Using RFID for Supply Chain Management

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DÉPARTEMENT D’INFORMATIQUE / DEPARTEMENT FÜR INFORMATIK

Information Systems Research Group

Electronic Business course

Using RFID for Supply Chain

Management

Project work

Written by

Fabien Ropraz

Student Number: 04-212-320 Cotagery 31 1642 Sorens / FR fabien.ropraz@unifr.ch Fribourg, May 2008

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List of figures

Figure 1 : RFID system components ... 5

Figure 2 : An example of an RFID tag ... 6

Figure 3 : Tags of different shapes and sizes ... 7

Figure 4 : Dock door fixed mount reader and portal ... 9

Figure 5 : Forklift mounted RFID system ... 10

Figure 6: Common RFID frequencies for applications ... 12

Figure 7 : Structure of EPC on SGTIN-96 basis ... 14

Figure 8 : Supply chain flows ... 19

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1

Introduction

Have you ever imagined a world where every item could be traced, so that, for example, inventory control could be done automatically or customers could self check out without waiting in line in shop? As fanciful as it may seem, this can be realized to a certain extend thanks to RFID.

RFID stands for radio frequency identification and has become one of the most talked about and promising technologies in the market today. The media are frequently bringing up the potential benefits users of RFID can reap. The adoption of the technology by the businesses has been recently stimulated by several factors including falling implementation costs, the establishment of key standards, retailer and government mandates and improved technology performance. Indeed, more and more businesses are considering investing or are investing in this fast growing automatic data-collection technology in the purpose of improving convenience, accuracy, safety and security.

This tracking and identification system basically consists of placing a radio frequency transponder containing a microchip on an item to be tracked. Then, whenever the item passes under a reader that interrogates it via radio waves, it will emit or reflect a signal to exchange its data and identity without human intervention.

Based on this elegant idea, this technology supports a wide range of applications not only in trade and retail, but also in public services, administration, research and development, and even in sports. In spite of that, supply chain represents the most significant development potential for the use of RFID according to organizations. In fact, this is not surprising because RFID is in essence exactly what companies are seeking to enhance supply chain management. By granting to everyday objects the ability to communicate without physical contact, RFID provides organizations with the capability of tracking, securing and managing items through their entire life cycle, thus considerably improving the efficiency of internal business processes and the visibility in the supply chain. For that matter, businesses place confidence in this technology to securely track the locations of their assets, shipments and inventory items.

However, integrating an RFID infrastructure in its information system requires intense planning and testing not only because it represents a huge investment but also because it

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Introduction 2

implies business processes reengineering, in addition to the fact that the technology is subject to changes. Misperceptions about what RFID is and what it can do can also stand in the way and discourage some companies from taking advantage of the technology.

The paper precisely aims at learning to know the RFID technology and at explaining how it can concretely be used for supply chain management and how it can help improving it. Being aware of its capabilities, its purpose, its benefits and its challenges is indeed the first step to a successful implementation.

Chapter 2 describes how RFID technology basically works, what elements an RFID system is composed of and what are the application fields of this technology. It also highlights the main benefits and issues of the technology and addresses in particular the matter of standardization.

Chapter 3 is dedicated to the use of RFID in the supply chain and for supply chain management. It starts with giving a brief definition of supply chain management before dealing with how RFID contributes to the improvement of the supply chain. More precisely, it explains why companies are transitioning from bar code to RFID technology and covers the use of RFID in logistics operations, manufacturing and retailing. It also briefly explains the new global standard EPCglobal Network, which allows goods to be tracked in the open supply chain, i.e. beyond the boundaries of an enterprise. It then treats the planning of an RFID system for a successful implementation. Finally, the last part gives a list of a few large companies involved with RFID.

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3

2

RFID technology overview

2.1 General concept

RFID belongs to the class of technologies that exchange data wirelessly. It is considered as an enabling technology, because it does not provide much value on its own, but it makes it possible for companies to develop applications that create value. Even if different RFID systems or different categories of RFID applications exist, they all rest on the same fundamental principle: the attribution of a unique identity to physical objects, persons or animals that can be easily transposed to the virtual world of computer systems. Communicating, identifying and detecting things are natural and trivial activities to humans but when it comes to computer systems, they turn out to be rather complex. RFID technology has precisely the power of getting around these difficulties by being able to give everyday objects the ability to communicate their presence, their identity and the content of their ever increasing memory. In other words, RFID enables objects to be connected to the Internet, so that companies can track them and share data about them, which fosters the new concept of the Internet of things.

2.2 Brief history

Contrary to what people could think, RFID has been around for decades. It is generally said that the origin of RFID can be traced back to World War II, where a system based on radio signal was used, so that pilots could be identified as friends by the radar stations.

The first RFID U.S. patent was given to Mario Cardullo for an active RFID tag with rewritable memory in 1973.

Over time, companies commercialized systems operating at different frequencies. Until the end of the 90’s, tags were operating as a mobile database that carried information about the items they were applied to. But the vision people had about RFID changed thanks to Sarma and Brock, who turned RFID into a networking technology by launching the idea of storing the data associated with the serial number on the tag in a database accessible over the Internet, thus linking the objects to the Internet. This was an important change for the companies,

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RFID technology overview 4

because suppliers and customers along the supply chain could now automatically share data about shipments, products, etc.

