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RFID technology: Advantages and challenges for manufacturers

Radio frequency identification will improve business processes only if companies understand how to use it, according to a column by Claus Heinrich, an expert in supply chain management. Heinrich serves as executive board member of SAP.

Reading some of the blogs and opinion pieces in the media today, one would think RFID is taking over, that everything will be chipped, including your lunch, your library book and even your child. There are many fanciful predictions about how RFID will change the world. In reality, the changes will be far less fantastic and much more tangible.

RFID has the potential to revolutionize business processes, literally changing the way companies look at the world. Yet for all of the hype and concerns about consumer privacy, there has yet to be a discussion that cuts through the confusion and clearly explains what RFID can do now, what it may be capable of in the future and how businesses can put an RFID system in place.

In a world where time and information are money, RFID dramatically saves money by accelerating and automating everyday processes through instantaneous acquisition of information. RFID technologies contribute to real world awareness—a vision articulated by SAP in which systems can sense information in real-time from people, IT sources and physical objects using technologies like RFID, sensors and scanners and respond to business situations accordingly. Without real world awareness technologies, companies must use manual processes to keep inventory levels up to date, resulting in human error and slow, stale and inaccurate data. RFID allows systems to collect data instantaneously using an automated network of RFID tags on products and readers at important locations. Users can then link scanned information to a variety of computer systems, leading to increased automation at multiple levels of the technology infrastructure.

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The RFID Advantage

Some people believe RFID and other real world awareness technologies are just extensions of bar codes, but RFID offers some significant advantages: scanning without direct line of site, at a distance and through many of the common materials used to produce and package goods. In many cases, the information an RFID tag carries will be identical to that which a bar code has; namely a uniquely identifiable number. However, advanced forms of RFID make it possible to also determine certain aspects of its physical state, such as temperature.

RFID technologies are an important part of real world awareness technologies, but they are not alone. By themselves, RFID tags are only capable of obtaining and transmitting data about the objects they tag. This information is frequently useful, but without the proper context and systems to utilize and analyze this information, it is ultimately of limited value. The fact is, if most companies could wave a magic wand and instantly have RFID tags on all their products along with readers to report on their locations at key points, the resulting amount of information would be overwhelming.

RFID-supporting technologies, such as specialized software suites that can make sense of the data, analyze it and link it to processes, are vital. People must get away from the notion that new technologies like RFID work in a vacuum. To further connect and streamline established processes, new technologies must be able to integrate into existing technologies. Procter & Gamble, for example, is implementing not just RFID, but an end-to-end information system linked to its supply base that is responsive and is capable of managing complexity and differentiation. P&G is building off of its existing system to make it easier to get more information, closer to real time.

Companies can leverage real world awareness and RFID to achieve a wide range of improvements in their businesses, from the incremental to the truly innovative and even revolutionary. For some, RFID will merely offer a way to better monitor shipments leaving a factory or track pallets within a warehouse, reducing inventory and waste. Dell Inc. has initiated such a system to better supervise its manufacturing system. For other companies, RFID will provide the foundation for a thorough rethinking of vital business processes. Delta Airlines is investigating how RFID may lead to preventative maintenance.

Challenges Related to RFID

However, none of these improvements will become reality overnight. There are many challenges that companies will face as they initiate real world awareness systems. When implementing any new technology, real experience is scarce and can sometimes result in botched projects. Time and budget cuts can yield quick-and-dirty implementations. With all of the excitement surrounding a new technology like RFID, the scope of these projects can also grow out of control as everyone looks to join in, and a lack of focus can leave business goals by the wayside. Other obstacles, such as radio wave traffic jams and privacy concerns can hinder development and implementation.

Best Approaches to Applying RFID

Many of these problems can be solved through thoughtful and careful planning. Before implementing real world awareness technologies, a company must clearly outline and define its business objectives, then map the technology onto these objectives. P&G, for example, identified its goal as obtaining point-of-sale information in real time to drive manufacturing.

After executives have identified business goals, they will need support from the top so budgets and time can be appropriately invested and the scope of the project can be restricted to the goals. It is clear that companies will need to choose a good IT vendor with whom to partner, one that is knowledgeable and experienced with not just RFID, but also the supporting technologies. Those in the know suggest starting the project small, but laying the groundwork for expansion. Deutsche Post World Net has begun testing RFID on a small scale to investigate how it could be used companywide.

It is also advisable to clearly communicate with all interested parties; secrecy can lead to unfounded fears and delays. METRO Group, for example, has a transparency policy to help alleviate such concerns. In addition, executives should manage expectations about what the technology can and will do. Finally, it is recommended that businesses keep their RFID projects focused by asking at every step, "Does this decision support our ultimate business goals?"

It's clear that real world awareness technologies have the potential to significantly transform companies in the long run. As Keith Harrison, global supply officer for Procter & Gamble says, "The winning companies down the road are going to be the ones that have winning supply chain capabilities." And the winning capabilities will be enabled through real world awareness technologies.

Claus E. Heinrich has been a member of the Executive Board of SAP AG since 1996. During his 18 years at SAP, he has headed up multiple areas, including SAP R/3 development, SAP's Manufacturing Industry solutions, human resources and labor relations. Widely recognized as a practitioner and an international thought-leader in the supply chain management and RFID space, Heinrich serves on the boards of several academic institutions, as well as that of a consumer packaged goods company. With a doctorate in business administration, he is also the author of several articles and books including Adapt or Die - Transforming Your Supply Chain into an Adaptive Business Network and RFID and Beyond - Growing Your Business Through Real World Awareness. He also lectures as a Professor of Management Science at the University of Mannheim, Germany.

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