ASHUTOSH KR JHA(39)

8/3/2019 ASHUTOSH KR JHA(39)

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A

Synopsis

On

Impact of RFID in inventory management

Submitted towards the PARTIAL FULFILLMENT

Post-Graduate Diploma in Management(Approved by

AICTE, Government of India-Equivalent to MBA)

ACADEMIC SESSION

2010-2012

Under Guidance of: Submitted by:

Dr. Akhilesh Kumar Ashutosh Kumar Jha

Director BM-010039

IMS Ghaziabad SEC-A

INSTITUTE OF MANAGEMENT STUDIES LAL QUAN,

GHAZIABAD


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INTRODUCTION

Radio-frequency identification (RFID) is a technology that uses radio waves to

transfer data from an electronic tag, called RFID tag or label, attached to an object,

through a reader for the purpose of identifying and tracking the object. Some RFID

tags can be read from several meters away and beyond the line of sight of the reader.

The application ofbulk readingenables an almost-parallel reading of tags.

The tag's information is stored electronically. The RFID tag includes a small RF

transmitter and receiver. An RFID reader transmits an encoded radio signal to

interrogate the tag. The tag receives the message and responds with its identification

information. Many RFID tags do not use a battery. Instead, the tag uses the radio

energy transmitted by the reader as its energy source. The RFID system design

includes a method of discriminating several tags that might be within the range of the

RFID reader.

A number of organizations have set standards for RFID, including the International

Organization for Standardization (ISO), the International Electrotechnical

Commission (IEC), ASTM International, the DASH7 Alliance andEPCglobal. There

are also several specific industries that have set guidelines including the Financial

Services Technology Consortium (FSTC) has set a standard for tracking IT Assets

with RFID, the Computer Technology Industry Association CompTIA has set a

standard for certifying RFID engineers and the International Airlines Transport

Association IATAset tagging guidelines for luggage in airports.

RFID can be used in many applications. A tag can be affixed to any object and usedto track and manage inventory, assets, people, etc. For example, it can be affixed to

cars, computer equipment, books, mobile phones, etc. The Healthcare industry has

used RFID to reduce counting, looking for things and auditing items. Many financial

institutions use RFID to track key assets and automate compliance. Also with recent

advances in social media RFID is being used to tie the physical world with the virtual

world. RFID in Social Media first came to light in 2010 with Facebook's annual

conference.

RFID is a superior and more efficient way of identifying objects than manual system
http://en.wikipedia.org/wiki/Technologyhttp://en.wikipedia.org/wiki/Radio_waveshttp://en.wikipedia.org/wiki/Bulk_readinghttp://en.wikipedia.org/wiki/Bulk_readinghttp://en.wikipedia.org/wiki/International_Organization_for_Standardizationhttp://en.wikipedia.org/wiki/International_Organization_for_Standardizationhttp://en.wikipedia.org/wiki/International_Organization_for_Standardizationhttp://en.wikipedia.org/wiki/International_Electrotechnical_Commissionhttp://en.wikipedia.org/wiki/International_Electrotechnical_Commissionhttp://en.wikipedia.org/wiki/International_Electrotechnical_Commissionhttp://en.wikipedia.org/wiki/ASTM_Internationalhttp://en.wikipedia.org/wiki/ASTM_Internationalhttp://en.wikipedia.org/wiki/DASH7http://en.wikipedia.org/wiki/EPCglobalhttp://en.wikipedia.org/wiki/EPCglobalhttp://www.fstc.org/http://www.fstc.org/http://en.wikipedia.org/wiki/CompTIAhttp://en.wikipedia.org/wiki/IATAhttp://en.wikipedia.org/wiki/IATAhttp://en.wikipedia.org/wiki/Radio_waveshttp://en.wikipedia.org/wiki/Bulk_readinghttp://en.wikipedia.org/wiki/International_Organization_for_Standardizationhttp://en.wikipedia.org/wiki/International_Organization_for_Standardizationhttp://en.wikipedia.org/wiki/International_Electrotechnical_Commissionhttp://en.wikipedia.org/wiki/International_Electrotechnical_Commissionhttp://en.wikipedia.org/wiki/ASTM_Internationalhttp://en.wikipedia.org/wiki/DASH7http://en.wikipedia.org/wiki/EPCglobalhttp://www.fstc.org/http://www.fstc.org/http://en.wikipedia.org/wiki/CompTIAhttp://en.wikipedia.org/wiki/IATAhttp://en.wikipedia.org/wiki/Technology


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or use ofbar codesystems. Furthermore, passive RFID tags (those without a battery)

can be read if passed within close enough proximity to an RFID reader. It is not

necessary to "show" the tag to the reader device, as with a bar code. In other words it

does not require line of sight to "see" an RFID tag, the tag can be read inside a case,

carton, box or other container, and unlike barcodes RFID tags can be read hundreds at

a time. Bar codes can only be read one at a time

A basic RFID system consists of three components:

An antenna or coil

A transceiver (with decoder)

A transponder (RF tag) electronically programmed with unique information

The antenna emits radio signals to activate the tag and to read and write data

to it.

The reader emits radio waves in ranges of anywhere from one inch to 100 feet

or more, depending upon its power output and the radio frequency used. When

an RFID tag passes through the electromagnetic zone, it detects the reader's

activation signal.

The reader decodes the data encoded in the tag's integrated circuit (silicon

chip) and the data is passed to the host computer for processing.

Current and Potential Uses of RFID
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RFID for Inventory control

Improves sort/pick rate

In a warehouse, sorting/picking activity is more time consuming and subjected to

errors. RFID systems ease the sorting and picking operations, as it captures real- time,

accurate information about product availability in host computer database without

physical movement. RFID tags are read via radio frequencies therefore it is not

mandatory to place the items in a particular position to read it. This could be helpful

for effective warehouse management.