One interesting question one could ask is why RFID is only flourishing now, given that the idea has been developed for decades? In most cases, a technology establishes itself when the right time for deployment occurs or when the economy is suitable and ready to welcome it, which depends on the scope of the problem it solves, the maturity of the technology, and the cost of deployment. Over the last decades, the world has precisely changed concerning these three points, giving the technology the opportunity to grow on. Inventory tracking has become a necessity nowadays, in order to remain price competitive despite the relatively high labor cost in the developed countries. Furthermore, the components used to build the tags and tag readers have become more sophisticated and the purchasing prices of the RFID system components begin to decrease with the increasing demands for the technology. Finally, greater functionality, reading range, and speed of data transfer provided by these components have contributed to improved performance of the technology.

2.3 Basics of RFID technology

2.3.1 Operating principles

Essentially, RFID is an automated identification tagging method for storing and retrieving data from a distance using RFID tags, which are attached to items and which contain a microchip and an antenna. Using an RFID reader, a remote device with one or more antennas, data on the microchip can be read at appropriate points in a business process via radio waves, allowing the tagged item to be automatically identified without a direct line of sight. The information picked up by the reader is passed on to middleware and application software that validates and process the data, so that they can be used to create business value.

More concretely, in order for the communication to happen, a reader sends a radio signal to request or capture the information contained on the chip of the tags. The signal is received by every tag present in the radio frequency field tuned at that frequency. The generated signal serves two purposes: it provides power for a tag and it creates an interrogation signal. Once the tags receive the signal via their antennas they execute the commands sent by the reader and respond by transmitting a signal the reader receives via its antennas and interprets as meaningful data using a sensitive receiver. The reader usually requests the unique digital ID (e.g., the EPC-96 standard uses 96 bits) that can then be looked up in a database accessible by the user to determine the identity of the tagged item and to gather other stored information about it (e.g. manufacturer, shipping date, price and expiry date). After decoding the signal, the reader transfers the data to the computer system either through a cable or a wireless connection, as RFID technology can be used in conjunction with Wi-Fi networks without

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them causing interferences. If multiple tags are present in the field, there is a chance of data collision. This can be the case for example in a shopping cart full of grocery items. In order to reduce the chance of two IDs being transmitted at the same time, more efficient RFID implementations have anti-collision algorithms, which determine the order of response so that each tag is read once and only once.

An important point to emphasize is that an RFID read does not require any operator intervention and data is exchanged automatically. In addition, in order for the system to work, each tag must absolutely hold a unique serial number.

2.3.2 RFID system components

The previous basic technical description of RFID technology mentions the main components that an RFID system typically comprises (Figure 1). Here is a summary of them:

¾ One or more tags (also called transponders),

¾ One or more read/write devices (also called interrogators, transceivers, or simply readers),

¾ Two or more antennas, one or two on the tag and at least one on each reader, ¾ Application software and a host computer system.

Figure 1 : RFID system components

The next part will take a closer look at some of these components.

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¾ Power source: - Passive:

Passive tags, which are by far the most common, require no internal power. They receive transmission power from the incoming radio frequency signal sent by the reader. They require no maintenance and are cheaper than active tags. They cost from 20 cents to 40 cents, whereas active tags generally cost from $20 to $50. Because of their lack of onboard power supply, they can be very small. Of course, all RFID smart labels are passive. Passive tags can operate at low-frequency (around 125 kHz), high-frequency (13.56 MHz) and ultra-high high-frequency (UHF, 850 to 960 MHz). Their practical read distance can range from about 10 cm to a few meters, depending on the antenna size and design and the chosen radio frequency. One of the most important factors that determine read range is the method passive tags use to transmit data to the reader, which is related to the frequency. Low- and high-frequency tags are usually powered by magnetic induction (inductive coupling), where the reader and the tag form an electromagnetic field to interact, thus limiting the read range of the system. Passive UHF systems use electromagnetic capture (propagation coupling) to circumvent the range problem at higher frequencies. The technique involves the use of electromagnetic energy (radio waves) that propagates from the reader antenna and data are sent to the reader using radio frequency backscatter. This explains why companies are more interested in using UHF passive systems in the supply chain, as they need to read tags from at least a few meters for an RFID system to be useful in a warehouse for example.

- Active:

Active tags include a battery to power transmission, which makes them larger and more expensive than passive tags. On the other hand, they have a much faster data transfer rate and a larger storage capacity, allowing more programming options. Due to their onboard power supply, active tags are suitable for longer distances and can transmit at higher power levels than passive tags, enabling them to work better around such offending materials as metal and water. They have ranges anywhere from tens of meters to hundred of meters. Whereas passive tags are more appropriate for smaller objects, active RFID tags target larger objects such as containers or pallets. Despite the higher cost of active tags, their potential value can justify their use especially when coupled with a temperature sensor or any other type of sensing, as sensor applications need to use battery-assisted tags and power for the sensor. Such tags can be used to capture and record inputs from sensors to detect drastic changes in the variable being monitored. For example, interfacing tag with a temperature sensor can enable it to send an alert whenever the temperature reaches a preset upper or lower limit. This

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Frequency is the leading factor that determines the read range, resistance to interference and other performance attributes. The reason is that radio waves behave differently at different frequencies, thus generating different properties such as different ranges. Furthermore, it is known that it is difficult to transmit radio signals through metals and liquid. Products with lot of water and metal are thus particularly challenging to tag and can lead to reduced read range and reading tags reliability due to interferences as well as detuned antenna. This inconvenience is mainly an issue with UHF systems, as low and high frequency systems work better than UHF systems around metal and water. Indeed, radio waves don’t bounce off metal and are better able to penetrate water in the latter systems. One way of dealing with this problem is to design antennas that can be in tune when close to these not RF friendly materials. Another way is to create an air gap between the tag and the item.

