RFID – The Next Big Thing, Really
By Bob Boyles, Principal
Smarter Distribution

Radio Frequency Identification (RFID) is going to be next big thing that hits the distribution channel. In my humble opinion this change could be bigger than what we saw with any of the previous scares and trends. Here are some of the highlights and low-lifes of the past couple of decades.

EDI – This trend started in the late 1980s. I thought that by now all of us would be doing every transaction via EDI. But we’re not. Why not? Simple, huge cost and limited benefits for the distributor.

Quality – Remember the ISO9000 trend. In the early 1990s everyone and his brother wanted to be ISO9000 certified. How many of you are certified now?

Y2K – This is biggest scare of them all. I’m still cleaning out the bottled water that my wife wanted us to buy. A lot of new computers were sold and very few problems were ever reported. Need I say more?

The Web – The most public bust because it so drastically affected the stock market and the claims of the web heads were so outlandish. I still buy my groceries at the grocery store. How about you?

All of these trends have had some effect on the ways that we conduit business but the effects were drastically over hyped during the initial phase. But that over hype did have some effect. A lot of money was spent on computer hardware and software. Now along comes RFID. You’d be right to look at this latest trend with a bit of skepticism. Why is this trend any different than the rest? What makes this one so special that you could actually benefit from it? Let’s take a look.

First, why do I think this trend is coming down the pike? When companies like Wal-Mart and GE jump on board and ask their suppliers to RFID their shipments these companies are creating a surge in demand for RFID tags. This surge will begin the process of lowering the cost of RFID tags so that many other companies will jump on the bandwagon and the cycle of lower prices and increasing demand and increasing standardization will continue. These lower prices will allow companies outside of the logistics chain to begin using RFID tags. Companies in the distribution channels will follow along at a somewhat slower pace.

Wal-Mart is estimating that using RFID will save them over $2 billion across their supply chain. Wal-Mart is asking their suppliers to bar-code shipments at the pallet and case level. Companies such as Dallas based Texas Instruments are ready to supply the chips. Typically there will be companies that adopt Wal-Mart's request and stop there but there will also be a pack of companies that want to take advantage of this opportunity for saving themselves. These technology leaders are the ones we need to look at as they push the next wave.

What makes this trend different than all the rest for the distribution channel? Look at the trends I’ve listed above. Each of them held some promise for the distributor but each of these trends offered more savings to other companies in the supply chain. EDI offered huge savings to manufacturers that deal will hundreds of purchase orders and invoices. Quality offered manufacturers another chance to lower their costs and offered distributors a marginal chance to increase sales to some of these larger companies. All of these trends were adopted by wholesalers because they offered savings to someone else in the supply chain. This is the one trend that will allow distributors to low their operating cost. And, yes, by working with manufacturers to lower the overall cost within the supply chain.

Let’s look at some situations and potential cost savings and maybe forecast some changes.

Receiving – The process of accepting material from a shipper and putting it away on the shelf is due for a big over haul with RFID. Imagine hanging an RFID receptor on the receiving dock then you can simply pull material out of the back of the UPS van or Trucking company semi and the system automatically receives the correct quantity of the correct material into your stock. All you have is find a place for it on your shelf.

This is real labor savings in the warehouse.

Shipping – Many distributors still double-check their shipments as they go out the door. Having a manager review and sign off on shipments is time consuming at best and a flat out waste of resources at worst. Now you box up the goods slide them across the UPS scale and through the door with the RFID scanner and the inventory is automatically reduced and the invoice can be created.

This is real labor saving in the warehouse and invoicing process.

Theft Prevention - Up until now the majority of distributors the most advanced technology that has been applied to theft prevention is locked door! Now the whole world turns around. Want to track theft prone items? Bury an RFID tag somewhere in the box and all of a sudden you've got the potential for tracking that material anywhere it goes. A few bugs to be worked out, like how is the RF signal going to be picked up outside your own four walls but this is already coming.

This is a real savings in reducing inventory pilferage.

Tracking – One of the real advantages is in the offing when the RFID tag is combined with the shipper's ability to create a wireless network and allow access to the location and status of the packages they are handling. Currently companies like FedEx and UPS pickup these bits of information when a package passes one of their barcode scanners at a bulk facility or delivery truck. (Wonder why airlines haven’t picked up on this trick when they are handling luggage? Maybe it has something to do with that Federal law that limits their liability, etc.!)
Ultimately you’ll not only be able to give the customer the tracking number but also the exact location of his shipment as it is in route to his facility.

The Next Level

As with any new technology the first application is to automate those processes that already exist. The revolutionary step comes then that technology is applied to create a whole new paradigm. When the steam engine was invented the first application was to pull water out of coalmines, a process that had been done by horses & mules before. It was not until someone took that same steam engine and put wheels on it that the railroad industry was born. The same thing will happen with the RFID process.

The next level will occur when manufacturers realize that by combining RFID information with their current vendor managed inventory programs that they can have complete information on the status of products in their supply chain. From the time the product leaves the factory until the RFID tag is removed during product installation the trail will be visible. The increase in forecasting ability alone could save billions in the manufacturing world.

This visibility when combined with computing power will allow some pretty incredible things. If I am a manufacturer and I have a large number of distributors that I supply with this technology I can re-direct products in the middle of the supply chain process to more critical (read higher revenue) needs.

Got a power plant with a broken circuit breaker or transformer and the same part is currently in route to Timbuktu to replenish someone’s shelf? Press a button and the stock is re-directed to the critical need. Service level meets critical need!
This process could give rise to a whole new industry of where the Logistics / supply chain and the distribution channel merge and create a new breed of distributor.

These types of ideas are out there for the taking and it’s going to take a lot of computer hardware and investment to realize the vision. But when there is money to be made that vision becomes reality a whole lot faster.

About Bob Boyles and Smarter Distribution:

Bob Boyles started his strategic consulting business in 2001 and focuses on the change that technology is forcing in the supply chain and how independent distributors can not only respond to that change but also maximize their return on investment. Bob spent a significant amount of time as an Installation Consultant for several of the big name software companies in the distribution market. Working with hundreds of distributors across the country on installing, upgrading and utilizing their software. Bob also worked as Corporate Systems Manager for one of the largest electrical wholesalers in the country as that company moved from a completely manual operation to an on-line real-time system.

Bob graduated from Appalachian State University (BS - 1981) and the University of North Carolina at Greensboro Graduate School of Business (MBA - 1985).

© Copyright All rights reserved 2002 Robert S Boyles, Jr. This article cannot be reprinted or reproduced in whole or in part, without the express written permission of Robert S Boyles, Jr.