Reduced inventory shrinkage

As items are continuously monitored, Inventory shrinkages including thefts,

misplacement of items can be avoided using RFID technology.

Issuing policies

RFID systems give exact count and location of items. This will help to follow acertain issuing policies for items as per the requirements. E.g.: First-in-first-out

(FIFO) policy for items such as, vegetables, bread; or last-in-first-out (LIFO) for

blood banks.

Perishable inventory control

A perishable product has limited useful life and if it is not handled properly while

transporting, it may get spoiled and its useful life reduces. If this reduced lifeinformation of items is not updated, then it may be possible that an outdated item gets


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delivered to a customer. In such a case, there may be an additional cost of

replacement of item and also loss of goodwill of customer. Such spoilage could be

reduced simultaneously with automating inventory management, by using RFID

technology for product identification, while it moves through the supply chain. RFID

system can track the items in real time without product movement, scanning or human

involvement. Using active RFID tags it can be possible to update information on it

dynamically.

Maintaining Warehouses

Many warehousing processes can be automated such as, receiving, picking, and

ordering. Various enterprise applications, for example ERP packages, can be

configured and linked to RFID technology for direct and on-line collection of data. It

could be possible to combine RFID and Bar coding technology for tracking of items

to take competitive advantages of both the technologies.

Supply Chain Management

RFID technology has been used in closed loop supply chains or to automate parts of

the supply chain within a company's control for years.

As standards emerge, companies are increasingly turning to RFID to track shipments

among supply chain partners.

A literature review on the impact of RFID technologies on supply chain

management

RFID technologies offer several contributions to supply chain through their advanced

properties such as unique identification of products, easiness of communication and

real time

information. Thus,

RFID can improve

the traceability of

products and the

visibility throughout the


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entire supply chain, and also can make reliable and speed up tracking, shipping,

checkout and counting processes, which leads to improved inventory flows and

more accurate information (Chow et al., Tajima). Leung et al. [69] present the

benefits if RFID as in Figure in three main groups; revenue, operating margin, capital

efficiency.

Figure : RFID benefits tree

The objective of RFID implementation is not just to improve current systems.

Reorganizing processes using this new technology can also lead to large gains in the

overall supply chain effectiveness (McFarlane et al. [75], Agarwal [1], Langer et al.[63]). Bottani and Rizzi [13] conclude that reengineering models highlight possible

benefits gained through RFID for all processes of distribution centers and retailers.

In 2005, Wal- Mart asked their 100 first suppliers to tag all their pallets and cases

[115], [70], [118]. Through this innovative attempt, Wal-Mart provided a

considerable acceleration to RFID implementations in supply chains. According to the

analysis of the University of Arkansas, Wal-Mart succeeded in adopting the RFID

technology and reduced out- of-stocks by 16% [13]. Roberti [89] shows that out-of-


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stock items with RFID were replenished three times faster than items using standard

barcode technology. He also concludes that Wal-Mart experienced a 10% reduction in

manual orders resulting in a reduction of excess inventory. Mark & Spencer is also

employing RFID technologies in its refrigerated food supply chain. Wamba et al.

[113] report that they are tracking 3.5 million reusable trays, dollies and cages using

RFID, and about 70% of the products are perishable in this chain.

Wilding and Delgado [116] show that, through RFID technologies, Mark & Spencer

gained 83% reduction in reading time for each tagged dolly, 15% reduction in

shrinkage, a reduction in lead time and also an improvement of inventory

management.

Simulation studies on the impact of RFID technologies on supply chains

Simulation methods are developed in order to observe the dynamic behavior of a

system and to optimize its perfor- mances. One of the first simulations on supply

chain is performed by Krajewski et al. (1987). They analyze the factors of the

inventory management performance through an MRP based production simulation.

Inventory level, percentage of late orders are some of these performance factors.

Brown et al. (2001) also simulated an MRP environment in order to analyze the

impact of inventory inaccuracy. They showed that the frequency of errors (the number

of time periods of inaccuracy) is the main supply chain performance factor, followed

by the magnitude (the percentage of inaccuracy) and the location of errors (the

processes where inaccuracy occurs).

Joshi (2000) simulates a simple supply chain in order to evaluate the value of

information visibility in the supply chain through RFID. He focused on the bullwhip

effect. He tested different scenarios by varying the degree of information visibility

and supply chain actors collaboration through RFID technologies. The results

showed that, in supply chains, information visibility and actors collaboration can

provide 40-70% reduction in inventory cost. He also concluded that the reduction in

lost sales by timely deliveries or orders, real-time traceability and more con- fidential

supply chain management improve the customer service.

Several authors used simulations in order to analyze the impact of RFID technologieson inventory inaccuracy due to shrinkage errors. Kang and Koh (2002) simulate a


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retailer inventory system with an automatic reorder point replenishment policy and

random demand. They showed that a 2.5% increase of shrinkage can augment stock-

out rate by about 50%. He also concluded that the indirect cost of stock-outs due to

uncounted shrinkage errors is 30 times greater than the direct cost of shrinkage errors.

Kang and Gershwin (2004) simulate a single-item inventory model with a periodic

review system under a (Q, R) policy. They observed that even a 1% of shrinkage error

can cause an out-of-stock level of 17% of the total lost demand, and that 2.4% of

shrinkage error can increase this value up to 50%. They also examined and analyzed

several inventory management methods, in order to eliminate inaccuracy, such as

safety stock, manual inventory verification, manual reset of the inventory record,

constant decrement of the inventory record and Auto-ID technologies. Lee et al.