In fact, which frequency is suitable depends on the kind of application, as certain frequencies are not readable from short or long distance. The Figure 6 shows which type of RFID applications is typically used at different frequency ranges.

Frequency band Description Typical ranges Common applications

125 – 135 kHz Low frequency To 18 inches Animal identification

Vehicle identification Production control Automation 13.56 MHz High frequency HF Near contact 1 – 1.5 meters

Ticketing (public transport, events, ski lifts)

Access control

Commercial laundry and garment tracking Merchandise (individual products) Contactless payment Automation 858 – 930 MHz Ultra-high frequency UHF 2 – 4 meters Europe 7 meters USA

Pallet, carton ,case identification

Returnable container tracking

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RFID technology overview 12 Asset management Baggage tracking 2.45 GHz Microwave Up to several hundred meters Long-range identification with active tags

(container identification)

Figure 6: Common RFID frequencies for applications

¾ Range

Besides frequency, the power output and the directional sensitivity of the antenna may also influence the system’s read range as well as the immediate physical environment. As mentioned above, the presence of metals and liquids may cause interference that will affect not only range abut also read/write performance.

¾ Antenna

Orientation, position, proximity and reading area of the tag antenna are crucial to consider in order to ensure optimal reads. Antenna orientation of some tags may interfere with the orientation in other tags, especially when products are arranged close and in any order, such as in a shopping cart. Of course, adding more reader antennas enables the tag to be read in more positions or even regardless of its location. Another point to pay attention to is that the reader cannot communicate with an active tag that is oriented perpendicular to the reader antenna.

¾ Signal attenuation

Signal attenuation is not only due to the fact that an emitted signal attenuates naturally with distance and that a reflected signal attenuates at much faster rate. The way a system is installed or external factors such as the material of the tagged item can also attenuate the signal causing poor performance.

¾ Electromagnetic interference

A wide variety of machines such as conveyors with nylon belts or manufacturing robots can interfere with RFID systems.

2.4 Standards

Standards are critical for many RFID applications such as payment system and goods or reusable containers tracking in open supply chains. Without standards, such applications would be simply meaningless. Although it is commonly said that there are no standards in RFID, there exist many well-established standards and a few emerging standards that ensure

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diverse frequencies and applications, so that tags and equipment from multiple sources can be used together in open supply chain systems. For instance, RFID standards are already in place for item management, logistics containers, fare cards, animal, tire and wheel identification, and many other uses. However, fewer standards have been finalized with regard to the use of RFID to track goods in open supply chains, as the idea is relatively new. In any case, a great deal of work has been done and is being done to develop standards for different frequencies and applications.

Standards have to deal with the air interface protocol (how tags and readers communicate), data content (the way data is formatted and organized), conformance (ways to test that products meet the standard) and applications (how standards are used on shipping labels, for example).

Two standards organizations particularly relevant for the supply chain are the International Standards Organization (ISO) and EPCglobal Inc. Many national and industry standards are based on ISO and EPCglobal standards. ISO has already created several standards covering many areas, such as the air interface protocol and automatic identification and item management. EPCglobal Inc. aims to achieve a global standardization to enable universal traceability and is working on an international standard proposal in order to normalize the technical uses of RFID. It succeeded to Auto-ID Center, which was originally responsible for developing the famous Electronic Product Code (EPC) among others.

The EPC is a standardized number code, which is used to uniquely identify objects, so that each of them can be tracked separately using RFID technology. It is thought to be an eventual successor to bar codes. Contrary to the bare code technology, EPC allows the identification of each item manufactured and not just the manufacturer and the class of products. So, the EPC consists of a header and three sets of data partitions, in order to identify the manufacturer, the product class and the item itself with the unique serial number. The Figure 7 shows a typical encoding of an EPC of 96 bits. This type of EPC is large enough to cover all products manufactured worldwide for years to come.

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Figure 7 : Structure of EPC on SGTIN-96 basis

In fact, the goal of EPCglobal is to provide an homogeneous tags distribution system, so that each item can have an EPC in the supply chain of every company in the world, which would allow trading partners to easily track goods around the world. In other words, EPCglobal strives for increased visibility and efficiency throughout the supply chain and higher quality information flow between companies and their key trading partners. In this perspective, it has begun developing a network architecture that would allow any authorized person to look up any information associated with the serial number stored on tags. This architecture is discussed in more details in chapter 3.

To distinguish tags type from each other, EPCglobal has established five tags classes to indicate capabilities a tag can perform and has developed or tries to develop protocols for these different classes.

