January 24, 2005    Volume 12, No. 2

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Companies Need To Prepare Now For RFID Demands


Radio frequency identification (RFID) tags will have a big impact on the operations of manufacturing companies, according to Rockwell Automation. RFID requirements are starting at the retail level, but the impact will be felt throughout entire supply chains and all the way to the factory floor. Companies must start preparing now to upgrade their software and hardware systems to handle a large increase in information that will be generated by RFID tags being placed on pallets, products and parts.

"To get all of the potential benefits, manufacturers will need to enhance their manufacturing information systems to enable them to react to the real-time data, whether it's a sudden spike in demand or a glitch on the assembly line," says a Rockwell Automation study called "RFID in Manufacturing."

"They will also need to change their business processes and train people to use the data that will be at their disposal. It's a difficult task, but it's one that manufacturers will have to undertake to remain competitive."

The financial and competitive gains to companies that rapidly and successfully adopt RFID will be great, says Rockwell. Wal-Mart alone expects to save billions of dollars a year by requiring that RFID be adopted throughout its supply chain. The company foresees savings of $6.7 billion a year in reduced labor costs, due to the fact that no bar-code scanning will be required using RFID tags. It expects to save another $600 million in out-of-stock supply chain cost reductions; $575 million in theft reduction; $300 million in improved tracking throughout warehouse and distribution centers; and $180 million in reduced inventory and holding and carrying costs.

"This represents $8.4 billion in annual savings, which is greater than the total revenue of half the Fortune 500 companies," says Rockwell. "The Wal-Mart RFID mandate is significant to all manufacturers because it means its top suppliers not only have to put tags on pallets and cases, but they must also install RFID readers in their manufacturing facilities, warehouses and distribution centers. They, in turn, can require their suppliers to tag shipments, a requirement that is then passed on throughout the supply chain."

Companies such as Tesco, Marks and Spencer and Nokia are implementing RFID. Procter & Gamble expects RFID to reduce its inventory from $3 billion to $2 billion by combining real-time information about its operations with sales data from retailers. "If it can achieve this, P&G will free up $1 billion in working capital and cut inventory carrying costs by $200 million per year," says Rockwell. "That will offset most of the cost of the infrastructure and tags, and all the other savings will help bolster P&G's bottom line."

The RFID technology will impact virtually everyone working for manufacturing companies "from the forklift operator to the head of logistics," says Rockwell. "However, chances are that the IT department will be most affected....Only by synchronizing an RFID-enabled plant floor with the RFID-driven supply network will a manufacturer achieve the true benefits across the supply chain realized from out-of-stock reduction, counterfeit prevention, efficient inventory management, shrinkage reduction and just-in-time production."

Rockwell Automation predicts an exponential growth in the adoption of the technology. "RFID use at the pallet and case level will increase rapidly due to what economists call the 'network effect,' which means that the more people use a physical network (say, the Internet) or shared services (like eBay), the more valuable it becomes."

Manufacturers will have to integrate RFID information into their already existing enterprise resource planning (ERP) systems and their manufacturing execution systems (MES). Once RFID information is shared across the enterprise and the plant floor "receiving, manufacturing, warehousing and shipping operations must be coordinated and executed in the context of orders and customers," says Rockwell. "Regardless of how much effort and dollars are spent on RFID on the enterprise level, poor management and execution of RFID efforts at the plant level could drive down potential benefits."

RFID efforts aimed at inventory visibility across the supply chain "are closely tied to the control systems and execution processes driving production," says Rockwell. "To fully realize the proposed benefits of RFID, control systems that drive manufacturing execution need to be modified. Retooling manufacturing assets, revamping execution strategies, recalibrating plant-level information systems and integrating new RFID-enabled manufacturing data to enterprise systems will be critical for synchronizing the plant floor with the RFID-enabled supply chain."

On the plant floor RFID will:

  • Improve asset utilization by tracking reusable assets and providing visibility into their location and usability;
  • Improve quality control by tagging raw material, WIP and finished goods inventory;
  • Improve production execution and supply chain performance by providing accurate, timely and detailed information to ERP and MES;
  • Improve inventory tracking and visibility with real-time tracking and automatic synchronization;
  • Improve MRO operations by providing accurate, timely and detailed information to CMMS applications;
  • Reduce scrap and increase line performance by controlling line operations based on tag information;
  • Support 21 CFR Port 11 compliance with complete tracking, verification and validation of processes; and
  • Deliver surgical precision in product tracking and genealogy by collecting historical information on product ID, time stamp, and lot number at each step of manufacturing process and across the supply chain.

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