(2004) perform a quantitative simulation under a reorder point and order-up- to level

inventory replenishment policy (s,S). They compare different models with or without

RFID, with different values of s and S. The results show that RFID implementation

can reduce the distribution center inventory level by 23%, eliminate completely

backorders and also that RFID can provide a reduction in order quantity that can

reduce the distribution center inventory level by up to 47%. Fleisch and Tellkamp

(2005) simulate a one-product three-level supply chain. They detail shrinkage errors

as low process quality, theft, and items becoming unavailable for sale. They compared

two models with and without an inventory level alignment. The results showed that

the elimination of inventory inaccuracy, even a small initial level as 2%, can reduce

out of stock level and supply chain costs. Basinger (2006) develop a simulation model

for a single-item three- level supply chain. He believes the main factors of inventory

inaccuracy are the order policy, stock-out/backlog policy, theft and supply chain

synchronization. His results showed that the stock-out/backlog policy is the dominant

factor, followed by the order policy. He concluded that physical inventory counting is

a current, frequently used method to align physical and information system inventory

levels while RFID is a new method that can facilitate this alignment. Leung et al.

(2007) simulate a three-echelon supply chain under the (s,S) replenishment policy.

Three scenarios were tested. In the first scenario, RFID technology does not exist.

Physical inventory counting is done in the store once every three months. In the

second scenario, RFID is integrated in order to provide inventory accuracy in real

time and better replenishment decisions. They considered that RFID technology

provides 100% accurate inventory levels. The results show that the back-order


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quantity decreases by 1%, the average inventory level increases by 20% and the

fluctuation of the inventory is much smaller in the second scenario. In the third

scenario, they decrease the reorder point and order-up-to level inventory, respectively

from 36 to 26 and from 48 to 38. The results show that the back- order quantity

becomes 22% lower from the first scenario, and the average inventory level is

reduced by 16%.

The Impact of RFID on Supply Chain

Imagine youre at the grocery store the week before Thanksgiving and many of the

items youre looking for are sold out. The employees restocking the shelves cant

keep up with consumer demand. To make matters worse, you arrive at the checkoutcounter and every line is long. A new automated data collection (auto-ID) system may

be able to help stores work out these kinks.

Radio frequency identification, or RFID, has the potential to revolutionize the way

business is conducted. Consisting of three parts, a chip, a reader, and a database,

RFID can automatically identify people and objects by a 100-digit tag and track them

through the supply chain. As they move through the process, RFID readers collect

information on the products and match their tag numbers to a central database, which

provides access to all information regarding the product.

Because of those abilities, RFID technology can provide unprecedented speed and

accuracy in a supply chain, says Smeals Dennis Lin, University Distinguished

Professor of Statistics and Supply Chain Management, and coauthor Vijay Wadhwa,

former Ph.D student in the Department of Industrial and Manufacturing Engineering

at Penn State, in their article, Efficiency Gets a New Identity, published in

American Society for Qualitys Quality Progress.

Implementing RFID technology could increase a companys efficiency and

productivity when conducting business on both a national and global scale.

RFID in Retail

There are two types of RFID tags: passive and active. The passive type, which Lin

studies, works with little to no energy. The active type can use either radio waves or

satellite signals to track products.


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Wal-Mart is currently experimenting with passive RFID tags to help its stores meet

high consumer demand. This auto-ID technology aims to reduce the likelihood of

empty shelves by obtaining real-time product information.

Items with RFID tags have different identification numbers. It takes the RFID reader,

which can read products within a 15-foot radius, about a second to retrieve

information from the tags. Then, that information is sent to a database, which

provides real-time inventory reports to help stores manage inventory and replenish

shelves.

RFID can provide several other advantages that cannot be achieved easily using a

barcode system: faster product check out, theft reduction, dynamic pricing of products

and tracking employees for labor efficiency, say the authors. But those advantages

come at a price.

RFID tags are more expensive than barcodes, which are the most commonly used

forms of auto-ID, and have a greater impact on a companys bottom line.

RFID in Warehouses and Manufacturing

Like retail, the cost of implementing RFID technology in a warehouse setting could

be an issue. According to the authors, it is estimated that an RFID-enabled warehouse

would cost in excess of $2 million.

Nonetheless, this technology would be very useful.

The warehouse is an important supply chain entity because it acts as a buffer to

minimize the effects of variability in the supply chain and serve customers in a timely

fashion during peaks in demand, the authors write.

If RFID technology was used in a warehouse, shipments could be received

automatically, barcodes would no longer need to be scanned before storing the

products, and picking and shipping the products would be easier.

The advantages of implementing RFID in a warehouse setting are very similar tothose in a manufacturing environment, except that, in manufacturing, there is the


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potential to improve product lifecycle management, quality control, and inventory

management.

As a result, manufacturers can improve visibility and lower the overall inventory

levels, labor costs and safety stocks, write the authors.

The corporate impact of real-time inventory tracking

What do cows, runners in the Boston Marathon, and designer clothes from United

Colors of Benetton have in common? They're all being tracked with a 10-year-old

technology called Radio Frequency Identification (RFID) that will dramatically

revolutionize supply chain management for corporations over the next three years.

With large retail chains such as Wal-Mart requiring major suppliers to support RFID

technology by January 2005, many corporations will spend the next 12 to 18 months

trying to figure out how to implement systems that allow them to use RFID

technology to track their products from manufacturing through major distributors. I'll

examine the origins of the RFID boom and discuss the systems implications for which

CIOs should begin their planning now.

Radio waves of the future

RFID technology has many uses beyond the simple tracking of animals, people, and

merchandise. RFID tags include smart memory and a radio transmitter. RFID

receivers collect this information and identify the item based on the information

stored in memory on the tag. Unlike bar codes that require the reader to be able to

"see" a specific set of bars on the item, RFID readers can collect the information from

certain distances, depending on the frequency of the transmitter. Low-frequency

RFID transmitters require the reader to be within 1 foot. High-frequency transmitters

emit a signal that readers can acquire within 3 feet of the item. And Ultrahigh

Frequency (UHF) tags have a range between 10 and 20 feet. Major retailers such as

Wal-Mart and Target are in the midst of pilots designed to test the UHF RFID

technology as a replacement for their existing bar code systems.


