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Article Excerpt
As many manufacturers, retailers, distributors, and logistics firms adopt RFID, the technology is becoming pervasive in the supply chain. Although its advocates include retail giants such as Wal-Mart, not all companies are enthusiastic about its benefits. It is not clear whether RFID is a boon or a curse to the supply chain--its market growth may just be an issue of compliance. To establish the real benefits of RFID, we conducted a field study with GENCO, a third-party logistics company that deployed RFID in the outbound logistics operations at one of its return centers. Our analysis found that the RFID implementation had a significant impact on the GENCO outbound process. The number of customer claims fell substantially following the RFID deployment. After controlling for other factors in our model, we confirmed that RFID was a key factor that contributed to the positive results at this return center. The current study underscores the potential of RFID for today's businesses.
Key words: RFID; business value; process-level analysis; reverse logistics; supply chain. History: This paper was refereed.
For many retailers, RFID lacks ROI. (Kharif 2005)
Since Wal-Mart adopted and mandated the use of RFID tags for its suppliers (RFID Journal 2003a, b), there has been a growing interest in the use of this technology in the supply chain. Widely adopted by manufacturers, distributors, retailers, and logistics companies, many have touted this technology as a way to improve supply chain efficiency and increase profitability (Clarke et al. 2006). Gartner predicts that the RFID market will grow from $504 million in 2005 to $3 billion in 2010 (RFID Update 2005). Retail giants, such as Wal-Mart and Gillette, have reported optimistic news detailing real and anticipated savings because of their pioneering RFID efforts (Faber 2005); these retailers are driving market growth. Similarly, a test IBM traffic system in Sweden that uses RFID has reduced rush-hour congestion by 25 percent (Termen 2006). These reports suggest that RFID is being adopted extensively and that it is beginning to deliver what it promised--at least to some.
However, not all is well in the RFID world. There have been conflicting statements about its value. Industry Week reported that manufacturers have been finding it difficult to financially justify its implementation because they have been unable to make a good business case (Katz 2005). Gozycki et al. (2004) describe a recent case study that examines a retailer's financial analysis of an RFID implementation decision, indicating the challenges of quantifying the benefits of RFID. Instead, manufacturers and suppliers may be adopting RFID solely to comply with demands from key customers (e.g., Wal-Mart or government/defense agencies such as the Department of Defense; Katz 2005). Many appear to be limiting their RFID projects to meet the minimum requirements needed to comply with these customer demands. Such ambiguity about RFID's value is not limited to small manufacturers; it also applies to larger manufacturers, logistics firms, and partners throughout the supply chain (Kharif 2005, Moad 2006). These facts have cast doubts on whether RFID will become a cost-reducing panacea for supply chains--or a cost-producing white elephant.
A key determinant of the success of a firm's RFID implementation is the degree to which that company can change its business processes to leverage the technology most effectively. To derive benefit from any technology, a firm needs to redesign its business processes or identify innovative uses for that technology (Bresnahan and Greenstein 1996). Clarke et al. (2006) have emphasized that RFID should be used less as a glorified barcode and more as a tool to leverage business intelligence for strategic planning. They suggest using RFID to plug information black holes in the supply chain and thus to help reduce stockouts and improve fill rates. As we describe in this paper, it is also useful in reverse logistics processes. These all suggest that the ROI of RFID--the effectiveness and value of such uses of RFID technology--has yet to be established unequivocally.
To investigate the benefits of RFID, we conducted a field study with GENCO, a third-party logistics company that recently deployed the technology in the outbound logistics operations of one of its return centers (RC) to reduce customer claims. The scale of operations at this RC is large--on average, it processes more than 3,400 pallets and 800,000 items each month. GENCO customers file a claim when the goods they receive are damaged or do not tally with shipping documents. Although GENCO's process already had a high accuracy rate and met customer expectations, GENCO sought even higher accuracy. Its intent in implementing RFID was to improve warehouse operational accuracy and quality of material flow, enhance customer responsiveness, and reduce shipment errors. Senior management felt that RFID might also deter fraudulent claims from GENCO's buyers. In a sense, RFID would be a silent supervisor that would monitor and record the details of material movement and alert the dock staff of errors. Potentially, it could provide testimony on the accuracy of claim flows, resolve discrepancies between customer claims and GENCO-recorded details, and invalidate fraudulent claims.
Our analysis confirmed that the RFID implementation had a significant impact on the accuracy of GENCO's outbound logistics process. Following its deployment, the number of claims fell substantially. After controlling for several factors in our model, we established that RFID was a key factor that contributed to the positive results at this RC. GENCO management forecasts of RFID's positive impact on logistics operations were accurate.
For readers who are not familiar with RFID technology, we provide a brief overview in the next section. In subsequent sections, we provide GENCO's rationale for deploying RFID, a synopsis of its RC operations, and a description of its processes prior to the RFID deployment. We then discuss the details of the implementation and its effect on GENCO's processes, including some of the implementation challenges. Finally, we provide an analysis of the benefits GENCO derived from the implementation, interpreting our results from senior management's viewpoint, and summarize its benefits. Our field study thus provides supporting evidence of the potential contribution that RFID can make to the bottom lines of operations similar to GENCO's.
RFID--The Technology
The RFID technology has come a long way since Marconi first transmitted Morse code-based signals in 1896; however, at a rudimentary level, it is essentially composed of three components (Figure 1). The tags and readers are the hardware components; the third component, the middleware, is the software that acts as a bridge between the data that the readers read from tags and a database. For a more complete description of the RFID technology, its emerging standards, and its potential uses, we refer the reader to Bhuptani and Moradpour (2005).
Tags: An RFID tag is a small transponder attached to the object to be tracked. The tag holds data that are transmitted to a reader when interrogated. Typically, a tag consists of an integrated circuit with memory. There are currently three types of tags deployed: passive, semipassive (or semiactive), and active. Passive tags are low cost and do not require battery power. These tags, when interrogated by a reader, reflect the radio waves that the RFID readers emit. In contrast, active tags have their own power, can transmit data, and are consequently more expensive. The semipassive or semiactive tags use the RFID reader's radio field to draw limited power for simple operations.
[FIGURE 1 OMITTED]
Readers: Readers, which are the interrogators, track the tags. They collect and process information that is embedded in the tags. For passive and semipassive tags, readers also provide the power...
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