The major shortcoming linked to this standardization process is that EPCglobal has created its own UHF and air interface protocols for tracking goods through the international supply chain, which are incompatible with ISO standards in addition to other interoperability issues. However, in an attempt to be closely aligned with ISO standards and adopted more internationally, EPCglobal designed the EPC Gen 2 standard. In other words, ISO and EPCglobal are working on resolving this issue in order to satisfy the desire of end users for having one international standard to track goods through the supply chain using UHF RFID tags.

2.5 Application fields

Before examining the use of RFID in the supply chain in the next chapter, it would be judicious to give an overview of the most typical RFID application fields first. This may help realize the possibilities of the technology and its potential uses.

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Typical application fields include: ¾ Supply chain, logistics

RFID can be used for instance for asset management, product tracking, inventory control, shipping and receiving, returns and recall management. As mentioned above, the next chapter is entirely dedicated to the use of RFID for supply chain management. ¾ Access control and security

Access cards or badges containing an RFID tag can replace keys or magnetic card to unlock doors of a secure facility depending on the cardholder’s predefined access rights. The secure automobile keys to unlock cars remotely are another example.

¾ Public services

RFID can be used to collect toll fees. ¾ Airport

RFID is used to track and locate baggage. ¾ Electronic cash

Smart cards embedded with RFID chips are widely used as electronic cash. ¾ Ticketing

For instance, RFID can be used for public transport systems, ski lifts. ¾ Passport

¾ Libraries

RFID is used to quickly check books in and out of libraries. ¾ Military

RFID can be used to track military supplies on the front lines. ¾ Healthcare

RFID can be used to improve patient care and easily retrieve the patient’s medical history.

¾ Animal identification ¾ Human implants ¾ Leisure time, sports

RFID is used for marathon runs for example or in amusement parks to find missing children.

¾ Research and development

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¾ Potential applications

Automating the checkout process with labeled products.

2.6 Main benefits

When carefully integrated and managed, RFID technology offers several advantages that are worth to mention. The benefits relative to the use of RFID in the supply chain and the advantages of RFID over bar code are extensively treated in the next chapter. This section covers the general and most cited benefits of RFID technology and the main reasons for choosing this technology.

RFID generally helps improve convenience, accuracy, information availability, efficiency, safety and security. It is an easy-to-use technology, well suited for automatic operation, which additionally provides durability, flexibility, “rewritability” and high data density, transfer and integrity. It allows multiple tags to be read simultaneously. Moreover, this data collection technology integrates easily into existing data collection systems and requires minimal down time.

One of the most beneficial factors that encourage the use of RFID is probably its ability to collect data where it is impractical or impossible to use other technologies or manual labor especially because it does not require line of sight. RFID can operate in environments exposed to extreme temperatures, gases or chemicals, where these harsh conditions typically prevent the use of other data collection methods.

It normally allows companies to create value, increase their productivity, improve their process and reduce costs and errors. RFID also helps them combat product tampering, loss, theft and counterfeiting, especially as it improves product traceability as well as inventory management and control. Furthermore, tracking objects with RFID requires less human intervention. To sum up, RFID has the potential to offer returns on investment that are beyond expectations.

2.7 Main issues

Despite all these benefits, RFID technology still presents a number of issues, whether they be technical, organizational or ethical. Executives should be aware of them before opting for RFID systems.

The main problem that usually comes first to mind is the heavy initial investment and especially the high cost of the tags, which constitutes one of the main reasons that hold back a

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bit the expansion of the technology. Because tags are eventually supposed to be attached to large inventories of relatively inexpensive products, they really need to be inexpensive. Otherwise, benefits and cost savings brought about by the technology will not be greater that the deployment cost, which means for the company that the right time to implement this technology has not come yet. In fact, for the technology to be truly competitive, it is said that tag should cost less than 5 cents or even 1 cent, whereas nowadays passive tags generally range from 20 cents to several dollars for more sophisticated ones.

The next major challenge is managing data. Using RFID generates masses of data as scanning is always on, unlike bar code technology. Consequently, RFID system requires an IT architecture that can appropriately manage, filter, analyze and respond to this significant amount of data being captured, in order for the technology to be verily profitable and to avoid information systems bottlenecks due to unwanted data. Failure in properly managing these data will cause more confusion than increased visibility.

Certain technical issues have already been mentioned but here is a more complete list of the most challenging ones:

¾ Tag orientation: tags oriented perpendicular to the reader antenna prevent an effective communication. Varying the position of the reader or build advanced antennas less sensitive to orientation represent solutions to this problem.

¾ Reader coordination: several readers in proximity to each other interfere with each other.

¾ Product packaging independence: certain types of packaging such as metalized packaging adversely affect the tag readability.

¾ Multiple standards: several frequencies and standards have been developed for RFID tagging solutions, partly because of national frequency use restrictions and cost trade-offs. One of the possible options to resolve this standardization problem is to build readers that can operate using multiple standards. Nevertheless, developing a global standard is necessary in order to achieve universal traceability.

¾ Data formats: the way data is represented in memory of rewritable tags is not standardized yet, which makes it more difficult for companies to share and interpret data, as they move through a supply chain. When the memory capacity potential of RFID has increased enough, XML may well be used for this purpose in the future. ¾ Electromagnetic interferences: they can be caused by physical external factors, such as

machines and electric motors. In addition, liquids or metals may absorb or reflect RF signals.