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Developing standards

Early adopters of RFID have all used their own proprietary implementations. But for

the technology to prosper, it will be necessary for companies to agree on standard

implementations of RFID. The Auto-ID Center, a consortium of vendors and

customers interested in spurring adoption of RFID, is implementing a standard called

the Electronic Product Code (EPC), which will make RFID easier to adopt and

support for supply chain applications. Some of its members are already making huge

commitments to the technology. For example, Gillette has committed to a 500-million

tag purchase for its upcoming pilots and market rollouts, and United Colors of

Benetton placed an order for 1.5-million tags for use in item tracking in its retail

stores. The EPC technology is designed to replace the bar code as a unique identifier

for an item and can carry more information about the item than a bar code.

Future benefits and applications

Consider almost any scenario in your organization where you need to use a bar code

to track items that you send or receive, and you'll immediately realize the benefit of

RFID tags over standard bar codes. The reduction in labor and simplification of

automated tracking systems alone could justify the cost of an RFID implementation.

But price is still the biggest barrier to adoption of RFID. With a current price of 50

cents per tag, the cost of tracking anything other than high-ticket, low-volume items is

prohibitive. But the three major RFID manufacturers have all set their sights on

delivering RFID tags for about 5 cents by mid-2004. At that price, manufacturers will

begin slapping RFID tags on every pallet and case that leaves their warehouses. And

smart distributors and retailers will take advantage of RFID for new and innovative

inventory and supply chain applications.

One retailer is already experimenting with inventory control using RFID tags. By

placing RFID readers on its store shelves, the retailer can identify low stock items,

analyze traffic and purchase patterns, and identify potential theft of its products. In the

near future, RFID readers at the checkout lanes will allow store personnel or thecustomer to simply move the products near the reader and have an accurate invoice
http://www.autoidcenter.org/http://www.autoidcenter.org/


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without having to "scan" all of the items individually.

Barriers to adoption

New systems like these will have to be developed to handle the massive amount of

new data points that can be collected, stored, and analyzed based on the flow of

RFID-tagged items through a system. Over the next two years, developers will have

to design new warehouse and inventory management systems to take advantage of the

real-time nature of RFID tag information. And management will have to design,

adopt, and implement policies that protect the privacy of individuals who purchase or

consume their products. Matching the RFID tag information to individual

identification mechanisms like charge cards and frequent buyer cards both maximizes

the marketing opportunities for companies and creates a potential privacy policy

nightmare. Nonetheless, you should consider doing your own RFID pilot in the next

18 months so that you're prepared when the adoption tidal wave hits in late 2004 or

early 2005.

Wal-Mart-Commissioned Study Shows RFID Improves Store Inventory

Accuracy

March 13, 2008A new research study commissioned by Wal-Mart underscores

RFID's positive role in improving inventory accuracy at retail stores. The goal of the

study was to examine the store-level influence of RFID on perpetual inventory (PI).

PI is an inventory management system's continuously updated calculation of on-hand

inventory (which is typically determined by manually counting the items).

The research study was first announced in October 2007 by Carolyn Walton, Wal-

Mart's VP of information technology, as one of three initiatives the retailer was

carrying out as part of a "change of focus" in its RFID program (see Wal-Mart, Sam's

Club Push RFID Further Along). The research was conducted by the RFID Research

Center, part of theUniversity of Arkansas' Information Technology Research Institute(ITRI). The RFID Research Center was created to provide research designed to
http://www.walmartstores.com/http://www.rfidjournal.com/glossary/126http://www.rfidjournal.com/glossary/126http://www.rfidjournal.com/article/articleview/3666/1/1/http://www.rfidjournal.com/article/articleview/3666/1/1/http://itri.uark.edu/rfid/http://itri.uark.edu/rfid/http://itri.uark.edu/http://itri.uark.edu/http://www.walmartstores.com/http://www.rfidjournal.com/glossary/126http://www.rfidjournal.com/article/articleview/3666/1/1/http://www.rfidjournal.com/article/articleview/3666/1/1/http://itri.uark.edu/rfid/http://itri.uark.edu/rfid/http://itri.uark.edu/


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investigate the business value of RF technologies (see University Opens RFID

Research Center). A resulting white paper, entitled "Does RFID Improve Inventory

Accuracy? A Preliminary Analysis," is available from ITRI's Web site (click here and

enter the term RFID in the keyword field.)

The study involved RFID systems, including a new PI inventory adjustment tool, in

eight Wal-Mart stores, and was conducted to investigate the impact of RFID on

inventory accuracy. The eight test stores have RFID interrogators and antennas

installed at various backroom locations, such as receiving docks, doors between

stockrooms and sales floors, and box crushers where empty cases are discarded. The

PI inventory adjustment tool was basically a software system that used business rules

to adjust PI by analyzing the automated inventory counts collected by the RFID

readers and antennas, as well as from point-of-sale terminals.

Eight Wal-Mart stores without RFID systems served as a control group during the

study. To establish a baseline for PI accuracy, inventory was counted for 10 weeks

before the PI inventory adjustment tool was activated in the test stores.

There are two types of PI errors: Overstated PI occurs when the system indicates

more inventory is on hand than is actually in the store; understated PI occurs when PI

levels recorded in the system are less than the actual quantity on site. Overstated PI is

typically caused by such scenarios as theft and cashier errors, while understated PI is

often the result of such things as manual adjustments, errors when processing returns

or sales, and incorrect shipments from a distribution center (DC) or vendor.

