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Forrester Research

RFID goes beyond the traditional bar code product identification, helping fortify visibility with better data granularity and more timely updates.

RFID hype has taken on a life of its own. According to Wal-Mart, which has mandated its top 100 suppliers to RFID-tag their cases and pallets, RFID is the next logical step to enhance supply chain visibility. But user companies believe that current RFID projects are derailing ongoing efforts to help them cope with supply and demand variations. Additionally, user companies believe that their networks still suffer from lack of visibility with customers and suppliers, which results in mismatches between supply and demand.

RFID promises to produce more data for suppliers and retailers – not visibility. Forrester defines supply chain visibility as: Capturing and analyzing supply chain data that informs decision making, mitigates risk, and improves processes.

Why won’t RFID deliver visibility? Let’s look back at previous technologies like bar coding and POS systems that provided additional asset and inventory data. These technologies generated more data for user companies without automatically enhancing their visibility. For example, Wal-Mart makes POS data available to its suppliers through RetailLink to help them in replenishment planning through better demand visibility. But many of their top suppliers have yet to use this data to enhance their demand visibility, basing their replenishment decisions on the more aggregate, less accurate withdrawal signals at their distribution centers (see Figure 1).

Assessing RFID Readiness

RFID can help fortify visibility with better data granularity and more timely updates. RFID goes beyond the traditional bar code product identification to offer critical information, such as the product source, destination, and expiration date. RFID data can help combat counterfeiting and supply chain security breaches. But to achieve all these benefits, companies need to define the mechanics of exchanging this data, as well as the business rules that will guide its use (see Figure 2). Otherwise they will be communicating this data along a broken network.

RFID will enable supply chain visibility only if the lack of data is the primary reason for the limited visibility. To assess their readiness for using RFID data, user companies must identify a supply chain goal, such as optimizing order fulfillment processes with key customers, and measure the current level of visibility. If a company believes that it has not yet reached a satisfactory level of visibility, it must analyze the underlying reasons: Is it due to limited data or to a broken communication link with a trading partner?

RFID Will Enhance Visibility

Effective use of RFID data requires trading partners to share and respond to significant supply and demand indicators. User companies must focus on certain supply chain processes like inbound logistics or order fulfillment – where visibility has been elusive in the past – and determine how RFID can enhance it (see Figure 3). To use RFID data to strengthen this visibility, a collaboration foundation is needed in the processes below:

Promotional replenishment – Collaborating on a promotional event presents a bigger challenge for suppliers and retailers. And though trading partners have benefited from initiatives like collaborative planning, forecasting, and replenishment (CPFR), the focus has yet to be on promotional events. These events often result in a demand increase for the promoted product as well as more subtle side effects – such as a halo or cannibalization effect – for other products. To use RFID in promotions, a company like Tropicana must first establish a collaborative relationship with key retail partners like Albertsons to plan, execute, and measure the success of promotional events.

Supplier management – Manufacturers are starting to share sales or order forecasts and transportation plans with their suppliers to better respond to their customers’ demand. Computer maker Dell has credited much of its supply chain supremacy to collaborative relationships with its suppliers that enable it to order just-in-time inventory to meet its customers’ demand. This relationship can be further fortified with RFID-based data to provide the computer maker with better inbound inventory visibility from its suppliers.

Transportation management – Manufacturers and retailers require their transportation providers to offer visibility of in-transit inventory and potential capacity shortages as well as manage pickup and delivery to avoid bottlenecks at shippers’ and consignees’ dock doors. Though collaborative transportation management is not a standardized discipline, many companies informally collaborate with their carriers to gain that visibility. Faced with the new hours-of-service rules, logistics leaders like Schneider Logistics can leverage RFID to gain more asset visibility – in transit and at its yard – to optimize its drivers’ time on duty and meet its customers’ demand for ontime pickup and delivery.

Building Blocks

Companies that view RFID projects as the panacea for their lack of visibility will be disappointed with the outcome of their investments. Before any RFID deployment, companies must:

• Integrate demand signals internally. Companies need to measure how well they currently use demand signals in their supply planning, before chasing additional demand data through RFID. Retailers like Sears must ensure that inventory replenishment is driven by a single view of demand – stores, catalog, or Web site – instead of less accurate withdrawal signals at distribution centers. To start with, they must build a consensus demand forecast that cuts across their sales, marketing, and manufacturing organizations.
• Invest in data synchronization. Industries such as hard goods retailing are following the CPG industry footsteps in data synchronization – creating, maintaining, and broadcasting product information to trading partners. A retailer like The Home Depot must master data synchronization, especially for disruptive events like promotions or new product introductions, to ensure that the RFID data collected will be accurately communicated and acted on by trading partners.
• Collaborate on planning first. A company must master collaborative planning with its partners before attempting to share and respond to RFID data. After building a consensus forecast and replenishment plan, Nokia and T-Mobile can start strategizing on how they will share and respond to RFID point-of-sale data that shows a higher than expected demand for Nokia’s 3595 mobile phone model at T-Mobile Northeast stores. Using a well-defined escalation process, T-Mobile can communicate this information to Nokia – which will respond by reallocating in-transit inventory to satisfy that demand.

Predictions for RFID Solutions

To capitalize on near-term demand associated with RFID mandates, vendors like Manhattan Associates and SAP are rushing to market with solutions that collect, manage, and use RFID data in distribution centers. But these solutions will fail to sustain RFID-enabled visibility within the enterprise and among trading partners. For example, a company like International Paper might use RFID to tag paper rolls to verify delivery at its customers’ locations, thus gaining visibility of customer fulfillment and speeding its billing process. In this case, RFID data will be communicated to disparate applications, such as financial systems, ERPs, warehouse management systems, and transportation management systems. The need to ensure that RFID data is readily available to numerous supply chain solutions means that:

Middleware providers will offer robust business process management – Providers like OATSystems or ConnecTerra will expand their solutions business process management to control the distribution of RFID data, with minimal changes to the receiving applications. This is necessary because companies will demand flexibility in enabling visibility among trading partners. For example, to satisfy higher demand around Easter, Hershey Foods might contract additional temporary logistics providers. Hershey will need to adjust the business logic in its middleware layer to allow for data reads from these providers, filter the data, and communicate significant drivers to its retailer customers.

App providers will exit the middleware space and focus on their apps – Providers like RedPrairie that are positioning themselves as one-stop shops for middleware and apps have signed up for more than they can handle. These apps vendors have limited integration experience – usually anchored around their solutions. After some time playing the middleware field, vendors like SAP will focus their efforts on preparing applications like demand planning or orderfulfillment for additional RFID requirements, such as higher data volume associated with electronic product code serialization and near-real-time updates.

3PLs and distributors will offer RFID services to smaller partners – After retail leaders like Target mandate RFID adoption with their top suppliers, they will soon require the same from their smaller partners. But tier 2 suppliers do not have the technical or financial resources to comply with these requirements. In addition to their traditional services, logistics providers like UPS Logistics Technologies will jump on the opportunity to offer suppliers like Crayola maker Binney & Smith and their retail partners a costeffective common solution to collect, filter, and communicate the required RFID inventory and asset data.