Product diversion: Diverting drug shipments from low-cost regions to high-cost regions costs pharmaceutical organizations millions of dollars each year. Positively identifying shipments and tracking them to their intended destinations could significantly reduce the size of the “gray market.” For diverted drugs, RFID can help to identify the source of diversion.
• Patient safety: By combining RFID-tagged drugs with other positive identification measures (such as patient identification and unit-of-dose bar coding) the FDA estimates that most of the 1.25 million adverse reactions and 7,000 patient deaths annually in the U.S. due to drug errors could be prevented.

In the healthcare industry RFID can be used to provide the following benefits: tracking expensive assets such as wheelchairs to reduce asset shrinkage; execute asset location management for critical equipment such as crash carts and portable IV units; RFID-enabled patient wristbands can facilitate patient tracking, as well as contain patient medial records and medication history; hospitals can increase revenue through improved tracking and billing of hospital products and services; and RFID-enabled pharmacy cabinets can provide increased accountability and security of pharmaceuticals.

In the consumer packaged goods industry, RFID can be used to reduce labor costs at receiving docks by automating the receiving reconciliation process. RFID can be used during the order picking process to automatically capture both lot information, in order to improve product recall capabilities, and serial number information, as a means to improve warranty tracking as well as to reduce fraudulent consumer returns.

In other industries, logistics and transportation RFID can be utilized to support high-volume yard management operations, crossdock management, container-yard management and shipping-yard check-in and check-out. In aerospace and defense, RFID can be used in aircraft configuration management and to reduce labor in parts tracking, tools tracking and calibration and maintenance history recording.

In the supply chain, improved inventory management tops the list of benefits; other advantages include reduced product tampering and counterfeiting, reduced theft, easier product tracking, automated product replenishment and improved collaborative planning.

There is significant value to be obtained from implementing an RFID solution, and RFID is for real. It will affect every large and midsize company that makes, transports or sells products, and it will affect almost every industry. The adoption of RFID technology is inevitable, and its transformational promise will be huge.

What Should a CEO Do Today?

Most companies have taken a wait-and-see stance toward RFID adoption either because of lack of education about the technology or an inability to separate the hype from the reality. Yet CEOs around the world are slowly waking up to the fact that RFID is coming and that they cannot afford to ignore RFID in their supply chain. To explore and fully understand the impact and value that RFID and sensor-based solutions can provide, companies should evaluate their business processes to determine when, where and how RFID can be applied. If such an evaluation suggests that the technology can benefit the business, the next step is to develop a road map for RFID implementation (see Figure 1).

RFID Compliance

For suppliers that need to meet customer compliance mandates, a good place to start is with an RFID compliance enabler. The RFID compliance enabler allows suppliers to ship RFID-labeled cases and pallets to customers who have issued RFID and EPC mandates. This flexible solution supports processes that print RFID labels during the picking or shipping process and generates ASNs for transmission to the trading partner.

An RFID compliance enabler can be used alone or it can be integrated with any existing ERP, WMS or other legacy system, and should offer the following functionality:

• Data import and validation – Import ASN data from any system into the RFID compliance enabler via database tables, XML or Web services. Provide automatic validation and manual correction of imported data.
• EPC generation – Generate EPCs based on a set of configurable rules. Supports GTIN, SSCC and configurable encodings (e.g., 64-bit, 96-bit, etc.).
• RFID label printing – Print RFID labels with EPC data for outbound shipments. RFID compliance enabler generates XML to drive the label printing process.
• Verification – Verify all cases are on pallet for shipment. Read EPCs of shipments to track cases and pallets. If extra cases are read or not “enough” cases are read, an error notification is delivered to response devices.
• Data export – Export updated ASN. Flexible export formats include database tables and XML files.

RFID Pilot

The next stage would be to pilot RFID. This allows you to capture and analyze data out of the box, test new devices and filters and perform custom and advanced data analysis. From there you can develop RFIDenabled applications and integrate RFID data into existing applications. Piloting the RFID application in a controlled environment is highly recommended as this will focus attention on this high-visibility project and will also allow for an accurate assessment of the actual impact to the organization. In addition, the RFID pilot allows for the minimum disruption to ongoing operations. Remember to test all aspects of the business case – hardware, software and processes.

RFID-Enabled Applications

Next is to implement an RFID-based application. Today, one of the most common RFID-enabled applications is warehouse management. Since warehouse management systems currently utilize bar code technology to track the movement of pallets and cases into, throughout and out of warehouses and distribution centers, they lend themselves directly to the implementation of RFID technology. RFID-initiated receiving can provide an automated receiving reconciliation process by comparing the actual physical pallets and cases received as they pass through an RFID portal on the receiving dock to the ASN. RFID-initiated shipping can automatically create both a trailer manifest and the outbound ASN by reading the RFID tags on the cases and pallets being shipped as they pass through an RFID portal on the shipping dock.

Another application that can benefit from RFID enabling is invoice reconciliation. One of the most time-consuming and costly processes that retailers and consumer goods manufacturers engage in is invoice reconciliation. RFID could help with invoice reconciliation by providing serialized tracking of products. In this environment, when a retailer reports a missing case to the manufacturer, the retailer would be obligated to report exactly which serial number is missing. If the manufacturer sees this serial number show up at the retailer, it will know that the mistake was actually made by the retailer.

The Bottom Line

RFID will be pervasive. CEOs must define and articulate a supply chain strategy and focus not just on today, but also on tomorrow, because RFID is a long-term investment proposition.