For this study, only understated PI was investigated. For the purpose of analysis,

researchers divided PI accuracy into three categories: perfect, meaning the PI matches

the actual inventory on hand; close, defined as the PI being within two units (cases) of

on-hand inventory; and inaccurate, i.e., the PI is off by more than two units.
http://www.rfidjournal.com/article/articleview/1658/1/1/http://www.rfidjournal.com/article/articleview/1658/1/1/http://itri.uark.edu/researchhttp://www.rfidjournal.com/article/articleview/1658/1/1/http://www.rfidjournal.com/article/articleview/1658/1/1/http://itri.uark.edu/research


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Benefits of RFID-Enabled Supply Chain

Supply chain management objective is to increase the long-term performance of

individual companies and the overall supply chain by maximizing customer value and

minimizing costs. Not all companies achieve these goals with the same strategy. A

supply chain is either agile or lean and given this, a different approach to increase the

efficiency and effectiveness is adopted. Companies such as Wal-Mart and Dell have

gained efficiencies by having a clear understanding and a tight commitment to deliver

customer value by maximizing not only the value provided by their companies but

also aligning their partner's interest to create unique supply chains.

Information systems are the backbone of every supply chain and they are based on

automatic data acquisition techniques to meet the goal of collecting information.

RFID is a technology with unique characteristics that make it suitable to enhance data

collection processes along the supply chain.

EPC Global, the standards body sets the standards for how basic product information

is encoded in the RFID chips. The vision that drives the developments of standards is

the universal unique identification of individual items. The unique number, called

EPC (electronic product code) is encoded in a Radio Frequency Identification (RFID)

tag. There are three types of RFID tags, all of which can either be read-write or read

only.

Passive Tags - simply store data and draw power from a reader whose

electromagnetic wave induces a current in the tags antenna for short-range

communication (up to 10 m).

Semi-passive Tags - use an integral battery to run the chips circuitry but draw power

from the reader to communicate.

Active Tags - are capable of communicating over greater distances (up to 100m) but

are currently far more expensive.

The EPC Network also capture and make available (via Internet and for authorized

requests) other information that pertains to a given item to authorized requestors.

The benefit of an EPC code is primarily derived from the ability to automatically pin-


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point the exact location of goods and documents anywhere within an extended

enterprise. Such ability leads to the following benefits:

Enhance supply-chain control. As the location of a part can be identified at

every transfer point with accuracy, the whole supply-chain can be controlled

with close to 100% accuracy.

Security and authentication. A RFID tag can be written with an identifier

chosen by the enterprise. This unique identifier can be used to authenticate a

part or a document. The RFID technology also supports encryption and other

security models so that a tag cannot be easily duplicated or forged.

Enhanced customer service. The RFID technology can promote customer

service by allowing faster check-outs, returns, and personalization of service.

RFID will have a significant impact on every facet of supply chain management

from the simple tasks, such as moving goods through loading docks, to the complex,

such as managing terabytes of data as information about goods on hand is collected in

real time. It has a potential to dramatically improve supply chain by reducing costs,

inventory levels, lead times, stock outs and shrinkage rates; increasing throughput,

quality, manufacturing flexibility, inventory visibility, inventory record accuracy,

order accuracy, customer service, and the collaboration among supply chain members.

The applications fall in the manufacturing, warehousing/distribution centers, logistics

and retailing environments.

To understand the impact of RFID in the manufacturing floor environment you have

calculate the return of investment (ROI) achieved by increase of visibility and work-

in-process (WIP) inventory accuracy. This reduces the operating cost and thus

increases the profit. Lead times and the total cycle times are shortened as a result of

the increased manufacturing speeds and reduced inefficiencies of the manufacturing

line.

The automatic identification of products with RFID in the warehousing and

distribution center environments has a consequence: increased visibility and accuracy

of the inventory. This increases the warehousing efficiency and order accuracy. At the


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same time it reduces shrinkage, stock outs and inventory levels. The increased

warehousing efficiency has as a consequence a reduction in the operation costs, which

translates into increased profits and also a reduction in lead times. Reduced lead times

means increased customer service as well as decreased inventories along the supply

chain. Ultimately, reduced inventories increase ROI.

The uses of RFID systems to track asset provide a distinctive set of benefits. RFID

tags enable an increased visibility and accuracy of the asset pool. This visibility and

accuracy impacts six main areas: operating costs, shrinkage, lead times, inventory

visibility and accuracy, customer service and integration among parents. RFID

streamline the management of assets (such as machinery or containers) and increase

the efficiency by reducing the equipment needed or reducing labor, thus translating

into higher profits. Reduced assets shrinkage, increase ROI. Lead times (total cycle

time) are reduced with the increased efficiency to handle the assets.

The prototype system developed by e-Smart Source in a supply chain RFID pilot

showed the following benefits:

Data accuracy in the supply-chain. The project resulted in 99.9% accuracy of

inventory where all the links of the supply-chain were RFID enabled. As a result the

stock-out rate in those stores was reduced to less than 0.1% over a period of several

months.

Profit margin. Preliminary analysis shows that the product line profit margin is

expected to increase by over 20%.

Wal-Mart RFID Trial Shows 16% Reduction In Product Stock-Outs

Wal-Mart Stores Inc. says its customers are finding the items they want in stock on

shelves more often in stores that are using radio frequency identification technology

with embedded electronic product codes, compared with those that are not, according


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to initial findings from a University of Arkansas study conducted during the last

several months.

Researchers found a 16% reduction in out-of-stock merchandise at Wal-Mart stores

equipped with RFID labels using EPC codes. The study also shows that out-of-stock

items with RFID were replenished three times faster than items using standard bar-

code technology. Wal-Mart also experienced a "meaningful reduction" in manual

orders resulting in a reduction of excess inventory, according to the university report.