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¾ Security concerns:

The major risk with RFID issues from the low processing speed and low memory of tags, especially passive tags, which renders them computationally weak for basic cryptographic operations. As a result, the information within passive tags is vulnerable to alteration, corruption and deletion. Resolving this problem without considerably increasing the cost and power requirement of the tag is very difficult.

The three main attacks RFID is exposed to are: - counterfeiting, which requires great skills though;

- denial-of-service, as radio signals are quite easy to block or jam;

- war-driving (implies the use of a device to pick up the information from unsecured tags), war-walking (war-walkers do not need a wireless device to find RFID tag, they can get past security to find the system that uses RFID), lifting (replacing tags with counterfeited tags containing original data without being detected).

In any case, companies should put in place a security program including among others security policies, procedures, standard and guidelines before implementing RFID in the supply chain.

¾ Privacy concerns:

RFID makes it possible to gather sensitive data about an individual without him being aware of it, as RFID can be read at a distance. Even worse, the owner of the item will probably not be aware of the presence of the tag. Consequently, the illicit tracking of RFID tags, in particular world-readable ones, can pose a risk to personal location privacy, especially as tagging at items level begins to take place, directly hitting the end customer. To resolve this problem, tags should be disabled after check-out. For example, this can be performed by including a built-in “kill” command in the tag to make it useless, or by applying a mechanism to shorten tag read range to a few centimeters.

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19

3

RFID in the supply chain

3.1 Definition of supply chain management

¾ Supply chain: represents the sequence of organizations, i.e. their facilities, functions and activities, involved in the different processes and activities that produce value in the form of products and services in the hand of the ultimate customers. A typical supply chain encompasses manufacturing, warehousing, distribution and retailing.

¾ Supply chain management (SCM): is the task of integrating the organizations along the supply chain and coordinating materials, information and financial flows in order to benefit from faster times to market, quicker fulfillment of orders and lower costs. In other words, it consists of planning, implementing and controlling the operations of the supply chain as efficiently as possible. In fact, supply chain management lets an organization provide the right goods and services to the place they are needed at the right time, in the right quantity and at acceptable cost. It aims at improving collaboration among supply chain partners, so that inventory visibility and inventory velocity can be improved. Efficiently managing this process requires maintaining relationships with suppliers and customers as well as controlling inventory, forecasting demand and getting constant feedback on what is happening at every link in the chain.

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RFID in the supply chain 20

3.2 How RFID helps improve supply chain management

To achieve its purpose, supply chain management needs accurate identification and tracking of goods as well as knowledge about what inventory a company have, where it is, how much it has and in what condition. Such information is crucial today in order for companies to survive and thrive. Furthermore, more than ever before, there is a pressure on manufacturers, distributors and retailers to maximize process efficiency, minimize cost and provide the best possible value for end-customer, which boils down to further improve supply chain efficiency.

Given that context and based on the first chapter of this paper, RFID appears to be an ideal technology to satisfy these ever more pressing requirements. Indeed, as RFID supports better traceability and better identification, it is in essence a solution to the tracking and identification problems supply chain management has to deal with in order to manage the movement of materials along the supply chain. RFID therefore contributes to better supply chain efficiency, visibility and responsiveness and not only in one way but in many different ways depending on which level and on which supply chain operation it is applied to. Ultimately, this enabling technology helps provide the right product at the right place at the right time, thus maximizing sales and profits. How RFID can be used in the supply chain management and how it can improve it is demonstrated in the rest of the chapter.

3.2.1 Tracking the movement of goods: from bar code to RFID

technology

Tracking problems can easily emerge as items physically move from one point to another in the supply chain. They can get lost, stolen, misplaced, damaged or spoiled during their transport. Companies also encounter problems of tracking under-shipped, over-shipped, user-dissatisfied items or recalled items, especially as they may not be properly recorded in the system. Consequently, excess, idle and duplicate items may pile up in the warehouse.

Solving these problems without RFID technology results in a great deal of human intervention because humans have to manually track down the information that cannot be added to the bar-coded labels.

On the other hand, when using RFID, less human intervention is required essentially because no more employees are needed for scanning. Tags can be automatically read and written many times to track every movement, such as arrival, reshipment and departures times at strategic locations. The communication between goods and inventory systems is direct and avoids typing information into a database or scanning the wrong bar code, which considerably reduce human error and labor costs. To achieve this automatic recording of movement of goods from the production line, readers are installed in factories, distribution centers and storerooms and

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on store shelves. Typically, when a reader reads a tag, it passes to a host computer system the tag ID, the reader's own ID and the time the tag was read. Given that companies know which readers are in which locations, they can know where a product is, as well as what it is, and because of the time stamp, they can know when it has been where. As it can be observed, with RFID, the tracking of physical movement of items occurs in real-time, which is a property specific to this technology. Tags can check with databases in real-time and send online alerts to the executives on possible order and shipment discrepancy.

