Not long ago, there was much chatter about widespread adoption of RFID. But if the results of a recent DC VELOCITY survey are any indication, many companies have still not embraced the technology, and a large share of those who have implemented RFID are doing so by customer mandate.
An online study conducted among the magazine's readers earlier this year showed that while some companies have indeed adopted RFID, the technology has yet to gain widespread traction in distribution operations. All told, less than onethird—31 percent—of the 116 survey respondents said they were using RFID.
Many of those users appear to be reluctant players in the RFID game. When asked why they began using the technology, the biggest share of the respondents—39 percent—said it was primarily to comply with a customer's directive. (In recent years, several large retailers like WalMart Stores Inc. and government entities like the Department of Defense have imposed tagging mandates on some of their suppliers.) That was the case with Virginia Beach, Va.based Navy Exchange Service Command (Nexcom). Nexcom tags all of the ocean containers it ships overseas to stores on naval bases (the tags contain information on who owns the container and where it's going). According to a senior logistics executive at the organization, Nexcom is tagging those containers in order to meet a Department of Defense requirement.
Not all tag users are convinced of the technology's value. One survey respondent, the chief information officer of a third-party logistics service provider that ships tagged cartons to three WalMart DCs, questioned how much supply chain visibility the retailer was actually getting from the RFID tags. The CIO—who requested anonymity—noted that instead of reading the tag when an item was removed from the box and stocked on a shelf (thereby capturing data for replenishment purposes), WalMart does not actually read the tags until it bales up the empty cartons for recycling. Furthermore, he said, WalMart does not require an electronic advance shipment notification prior to the merchandise's arrival at its DCs—which indicates the megaretailer is also forgoing the opportunity to use RFID to record the receipt of goods upon delivery.
Technical difficulties
Although compliance with customer mandates has been a driving force in RFID adoption, it's not the only factor. Twentyfive percent of the survey respondents said their primary reason for implementing RFID was to improve inventory tracking. Another 14 percent cited "increased supply chain visibility," and 8 percent said they used RFID to save money.
As for how RFID saves users money, one survey respondent reported that RFID had helped his company slash shipping costs. Promega Corp., a Madison, Wis.based biotech company, is using RFID tags to track inventories of reagent chemicals stored in specially equipped freezers at customer sites. Whenever a customer takes a reagent from the freezer, a reader in the unit's door records the withdrawal and automatically relays the information to Promega. That uptotheminute info on inventories has cut down on the company's need for expensive overnight deliveries to avoid stockouts (Promega pays the freight on large orders). "It's reduced our shipping [costs] to customer sites by twothirds," reports Leonard Fabian, Promega's supply chain manager.
Not all RFID users have had positive experiences with the technology. Nearly half of all RFID users in our survey—47 percent— said they had run into problems with the tags. When asked about the reasons for their difficulty, 36 percent cited signal disruptions due to interference. Another 26 percent reported having "integration issues," and 19 percent said they had experienced a "high unit failure rate."
Others complained about the technology's expense. "There's a short lifespan before an upgrade," said one respondent, "and then there's the high cost of deployment."
In fact, cost appeared to be a sore point with many respondents. When asked whether they considered RFID to be a justifiable expense for logistics and distribution operations at this time, 68 percent of all survey respondents said no. Though tag costs have dropped in recent years, it's clear that RFID has a ways to go before respondents see it as affordable. As one reader wrote, the technology right now is still "cost prohibitive."
Gartner, Inc.