"An RFID tagged item made it to the shelf three times quicker than a non-tagged

item," says Simon Langford, strategy manager for RFID at Wal-Mart. "These items

were identified as being in the back room three times quicker than those without

RFID tags."

Linda Dillman, executive vice president and CIO for Wal-Mart, told

InformationWeek last month that the study would provide conclusive evidence RFID

technology increases the frequency with which it can put products in customers'

hands.

The study is the first to compare the impact of RFID with embedded EPC on

merchandise availability in operating stores. For 29 weeks researchers analyzed out-

of-stock merchandise at 12 pilot stores, including Wal-Mart Supercenters, Discount

Stores, and Neighborhood Markets, equipped with RFID and 12 stores without the

technology.

While Wal-Mart commissioned the study, the University of Arkansas conducted it

independently. Specific items were selected at the beginning of the study and the

items remained constant throughout the process to ensure data consistency. To

establish a baseline prior to the study and to measure the impact of RFID, out-of-stock

items were scanned every day throughout for 29 weeks at the 24 stores.

Dr. Bill Hardgrave, director of the RFID Research Center at the University of

Arkansas and executive director of the Information Technology Research Institute,

oversaw the study. "Our analysis consistently found, throughout the test period, that

the RFID-enabled pilot stores statistically outperformed the control stores without

RFID technology in terms of providing improved on-shelf availability of items forcustomers," Hardgrave said. "Essentially, this meant fewer total out-of-stock items


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and fewer occurrences of empty shelves when the merchandise was in the backroom."

The 16% reduction in merchandise stock outs was determined by physically scanning

product stock-outs on the shelf every day. Details and findings of the study will be

made available in the near future via a series of white papers released by the

University of Arkansas.

Beyond improvements for in-stock merchandise, Wal-Mart also sees benefits from

RFID in overall inventory reduction throughout the supply chain, which is important

to drive down costs. "With little effort we have been able to make inroads into this

area," says Rollin Ford, executive vice president for logistics in Wal-Mart. "Manual

orders placed by stores were reduced by approximately 10%."

With prices falling as much as 70% for RFID tag inlays that are inserted into shipping

labels, Wal-Mart fully expects suppliers to start tagging additional merchandise in

2006. It also expects that by mid 2006, the retailer will move from the first generation

of RFID tag " Class 0, Class 0+ and Class 1 to Gen 2 tags. And encouraged by the

development, ratification, and improved read rates of Gen 2 technology, Wal-Mart is

now in the final stages of testing this global standard.

Wal-Mart this year began installing equipment to more than triple the number of

stores where RFID technology has been installed. By the end of October, Wal-Mart

will have more than 500 stores and clubs and five distribution centers live with RFID.

The next 200 suppliers will join the existing approximately 130 in January 2006,

shipping EPC-tagged cases and pallets.

In 2006, Wal-Mart will double the number of stores that are RFID-enabled, along

with distribution centers that service stores. By the end of 2006, more than 1,000

stores, clubs, and distribution centers will be using RFID. In January 2007, Wal-Mart

expects the next wave of 300 suppliers to start shipping tagged cases and pallets. That

will bring the total number of suppliers using RFID in early 2007 to over 600.

Since the 1980s, Wal Mart has insisted that all its major suppliers add RFID tags to

their supplied products to Wal Mart. These tags are little microchips planted on

individual products or their containers. Wal Mart stores have detecting devices that

receive signals from these RFIDs as soon as a product comes into store. This signalthen goes to a central supply chain management and inventory control database which


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stores the information.

The same system is used to track shelf life of products, customer buying habits and a

host of other important information that the retail giant then utilizes to understand

how its products are being bought in various geographies and at different times of the

year. This kind of information is very important for Wal Mart, because this helps it

determine what product to send where and at what time. This is an in depth study of

market trends and product movement that no other method would have made as

thoroughly possible as the RFID.

It has been estimated that the use of RFID saves Wal Mart over half a billion dollars

annually, by letting it transport products at just the right time and to just the right

places. The technology will bring benefits to a wide range of industries, as we shall

see, but one of the main drivers of RFID adoption has been the retail sector, led by

Wal-Mart in the US. Phillip J. Windley, an Associate Professor of Computer Science

at Brigham Young University, estimates that US retail giant Wal-Mart alone could

save $8.35 billion annually with RFID - that's more than the total revenue of half the

companies in the Fortune 500. Its massive total is made up as : $600 million through

avoiding stock-outs; $575 million by avoiding theft, error and vendor fraud; $300

million through better tracking of a billion pallets and cases; $180 million through

reduced inventory; and a huge $6.7 billion by eliminating the need to have people

scan barcodes in the supply chain and in-store. Small wonder, then, that Wal-Mart is

investing $3 billion in RFID over several years and is one of the leading proponents

of RFID implementation.

The information on tags is read when they pass by an RFID reader, and that

movement is captured and managed by the infrastructure. In this way, organizationsare able to link the physical world to the digital world without any human interaction.

Whatever actions are then triggered depends on the individual application, from basic

stock replenishment at one end of the spectrum to facilitating the ultimate lean supply

chain at the other.

RFID promises to revolutionize supply chains and usher in a new era of cost savings,

efficiency and business intelligence. The potential applications are vast as it is

relevant to any organization engaged in the production, movement or sale of physical


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goods. This includes retailers, distributors, logistics service providers, manufacturers

and their entire supplier base, hospitals and pharmaceuticals companies, and the entire

food

It has the potential to improve efficiency and visibility, cut costs, deliver better asset

utilization, produce higher quality goods, reduce shrinkage and counterfeiting, and

increase sales by reducing out-of-stocks.