To sum up, RFID has the potential to dramatically improve the supply chain visibility thanks to its ability to track every item anywhere in the supply chain automatically, securely and in real-time and its ability to identify uniquely each container, pallet, case and item being manufactured, shipped and sold. This mainly explains why many companies are investing in RFID as a replacement or extension of traditional bar coding processes. In reality, RFID should not be considered as simple replacement for bar code technology, since it differentiates itself through both performance and diversity of its applications and through its capabilities. The main advantages of RFID that prompt companies to transition from bar code to this technology are the following:

¾ Higher storage capacity: unlike bar-coded labels, which can only hold information about the manufacturer and product category, RFID tags can include detailed information on the product, tracking information (such as arrival, reshipment, and departure times at certain locations and on specified dates), changes in environmental conditions (depending on the circuitry of the tags).

¾ Programmability: data can be added to or removed from the tag, or updated, which is not possible on a bar code as it is printed once. Some tags with more advanced capabilities can even be programmed to define read/write rights.

¾ Larger reading distance. ¾ Much wider scanning area.

¾ No unobstructed line of sight required with the reader to transfer information, as it is sent via radio waves.

¾ Ability to read multiple items simultaneously, almost regardless of the orientation, hence RFID system potential for complete automation of the process in question. This reduces the need for manual scanning and is advantageous if labor-intensive data collection is needed. For example, items on a pallet can be read all at once.

¾ Faster read rate (100 to 1000 tags per second). ¾ No human intervention.

¾ Reliability in heavy moisture, noisy, dirty or hot environments, which generally make bar codes unusable.

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¾ Tags can be embedded almost anywhere.

All of these advantages undeniably lead to a more efficient and faster way of resolving tracking problems, thus removing blind spots from inventory and supply chain operations. US supermarket chain Wal-Mart is the first to show large scale gains in productivity realized through the use of this technology. Airport baggage routing is also starting to benefit from the significantly higher reliability of RFID in comparison to standard bar code systems.

Yet bar code remains the easiest and least expensive method to identify individual consumer goods and it will probably not disappear as RFID use grows, or at least not anytime soon. Mail delivery still exists despite the emergence of emails and cell phones. Moreover, combining the two technologies may be the best approach in some cases.

3.2.2 RFID in logistics operations

RFID technology is already widely used in logistics, mainly to optimize the flow of goods, to enhance visibility throughout the supply chain thanks to improved inventory tracking, to improve fleet management efficiency and to automate certain parts of the supply chain. It is the ideal technology for automating manufacturing and distribution data collection processes. Large quantities of information can be analyzed and sent to internal and external systems in near real-time, thus globally improving the quality of business operations. This operates with the advantage that the transmission to databases works without physical or visual contact. These databases that live with products throughout their entire life can provide the exact routes they have taken through the supply chain as well as genealogy data including any after-market adjustments/upgrades. With this kind of information automatically collected and recorded, companies can reduce logistics costs, improve their planning, accelerate their handling and consequently make better use of warehouse capacities, labor and working time. In addition, having the complete history attached to the product can help companies minimize warranty risk and optimize the efficiency of a possible recall.

Basically, most of the benefits of using RFID in the supply chain issue from the better traceability, identification and automation level that this technology offers. The potential of RFID to facilitate and automate the tracking of movements at different supply chain levels and at minor costs makes it possible to trace the product in the different steps of its transformation, to immediately access information in case of crisis, to facilitate product withdrawal, to better control shipping and receiving, to optimize flows and to immediately locate every tagged item. Better identification means much more accuracy, which allows manufacturers and retailers to operate and collaborate more efficiently, so that both can be more responsive to the needs of customers, thus reducing product shortage in the stores.

But the key to realize maximum return on investment and to reap substantial business benefits consists in strategically incorporating RFID and other sensor-based into the information

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architecture and business processes. For instance, RFID and wireless network systems could be integrated to provide full-time, wide-scale monitoring. The success of RFID also depends on the relevance of its use. The risk is excessive tagging.

Integrating RFID into the main logistics activities may lead to the following global and ideal situation:

In manufacturing facilities, RFID can be used chiefly for automatic routing and control and for tracking raw material, work-in-process and finished goods inventory. At this stage, finished goods receive an RFID tag that contains a unique serial number (such as the EPC), so that the item can be identified univocally along the supply chain. Items are packaged, either individually or in batches and then placed on a pallet. Cases and pallets also contain an RFID tag. When leaving the factory floor, pallets pass through dock doors in order for the readers to read the tags on the pallets and cases, which allows the identification of the products and the automatic generation of the manifest. At the distribution center or warehouse, tags are read again by readers integrated into the warehouse gates for incoming and outgoing goods. The arrival is confirmed and the information is sent into the inventory system. Every time a tagged pallet is moved through one of the gates, the ERP or WMS (warehouse management system) system is synchronized. The corresponding entry is updated by the date and location of recording. The RFID readers also provide inventory and expiration date control. This level of continuous real-time inventory visibility permits companies to avoid wasting time and money on administration and to concentrate more on core activities.

As seen above, tagging can be performed at pallet, case or item level. However, mainly because of the costs of the tags, deployment projects regarding traceability at item level have not been really achievable so far. But they are expected in the near future, as the high demand for RFID slowly brings down prices. On the opposite, tagging of pallets and containers is quite common.

The next part examines more concretely how RFID could further convenience and efficiency in some typical logistics operations.

