RFID Tagging and the Bottom Line

Stephen DeAngelis

October 13, 2011

Often, when the subject of RFID tags is raised, the first thought that comes to mind is increased costs. After all, RFID tags still aren’t as cheap as printed barcodes. In a previous post [Is RFID Tagging Dead in Consumer Packaged Goods Retailing?], I noted that several supply analysts believe that RFID tags have received a bad rap when it comes to costs. For example, Dan Gilmore, editor of Supply Chain Digest, wrote:

“Many CPG companies did and continue to believe there is great ROI in some product categories, the most prominent being in promotional execution but also others. But WalMart basically gave up on those (not clear why) and no other retailers have stepped up. Manufacturers can’t do it without retailers.” [“RFID in CPG to Retail – What Really Happened?” 10 March 2011]

Joe McKinney, a Vice President at System Planning Corporation, wrote a column in 2005 “for a now defunct RFID magazine on a major cost savings opportunity for consumer goods manufacturers.” In that article, he “points to the opportunity of RFID to dramatically reduce the discrepancy between what a manufacturer thinks it shipped versus what the retailer says it received – leading to costly ‘invoice deductions’ from the retailer.” [“Was Reduction in Invoice Deductions the Magic Bullet for RFID in Consumer Goods to Retail?Supply Chain Digest, 30 March 2011] This benefit alone, McKinney asserts, “could perhaps easily have driven an ROI for manufacturers from their RFID investment.” McKinney’s article is re-posted in its entirety in the Supply Chain Digest article.

 

In a more recent article, Kevin Payne, Senior Director of Marketing at Intelleflex Corporation, writes, “RFID-based solutions are one option that can positively impact the bottom line today.” [“Getting The Most Out of Your Supply Chain,” Supply Chain Digest, 28 July 2011] He writes:

“Even before the recession, businesses were challenged with finding new ways to cut costs, optimize performance and streamline operations. This typically meant that companies were looking at new technologies or new ways of implementing existing technologies. RFID-based solutions are one option that can positively impact the bottom line today. RFID? You may say ‘been there, done that.’ Over the years, RFID has promised benefits for a variety of applications but the existing technology at the time may have been unable to successfully address key business’ requirements because the performance wasn’t there or, when the pilot worked well, the solution was simply too costly to implement. But RFID has changed. New Battery-Assisted Passive (BAP) RFID solutions are providing the necessary performance to work in real-world supply chain environments at affordable price points. As a result, they can generate a positive ROI, sometimes in as little as a few months.”

The folks at The RFID Network, explain, “Traditional passive RFID tags rely on gathering energy from the reader’s signal to wake up the chip and provide the backscatter required for identification. Battery-Assisted Passive RFID technology, or ‘BAP’ as it’s often referred to in the industry, tags contain their own integrated power source.” This internal power source allows BAP RFID tags to be read up to hundreds of feet away as long as the battery lasts (which is between two to five years). Even after the battery dies, these tags can function as traditional passive RFID tags; but, they can then only be read at distances of about 12 feet. By clicking on The RFID Network link, you can watch an interesting video about BAP RFID tags. Although BAP RFID tags have some clear advantages, their cost is high. According to Wikipedia, “Battery Assisted Passive (BAP) tags are in the $3–10 range and also have sensor capability like temperature and humidity.” In high volumes, the cost of BAP tags can be reduced to as little as a dollar; but, that’s still pricey. Payne explains why he believes they can help improve some companies’ bottom line. He writes:

“Here are three reasons why BAP RFID merits a look when it comes to improving supply chain efficiency.

1. Improved Performance — Getting reliable reads from tags in RF-unfriendly environments such as around metals and liquids or inside packaging is near impossible for most passive RFID solutions – thereby limiting adoption. Yet, in most supply chain applications, reading/writing at a distance, around objects or inside containers or packaging is essential. BAP-based RFID is capable of ranges up to 300 feet or more – and range equals penetration in and around RF-challenging materials often found in the supply chain, from re-usable containers to pallets to inside packages.

2. No need to Redesign Workflows — Because BAP tags can be read at much greater distances, and in and around packaging and containers, it’s easier to read tags and capture information as items or vehicles (trucks, forklifts and equipment) move around a warehouse, loading dock or yard. There’s little or no need to redesign workflows, adjust traffic patterns or create choke points. This speeds and simplifies implementations, further reducing costs.

3. Support for Sensors and On-tag Memory — It’s increasingly critical to store information about assets and monitor the condition of products throughout the supply chain. BAP RFID can support memory directly on the chip, along with the ability to include condition monitoring sensors for tracking and recording important product information – such as temperature – directly on the tags. You can store information about the asset (identification, maintenance records, waypoint data, etc.) on the tag attached directly to the asset. In addition, temperature or other condition sensors provide the ability to monitor and record the condition of perishable items such as fresh produce, frozen foods, meats, dairy items and biopharmaceutical products in-transit to enable real-time decision making and reduce waste.”