The Future of RFID in the Supply Chain Management

Companies are always searching for new ways to improve efficiency and cut costs.

This has caused an inevitable shift towards outsourcing, particularly in transportation

and warehousing, according to a recent study by Georgia Tech University and

Capgemini LLC. A reported 50% of businesses that currently do not outsource

logistics plan on outsourcing at least some of their operations in the future, and in the


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last four years of the study, 80% of companies were using third party logistics (3PL)

services, an increase of almost 10% from the first six years. While the benefits of

outsourcing (lower costs, higher productivity, and better services levels) are clear, the

methods for achieving those benefits are often complex and are better left to your 3PL

partner, allowing you to focus on your companys core competencies.

As technologies advance, 3PLs have remained abreast of the ever improving ways to

successfully manage all aspects of the supply chain. The use of radio frequency

identification (RFID) is one solution that has received increased attention in logistics

operations in recent years. RFID is a tracking method similar to barcoding that

enables customers and shippers to virtually retrieve data about products throughout

the shipping process. Unlike barcodes, however, RFIDs carry tracking devices that

uniquely identify each individual item, allowing a client and/or the 3PL to identify the

exact location of any product and the time of delivery for every shipment.

Solutions offered by 3PLs, like RFID, have become essential in todays highly

competitive business market. Greg Cudahy, global supply chain leader for Capgemini,

acknowledges todays increased interest [in] and sustainability of truly collaborativerelationships between 3PL providers and their customers," going on to explain that

while there are ways in which all parties can improve these relationships, long-term

success in the marketplace requires that more effective logistics and supply chain

solutions be developed, including the next generation of RFID pilot programs." As

any company knows, to fall behind on technology is to sabotage your firms ability to

compete within its industry, making a partnership with an IT-savvy 3PL a wise and

necessary decision in achieving your long term business goals.

When initially considering technological advancements like RFID, price point is often

a deterrent for companies. The substantial amounts of hardware, software and

redesign processes involved in a complete RFID overhaul are significantly more

costly than traditional methods of item coding. Partnering with a 3PL that has

expertise in providing item tracking options that fit your needs and your budget

can give any company a strategic advantage within its industry. Alternatives that a


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qualified 3PL may provide include a level of RFID tracking that monitors products by

the case and pallet, rather than the individual unit. This method of tagging is suitable

for companies that offer products with low profit margins, while manufacturers that

produce high-value, low-bulk and frequently stolen items such as consumer

electronics would benefit from unit level tracking, in spite of the high initial cost.

Through careful analysis of the initial cost in comparison with the long term benefits,

a knowledgeable 3PL will know how to advise your company in order to achieve

ultimate cost savings.

In addition to cost savings, an effectively constructed and implemented item tracking

system can improve productivity and the level of service a company is capable of

offering its customers. As noted by Jim Farrell and Ralf Saykiewicz, leaders in

technology solutions, the time required for physical verification of orders has fallen

dramatically, particularly for mixed pallets. Whereas verification previously took

from 80 seconds to 20 minutes per pallet, with RFID it now takes no more than 20

seconds. With time reductions such as these, supply chain functions can greatly

improve, and getting products into the marketplace and the hands of consumers will

occur more efficiently than ever before. Also, because shipping information is in real-

time, RFID nearly eliminates human error in the supply chain. If someone operating a

forklift mistakenly loads a truck with the wrong product, a red flag will notify a

supply chain supervisor that an item is off-track, allowing the 3PL to address mistakes

before they become complex and difficult to reverse.

The benefits of a well-implemented and managed item tracking system do not stop

with cost savings, improved productivity and increased service levels, however.

Supply chain visibility and transparency is among the greatest assets a 3PL can offer

its clients. For the 3PL, it means the supply chain can be managed efficiently and

without error; for the company, it means they can turn their focus to their core

competencies, knowing their supply chain can be viewed and assessed at a moments

notice. This visibility also helps key decision makers in the company adopt demand-

focused systems that reduce overstocks, margin erosion, and markdowns.Furthermore, as a CEOs ability to forecast demand improves, he or she is able to


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more effectively schedule production, ultimately reducing costs and capitalizing on

economies of scale. A good 3PL can offer the security and piece of mind that your

supply chain and your bottom line is functioning at the highest capacity for

success.

In the fast paced, hi-tech marketplace of the 21st century, companies must do whatever

it takes to stay ahead of the competition. RFID, as part of a high-level item tracking

system, has become a necessary component in a well-executed supply chain. It is time

for companies to realize that approaching their supply chain operations with the if it

aint broke, dont fix it mentality ultimately puts them at risk for a flat-line in

productivity, high operating costs and below average service levels. Assuming that

your internal operations are good enough without investigating the many areas of

improvement a 3PL can offer is counterintuitive to long term business success.

Technology and innovation like RFID is the way of the future, and establishing a

relationship with a qualified 3PL today can ensure that your company achieves its full

potential in the years to come.

Pharmaaaa

Radio Frequency Identification (RFID) is hardly a new concept. For some, RFID is

already a mainstream technologyit is used every day to pay tolls, secure building

access, control manufacturing subassembly movement and track assets. Until recently

its impact in supply chain management has been limited to niche roles due to cost

barriers as well as a lack of accepted standards, technology challenges and

performance limitations.

The movement to overcome these barriers and apply RFID in supply chain solutions

will be further accelerated as suppliers across all industries begin to comply with Wal-

Mart and Department of Defense (DoD) RFID mandates. What has been a niche

player throughout the 1990s now promises to be an arena of intense focus over the

next decade. The need to comply with Wal-Mart and DoD requirements is forcing the

development of standards, hardware and software for RFID applications. More

important, compliance with these requirements will greatly increase the number of

RFID tags produced, resulting in a rapid and precipitous decline in the cost of RFID


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tags. With awareness of RFID technology and its possibilities also comes uncertainty.

