RFID Adds Transparency to the Supply Chain

What are the advantages of RFID technology over the EAN-128 barcode format?

RFID scores points over barcodes in three areas, namely speed, efficiency and transparency. It enables data to be read contact-free, meaning the RFID transponder does not require physical or visual contact with the reading device, which speeds up processes significantly. Moreover, RFID is capable of recording and reading products on a pallet in bulk. The barcode system requires every product to be scanned individually.

RFID technology plays a key role in the supply chain. When attached to pallets and transport packaging, smart chips enable products to be accurately located – from production right through to the warehouse shelf. This reduces outages, prevents out-of-stocks, optimizes order management and therefore makes processes more efficient. It goes without saying that these seamless tracking capabilities also make supply chains more transparent because companies can trace the location of products at any given time. This means RFID has enormous potential to make significant improvements to internal and external logistics processes.
In my view, the potential of RFID will start to take hold in the medium term as only then will it be possible to seamlessly implement the technology in an extensive supplier network. This depends on many factors, including 100 percent read accuracy, which is currently achievable in test environments, but not yet in practice.

In what sectors is it possible to implement RFID cost-effectively and efficiently?

There is no set answer to this question. Businesses can implement RFID in highly diverse and customized ways. That’s why SMEs always have to consider in what areas of their company the technology can be used cost-effectively. A lot depends on how well a company’s processes and IT are prepared for RFID. The technology is currently ideally suited to retail suppliers and logistics service providers in particular. However, RFID can also be utilized in hospitals, for example, for distributing medication with the aim of achieving improved patient safety.

Another, practically cross-industry aspect is the use of RFID tags to provide proof of authenticity for products, for example, for original equipment parts from an automotive manufacturer or high-quality brand-name watches. However, RFID chips can also be implemented in many other areas, as they are relatively resistant to knocks and bumps, which is ideal for container management on ships, for example.

Each chip also has to be able to communicate with a reader. To what extent has this been standardized?

Establishing a universal standard is incredibly important so that the technology is fit for widespread use in the long term. From the point of view of present requirements, the EPC (Electronic Product Code) is well positioned to become the global standard. But it’s hard to predict what will happen. If EPC does not become standard worldwide, readers and back-office systems will have to be able to handle different encoding systems and frequencies.

What competitive advantages does RFID offer SMEs?

To answer this question, it’s important to make a distinction between several different levels of competitive advantage. Firstly, the best way for SMEs to gain competitive advantages through RFID is by enhancing their processes – by cutting throughput times, speeding up deliveries and reducing warehousing. If this means an SME can deliver its goods faster, then it will definitely be one up on the competition. At present, this is true in particular for retailers, and transport and logistics service providers.

Secondly, if an SME becomes an “early adopter” of the technology, it will at the very least have a psychological advantage over its competitors. Companies that start off with pilot projects early on will also be in a position to handle extensive RFID implementations faster in the future. This will give them another lead over businesses that have yet to consider the technology.
Thirdly, a key point is the cost-value ratio of an RFID investment and the question of when the investment pays off. As our study also showed, many companies are only prepared to invest in this technology in the medium term when the integratability of the individual system components improves and the costs for the overall RFID system fall. This also includes factors such as lower-cost tags.

On the subject of lower costs, RFID labels, or tags, as they are known, are still relatively expensive at the moment. What has to happen before these tags can be applied cost-effectively to the much-publicized example of the yogurt carton in future?

This will take some time. At present, an RFID tag costs almost as much as a yogurt carton so it is not yet cost-effective to use these tags in such situations. The more widespread the use of RFID, the cheaper the tags, as the production costs and prices will fall. Nonetheless, the chips are just one factor in the overall RFID system. This system has to function across the board because SMEs need to have the right system requirements in place – namely up-to-the-minute, high-performance IT infrastructures and ERP systems including Warehouse Management – to read, process and analyze the data stored on the chips.

One additional aspect to consider is that not all tags are the same. There are writable and rewritable, passive and active tags. The cost of tags differs greatly depending on their functionality. Due to their simpler design – some do not require any power supply – passive tags are generally much less expensive than battery-powered active tags, although real-time localization is only possible with the latter because of their longer read range. Under certain circumstances, the active, rewritable and therefore more expensive chips may pay off better for an SME than the cheaper, passive version. So you can see that anyone looking to invest in RFID technology is quickly faced with a complex decision-making process.

What factors should SMEs consider if they are looking to implement and utilize RFID technology cost-effectively?

As I’ve mentioned, the complexity of the technology means companies have to answer many different questions. First and foremost, it is important to identify the right processes and find a suitable integration platform for storing and evaluating data. As an RFID implementation will also impact on process workflows, I would also recommend that companies seek impartial external advice. This generally prevents businesses making incorrect or “blinkered” decisions.

Bearing in mind the motto “think big, start small”, SMEs should begin with small, manageable pilot projects. This enables companies to start testing RFID on a limited basis and acquire technical knowledge gradually. What’s required is really a symbiosis of technically feasibility and cost-effectiveness. This is by no means easy, but companies that heed this advice will benefit from more efficient processes and improved competitiveness in future.

Dr. Andreas Schaffry
Dr. Andreas Schaffry