Asset management

RFID tag can be permanently attached to capital equipment and reusable assets such as trays, pallets, containers, lift trucks, tools and vehicles, in order for the company to track them more efficiently. By placing fixed position readers within the facility at strategic points, a company can automatically track the movement and location of tagged assets, thus avoiding wasting labor time on searching them. Making inventory control of reusable assets much more accurate and efficient allows manufacturers to reduce cost and improve return on investment for these tagged assets. Readers may also alert supervisors if they detect any attempt to remove a tagged asset from an authorized area, which provides more security. If the content

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of containers or pallets is also recorded, users can have full visibility into inventory levels and locations, allowing them to locate quickly an item that has to be found urgently for any reason. These tags can also be read at dock doors in order to record which pallets or containers are sent to which customers. This information could be used to document cycle times and improve returns and recoveries for example.

Inventory control

Improved inventory tracking is certainly the main benefit to using RFID in the supply chain. Every supply chain partner including manufacturers, distributors, logistics providers and retailers can leverage the highly accurate, real-time and unattended monitoring of RFID for their inventory applications to improve the efficiency of inventory management, reduce out-of-stock, labor costs, safety stocks, and inventory inaccuracies. If, in addition, they take advantage of the technology capabilities to collect information and provide visibility in places and environments where tracking was not done or possible before, they can significantly gain in inventory visibility, accuracy and efficiency.

Readers in storage area can automatically record the removal of an item and update inventory records. Readers can also easily look for a particular item that is misplaced or needed immediately to complete an order by reading for its specific ID number. With RFID, counting inventory becomes much faster, as identification can be performed in bulk and could be quickly and accurately performed by readers integrated with mobile computers.

Inventory movements from monitored locations could automatically trigger a replenishment request. To prevent inventory theft and diversion, readers could be set to send a notification when an item is moved by unauthorized personnel, placed in unauthorized area or removed from storage without authorization.

Shipping and receiving

When items are assembled for a shipment, the same tags used to identify finished products can be read to automatically produce a shipment manifest, also automatically recorded in the shipping system. This manifest could be printed in a document, encoded in an RFID tag or printed in a bar code on the shipping label. As soon as the pallet comes off the truck, a portal interrogator or handheld device can read the pallet tag, which allows immediate verification of the shipment content and provides real-time visibility to the ERP system. This eliminates time-consuming and costly steps, enables faster invoice settlement, minimizes human error and increases inventory accuracy. In other words, reading a tag containing manifest information simplifies the receiving process.

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3.2.3 RFID in manufacturing

Manufacturers can especially benefit from RFID, since the technology can make internal processes more efficient. There are several possible applications that allow manufacturers to reap real benefits in increased productivity, process improvements, and reduced errors and costs. For example, according to a study by AMR Research, early RFID adopters in the consumer goods industry reduced supply chain costs between 3 and 5 percent and grew revenue between 2 and 7 percent because of the added visibility RFID provided.

RFID applications in manufacturing include: ¾ Receiving

¾ Shipping: if the tag carries data about pallet content, origin, destination and customer order number, a computer can tell the delivery and inventory systems where and how to route the shipment, which ensures proper shipment sequence and eliminates shipment placed on the wrong truck.

¾ Sortation: If tags contain information on the carton destination, a computer can tell the sortation system where to route the carton for staging and delivery, which ensures proper item placement, eliminates incorrect shipping and decreases shipment delays. ¾ Product genealogy: by putting manufacturing data on the tag, a complete history of the

item can be built, which increases recall efficiency, minimizes warranty risk and eliminates wasting time.

¾ Inventory management: by using RFID capability to track raw materials, work-in-process and finished inventory, manufacturers can improve visibility and confidence into their inventory, so that inventory levels, labor costs and safety costs can be reduced.

¾ Work-in-process tracking: by applying tag to subassemblies in the production process, it is possible to integrate readers with industrial control and material handling systems, in order to identify materials moving down the production line and automatically route them to the appropriate next station.

¾ Plant management and field service: plant or field equipment can be equipped with an RFID tag containing among others maintenance data, in order to facilitate the maintenance and ensure proper location and equipment.

¾ Labor tracking and security: an RFID tag containing worker identification and authorizing data can be incorporating into worker badges in order to increase facility and asset security and efficiently capture labor costs.

Furthermore, the use of RFID tags allows an easier product authentication, which helps combat counterfeiting and grey market activity. This responds to the need of brand owners for validating that the products being sold with their brand are authentic and safe for consumers.

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3.2.4 RFID in retailing

Retailers interest in using RFID in particular for receiving, replenishment, category management, traceability, counterfeit prevention and inventory. Retailers can benefit from reduced inventory for the reason that improved supply chain visibility allows better demand forecasting, lower safety stocks and lower order cycle times. As RFID enables automated data capture, retailers can also leverage this technology to cut costs by reducing labor in the store and warehouse and to lose fewer sales through out-of-stocks.

However, as already mentioned before, current tag costs are restraining the impact of RFID on retailing for now, but as the technology improves and is more widely adopted, costs will come down.