Clearly, these relatively expensive tags aren’t suited for all commercial applications. In supply chains where handling conditions matter, however, they can provide vital information — and undoubtedly save users money. Payne writes:

“For tracking and monitoring perishable or processed foods, pharmaceuticals, reusable transport items or other assets, new Battery-Assisted Passive RFID solutions provide a viable and cost-effective approach.”

Since the tags can be reused and last up to five years, the cost of using the tags is greatly reduced over its lifespan. Payne concludes, “RFID that supports how a supply chain works – rather than reworking the supply chain – enables viable solutions.” Although Payne aimed his comments at the commercial sector, clearly RFID tagging offers significant benefits for the government sector as well. Leaders in the Department of Defense (DoD) believe that RFID tagging will play a significant cost-cutting role in its future. Paul Peters, the deputy assistant secretary of defense for supply chain integration, told participants at a conference earlier this year that the DoD was moving forward with the next phase of its RFID program. [“DOD Redoubles Its Efforts to Lower Costs Via RFID,” by Claire Swedberg, RFID Journal, 15 April 2011] Swedberg writes:

“After a decade of conducting pilots to track the movements of supplies using active and passive radio frequency identification tags across multiple agencies, the U.S. Department of Defense (DOD) is entering phase two of its RFID deployment, with an eye toward adopting end-to-end solutions, according to Paul Peters, the deputy assistant secretary of defense for supply chain integration. These end-to-end solutions would allow greater visibility across the DOD’s supply chain, thereby reducing the risk of errors, enhancing safety and security, and lowering expenses through reductions in inventory and improved utilization of labor devoted to tracking items at each point along that supply chain. That second phase will involve the use of RFID data integrated with the DOD’s existing enterprise resource planning (ERP) software, as well as certain legacy systems, providing the DOD with insight into business processes, and thus identifying areas in which efficiencies might be improved.”

In the coming “big data” era, analysts are going to find a lot of ways to parse the mountains of data being collected. It’s encouraging to note that the DoD is not just looking to reduce losses by tracking its expensive inventory but intends on using gathered data to help improve its business processes. In the current fiscal environment, politicians are wrestling with how to reduce budgets. Peters told conference attendees that this will only strengthen the case for using RFID tagging. Swedberg reports:

“A reduction in federal budgets, Peters noted, will serve to encourage RFID adoption rather than inhibit it. The DOD’s logistics services cost $215 billion in fiscal year 2010, accounting for 30 percent of the DOD’s total budget, he added, and reducing costs in that area could thus provide a positive impact on spending. ‘With the demonstration of the business value of RFID,’ he said, ‘I view this [budgetary constraints on the DOD] as an opportunity for the RFID industry.’ … The first step in the next phase, Peters told the audience, will involve educating the department’s leadership to understand the value of RFID. To that end, he said, the DOD will focus on addressing data integration from RFID read events throughout its supply chain, deploying an RFID system at multiple sites along the chain, and gaining data and return-on-investment (ROI) analysis. … In addition to sharing information across the DOD’s internal supply chain, as well as with the companies that provide the agency with supplies, and integrating that data with its ERP systems, Peters said the DOD will focus on educating the technology operators as to how the RFID system works, and the benefits it can provide. RFID technology, Peters said, allows the DOD to do more without spending more.”

This is good news for both RFID vendors and for the commercial sector. Why? RFID use by the government should help bring down costs. When it comes to the bottom line, you might be surprised how RFID tags can be used. In another article in the RFID Journal, Claire Swedberg discusses how a laundering facility uses RFID tags to keep track of “when, where and how clean-room garments are washed, dried and repaired.” [“RFID Tracks Clean-Room Laundry for High-Tech Companies,” 19 May 2011] Closely monitoring how clean-room garments are cared for is critical for some high tech companies. Swedberg explains:

“Clean rooms are enclosed environments for manufacturing or scientific research in which the level of contamination—such as dust, airborne microbes and other particles or vapors—is closely restricted and monitored. Because street clothes may contain contaminants, clean-room workers must wear special coveralls, and sometimes aprons or smocks, all of which must be laundered according to regulated standards.”

According to Swedberg, the laundering company, MSR-FSR, claims that using RFID tags instead of barcodes has helped it gain over 23 percent in efficiencies when compared to the industry-standard. MSR-FSR uses “an RFID-enabled solution provided by InvoTech Systems, a laundry, linen and uniform cleaning system company.” A company spokesman told Swedberg, “InvoTech Systems’ technology has traditionally been used in the hospitality and health-care markets, for cleaning uniforms, tablecloths, napkins, gloves and other reusable items.” Tracking clean-room garments was a new use. The spokesman indicated that its tracking solution normally pays for itself within 10 to 15 months.

 

As I’ve noted in past posts on this subject, RFID tags, barcodes, and QR tags are going to be used side-by-side in supply chains for the foreseeable future. With new applications coming on line all the time, supply chain professionals need to keep in tune with the latest developments so that they make informed decisions about which technology is going to provide them the greatest return on investment. MSR-FSR could have pursued the industry standard barcode solution, but it would have missed out on 23 percent efficiencies. That’s a big number to ignore for the sake of tradition.