Report suggests gentle RFID rollout the best option

Related tags Supply chain management

Retailers should let suppliers meet upcoming RFID mandate deadlines
at a gradual pace to avoid creating a tag shortage or costing them
a fortune, says a prominent think-tank.

Many companies are supposed to begin shipping RFID tagged SKUs (stock keeping units) to Wal-Mart by 1 January 2005, and this is also the date when EU traceability legislation comes into force.

Indeed, Wal-Mart's initial stated intention was to have all of their top 100 suppliers ship their SKUs on RFID enabled cases and pallets destined for Wal-Mart stores and SAM'S CLUB to three distribution centres. If that had been the case, supply chains solutions firm ARC Advisory Group suggests that there would be a tag shortage.

But in its interviews with suppliers, ARC Advisory Group​ found that many top 100 suppliers have been able to negotiate with Wal-Mart to ship only a limited number of SKUs to these distribution centres initially.

"Thus, the prospective shortage may not be as severe as feared,"​ wrote ARC supply chain management service director Steve Banker.

"Rather than producing a firm deadline for all suppliers, Wal-Mart has engaged in a series of ad hoc negotiations and they have proved willing to listen to suppliers who had valid reasons for moving at a more deliberate pace."

However, many suppliers still fear that they will have to sacrifice profits in order to meet the mandates. Market analyst Forrester​ recently carried out a study to find out if manufacturers are as enthusiastic about RFID as Wal-Mart, and found that many were not.

Some feel that they are being railroaded into implementing the technology, which will not be cheap.

"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."

Other 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."

From the perspective of label suppliers though, there is still capacity to increase RFID tag orders. Alien, one of the main suppliers of electronic product code (EPC)-compliant tags, said they had shipped their 10 millionth tag and that beginning in January production could be increased to allow 10 million tags to be produced in that month.

The company said that if they had a firm order for 100 million tags, they believe they could meet this in 90 days.

Matrics, another leading supplier of tags, said they currently have the components to produce 100 million tags in eight weeks.But for suppliers who believe that meeting RFID mandates will cut into already thin margins, a shortage of tags might not be a disaster if it gave them a valid reason to delay implementation.

In any case, ARC expects use of passive UHF RFID in manufacturing supply chain applications to achieve phenomenal growth over the next five years, but not until the mid to latter portions. At that time, the combination of maturing customer mandates and available, interoperable standard products will combine to create a burst of growth in the marketplace.

But the group does not believe that the supply chain RFID tag market will reach the much-vaunted 5-cent price point by 2008, which would make a mass rollout economically viable.

Related topics Drug Delivery

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