3.2.5 EPCglobal Network

To date most applications for tracking items have been limited to operations within a single company, as a result of the lack of a global standard. Indeed, tracking products beyond the confines of a single organization between trading partners requires the development of a global standard, which must define a standardized way of uniquely identifying items within the supply chain as well as a mean of discovering and sharing the data that describes each identified item. Today, EPCglobal Inc. has developed standards that fulfill these requirements, thus allowing RFID to be taken beyond the boundaries of a single organization throughout the entire chain.

The first requirement is addressed through EPCs, which are able to identify products uniquely at the item level. The EPCglobal Network satisfies the second requirement as a standards-based method to discover and share real-time information associated with each EPC. It is composed of three main elements: the Object Naming Service (ONS), the EPC information Services, and the EPC Discovery Service.

The ONS is similar to the Domain Name Service (DNS), but instead of pointing computers to Web site, it points them to Internet databases where data associated with an EPC is stored. The ONS has a distributed architecture. The EPC Information Services are the actual data repositories used to store information associated with the EPCs. The EPC Discovery Service is essentially a chain-of-custody registration service. In fact, for each manufacturer, the EPC Discovery Service provides a directory of all EPC Information Services that contain information about a particular manufacturer’s products.

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As rolling out RFID technology represents an important initial investment and changes business processes, it is recommended that a company conducts a cost/benefit analysis in the first place. This analysis should consider, among other things, customer privacy issues, security challenges, education and training, operational, logistical and IT challenges. Companies should be aware that deploying RFID involves a lot more than purchasing the right tags and installing the right readers. Other costs include getting a middleware to filter data, upgrading or investing in enterprise applications that can make use of RFID data, hiring a system integrator to install the readers and ensure the interaction with middleware and training for employees.

As for all system integration, the key to a successful implementation is careful planning in order to get the desired impact and maximize return on investment. A carefully planned system will provide immediate benefits and long-term competitive advantages. Here are some points to take into account when planning an RFID system, so that it can provide the necessary functionality and flexibility to meet current and future needs. Companies should:

¾ understand RFID capabilities and eliminate misperceptions.

¾ consider starting with areas where bottlenecks frequently occur or that require labor-intensive manual handling or where improved accuracy would considerably improves operations.

¾ rethink their business processes and analyze the changes that the implementation requires to its current architecture.

¾ investigate appropriate standards to support the application, as committing to standards is an important way to maintain flexibility and a smooth migration path as well as to ensure compatibility with other supply chain partners.

¾ choose tags adapted to the environment and their use.

¾ ask RFID vendors questions about the frequency, protocols and standards supported by their hardware, the interoperability of the hardware with RFID systems from other vendors, the cost of upgrading and maintaining equipment, their ability to customize tags according to the needs of the company. To create a flexible architecture, companies should opt for flexible equipment such as readers capable of processing tags with different frequencies.

¾ plan a pilot implementation, conduct the pilot, measure results and assess the feasibility of rolling out the system.

¾ know what it wants to do with the collected data, where it wants to place interrogators, what it wants to tag and tag only what is necessary.

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3.4 Examples of companies involved in RFID

Wal-Mart requires that its top hundred suppliers use RFID on their supply pallets. Other global organizations, such as Gillette, Procter & Gamble, Coca-Cola and even the U.S. department of Defense are also implementing RFID. For example, Procter & Gamble implemented an RFID-based system to identify the pallets in order to increase dock loading throughput and eliminate bottlenecks at the loading docks and costly mistakes.

Texas Instruments and Philips Electronics are companies with a large volume of RFID production.

Companies with an RFID solution capability include IBM, Intel, Hewlett Packard, Microsoft and Sun Microsystems.

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30

4

Conclusion

RFID is a monumental advance in product tagging, tracking and information dissemination. By equipping items with tags containing a unique serial number and using readers to interact with them via radio waves, RFID offers automatic identification and data collection of physical objects, which grants them the ability to communicate with the virtual world. The collected data are passed on to the middleware layer and integrated with the enterprise applications to create business value.

Today, the technological progress in terms of miniaturization of electronic components and the emergence of international standards contribute to the rapid expansion of the technology.

RFID has many advantages over other automated data collection techniques such as bar code system. The numerous reasons that prompt companies to adopt RFID include, among others, no line of sight required, higher capacity storage, writability, fast read rate, accuracy, durability and reliability in harsh environments. However, a number of issues still present a challenge, such as customer concerns, high costs, offending materials, tag orientation and interference. But once RFID has proved beneficial and has been well established, economies of scale such as mass production should help bring down the price. This would enable item-level tracking for high-value goods, and perhaps eventually, even tracking low-value items.

The technology can be used for many kinds of applications and its potential uses promise the development of amazing future applications. Given its purpose, RFID is highly convenient to use for supply chain management, where accurate identification and goods tracking are of primary concerns. Indeed, RFID can provide immediate and tangible benefits throughout the supply chain. Companies can essentially benefit from this technology to dramatically increase supply chain efficiency and responsiveness, productivity, inventory visibility, accuracy and reduce logistics, labor and error costs. RFID can be applied to all kinds of logistics operations, such as inventory control, shipping and receiving and asset management, as well as to manufacturing and retailing. As global standards emerge such as the EPCglobal Network, companies are increasingly turning to RFID to track items and shipments in the open supply chain.

Implementing an RFID system requires a large initial investment and thus requires a careful planning in order to consider the various issues companies face when rolling out the technology.

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