You’ve read the dire projections and heard the hue and cry. Radio frequency identification technology, or RFID, is too expensive and complicated. It’s causing suppliers to buckle under the pressure of deadlines imposed by major retail chains. Wal-Mart is insisting its top suppliers have such tracking technology in place by next year. Target and Albertson’s have issued similar directives.
It’s not just the major retail chains pressuring their suppliers. The Department of Defense is requiring more than 40,000 suppliers to have RFID tags placed on containers, pallets or individual items with a value of $5,000 or more by 2005. The Healthcare Distribution Management Association€¦quot;a national, nonprofit organization for health care distributors€¦quot;also recommends that the makers of drugs implement RFID tagging systems by 2005. And, the transportation industry, which must contend with homeland security requirements, must now be capable of accommodating RFID mandates set forth by other industries in the shipping of their products and materials.
Strong medicine, indeed. But, as with many strong medicines, the long-term result easily outweighs the initial discomfort. We believe that the prescription for remaining vital and competitive for the next 10 years and beyond is embracing the best available RFID technology, not dismissing it or opting for cheaper, less efficient “slap and ship” alternatives.
RFID is more than a fancy bar-code upgrade. Tagging an object to carry descriptive information in a manner that can be read from a distance, using a signal transmitted from a reader, takes product control to a new level. Tags can be embedded in almost any object, or placed on a pallet or container; they can even be incorporated into packaging materials such as cardboard boxes or printed labels. They have the potential to store and deliver enormous amounts of information about goods, production, storage and shipping.
Such data synchronization is something the savviest businesses and most professional services firms realize is the bedrock of competitive advantage. It will lead to increased accountability, from senior management to the people loading and unloading pallets at the warehouse level. The supply chain is often sloppy and elastic, too often prone to human error. RFID can correct that by monitoring where goods are traveling, and who is doing the checking and handling at each point. It also can provide a better grasp of state or regional tax code implications and reap further savings.
There are additional benefits of RFID in operations, information systems, sales, marketing, HR and finance. Planning for all the financial areas affected by RFID and integrating financial information with operations and improving the confidentiality, integrity and visibility of information promises a more timely and stable supply chain. Increasing internal controls accuracy has compliance ramifications with Section 404 of the Sarbanes-Oxley Act, especially when RFID data is located in company financial systems.
It’s not as if the early successes of RFID aren’t already known. E-ZPass and Speedpass, two examples of so-called “passive” RFID technology, ease payment management and serve as ID badges for identity management. In Britain, pilot RFID trials have been a part of the retail industry for several years. Marks & Spencer, for instance, implemented a pilot program involving the tagging of 3.5 million reusable containers used in its supply chain and reduced data collection time by 83 percent. More than 100 suppliers are working with Marks & Spencer on this program.
Perhaps the real challenge of the RFID revolution is changing the thinking of senior management that may fail to see the big picture, or who might be facing unique obstacles in their own businesses that distract from making bold and innovative decisions. That could be shortsighted thinking. RFID must be seen as a necessary cost of doing business or it could cost a company dearly in the long run.
Certainly, there is concern about the upfront costs of RFID, and those concerns are genuine. But RFID isn’t simply a technological revolution. It’s a business revolution, and those who fail to recognize and embrace it may well be left behind.
Doug Lattner is chairman and CEO of Deloitte Consulting, based in New York.