By January 2005, 250 manufacturers must be ready to implement RFID technologies. Aberdeen expects more than 50,000 vendors to follow suit before 2006. However, compliance aside, these manufacturers can improve operational efficiencies only if they go beyond the mandates.
The author of the report, Thomas Ryan, vice president of value chain research at Aberdeen, points out that retailers such as Wal-Mart hold significant sway over the manufacturers that want to keep them as a customer. He claims that the majority of manufacturers currently implementing RFID technologies are doing so more in an attempt to retain the mandating customer than to achieve operating efficiencies and improved customer service.
One of the problems for manufacturers is that they are obliged to fulfil RFID mandates even if they cannot see the benefits themselves. Research group Forrester, which interviewed supply chain executives at $1 billion-plus companies, found that many firms do not expect RFID mandates to enhance supply chain visibility.
"Within our own firewall, there are enough warehouse information systems in place that we don't really lose things of great enough value that RFID would make sense," said one CPG manufacturer. "What is important for us is to use RFID to tag containers for inventory visibility or to enable direct-to-store delivery."
In fact, some manufacturers believe that supply chain RFID projects can distract from efforts to match supply to demand. "RFID is forcing us to take our eyes off major efforts to minimise shocks to our supply chain," said another manufacturer interviewed by Forrester. "My perspective is that we need to focus on events that exaggerate supply/demand shocks. Then the extra RFID data can be helpful."
However according to Ryan, a key to realising the true enterprise value of RFID is to move the focus beyond compliance to operational efficiency. Compliance represents a small percentage of the total benefits for manufacturers.
Compliance, says Ryan, represents a small percentage of the total benefits for manufacturers. Other benefits include improved information on inventory status, better tracking and management of assets, improved responsiveness and customer service and improved tracking of shipping containers.
In addition, RFID can lead to reduced labour costs, improved inventory availability and reduced inventory stockouts.
Reduction in labour will come about only if manufacturers move beyond the compliance approach that most are contemplating now. Improvements in customer service are expected from improvements in inventory availability and reduced stockouts, as well as streamlined shipping and advanced shipment notification processes and improved responsiveness to customer needs.
The central point the Aberdeen report makes is that manufacturers will not realise these improvements until they incorporate the capabilities of RFID into the distribution centres and customer communications aspect of their operations. Moreover, reduced stockouts require greater collaboration with the retailers to understand what their consumption patterns are so that the manufacturer can anticipate them accordingly.
Enterprises that change processes to take advantage of the technology's promise will be the only ones in a position to capitalise on RFID's breakthrough capabilities, says Ryan.
RFID certainly promises many advantages. It can help fortify visibility with better data granularity and more timely updates, and goes beyond the traditional bar-code product identification to offer critical information, such as the product source, destination, and expiration date. The technology can also help combat counterfeiting and supply chain security breaches.
But to achieve all these benefits, companies need to first establish the mechanics of exchanging this data, as well as the business rules that will guide its use Otherwise they will be communicating this data along a broken network.