Many logistics operations understand that RFID is poised to make a major impact on

the supply chain world. At the same time, they are also unsure exactly how this

technology can affect and benefit the way they do business. Precise questions about

its benefits, costs and integration issues can be difficult to answer. Furthermore, the

pace at which RFID technology will actually work its way into the supply chain is

still unclear.

Compliance mandates will undoubtedly accelerate the breakdown of current

technology and cost barriers. Intense promotion by RFID solution providers will

attempt to position their application in the supply chain as a best practice as they are

able to demonstrate its benefits through successful implementations and use. There is

also a multitude of different vendors and solutions chasing a market whose exact

shape and size can only be speculated at this point in time. No one can guarantee how

successful any given vision will be in the coming years. However, the advances in

RFID technology and applications forced by the Wal-Mart and DoD mandates makes

it highly likely that RFID will become a cost effective and viable logistics tool.

Despite the uncertainty, there are compelling reasons to take a close look at RFIDright now. Beyond current compliance mandates, reduced costs, improved accuracy,

greater visibility as well as added security and increased product authentication and

tracking are just some of the benefits possible for pharmaceutical companies, and why

they should take notice of RFID today. Although existing cost and performance issues

present significant challenges in using the technology in supply chain applications,

RFID still can produce a positive return on investment in numerous situations. Even if

it can't be currently justifiable for a specific situation, its evolutionary pace is such

that it may become feasible in a relatively short time. While its long-term impact can

be debated, RFID has the potential to dramatically increase the efficiency of supply

chain operations.

Benefits for the Pharmaceutical Industry

According to many of its proponents, RFID promises to save billions and radically

change the way the supply chain works. For those in the pharmaceutical and health


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care industries, the anticipated benefits from implementing RFID go beyond just more

efficient supply chains:

Efficiency: The primary reason that Wal-Mart and other major firms are interested in

RFID is that they believe it can save them money by making their distribution

operations more efficient. These companies already employ sophisticated systems that

utilize bar codes. They require their suppliers to apply bar coded labels on shipments

and transmit Advance Shipping Notices (ASNs) so that they can streamline their

receiving operations. Even though they effectively utilize bar codes, these

organizations believe that RFID can allow them to make their distribution operations

more efficient. A typical pharmaceutical warehouse receives pallet loads of expensive

products and quickly ships cases and eaches. In addition, the organization needs to be

able to track product down to the lot or even unit level after it is shipped. This has

traditionally been accomplished using bar code labels, tying cases to pallets and

eaches to cases, and a large amount of bar code scanning and manual data recording.

RFID will permit the receipt of product by case or unit and will provide automatic

tracking of the products throughout the supply chain. This has the potential of greatly

reducing both direct and indirect labor.

Accuracy: The high cost of pharmaceutical products and the need to track material by

lot or unit make tracking particularly important for the pharmaceutical industry. Using

current technology and methods tracking is an expensive and time-consuming part of

a pharmaceutical operation. RFID can provide an inventory tracking mechanism that

is not dependent on human initiated scans. Transactions can be automatically

recorded as product is moved within the warehouse.

Given enough tags and readers, RFID can provide the ability to track all inventory

movements within a distribution center. All physical moves could be systematically

tracked without the need for an operator to record the transactions in the system. Mis-

picks and erroneous putaways where the wrong bar code is confirmed could be

eliminated. Cost and technological barriers currently make this level of tracking

impractical for most operations, but it is a theoretical possibility that could become a

reality sometime in the near future.


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Visibility: The pharmaceutical industry has been a leader in creating visibility

throughout the supply chain. While traditional EDI provides a mechanism to share

information between trading partners, RFID and the Electronic Product Code (EPC)

Network will provide the basis for tighter and less costly collaboration and greater

visibility within the entire supply chain. An EPC Network is designed to share

information over the Internet. Conceptually, it allows one organization to locate and

retrieve detailed product information stored on servers maintained by another firm for

any given EPC. The ONS, or object name service, provides the appropriate network

address or URL for where the information is stored. PML, or physical mark-up

language, provides the means for the requesting application to retrieve the

information.

The EPC Network establishes a vision for RFID that goes well beyond traditional

automatic identification technologies. It provides the structure to track product

movement throughout the supply chain. Properly maintained and updated PML

servers can provide complete item-level history from the manufacturer to the end-

user. This feature will make it possible to instantly know the history and location of

every item in the supply chain. Today, independent systems often report this

information only in financial transactions between partners and at best, send ASNs to

the next trading partner. RFID provides the ability to have all systems use and

leverage a single tag that creates visibility up the chain, improving the ability to plan

for future events. Once the systems are in place, there is great potential to remove

billions of dollars of inventory from the supply chain, passing savings along to all

trading partners and end-users.

For the pharmaceutical and health care industry, lot and unit tracking are part of

traditional regulatory and compliance standards. RFID's traceability features are an

excellent example of how this extended visibility will benefit the overall supply chain.

Consider the process that a pharmaceutical or diagnostic manufacturer must go

through to recall a specific SKU / lot. Existing supply chain systems only identify the

immediate recipient of the lot. This recipient could be a wholesaler, hospital/clinic,

drug store, or retailer who in turn distributes the product to other entities in the supply

chain. An individual item could go through many intermediate destinations before

ending up in the hands of the final customer. Using RFID allows for traceability at


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each point to track where the drug was distributed and by whom. At the lowest

reasonable point, pharmacies could track what prescriptions were filled with what lot

and greatly improve recall accuracy while minimizing costs. In addition, this concept

could also be used to support pedigree paper regulations that require drug wholesalers

to provide a record of each entity in the supply chain that has handled the controlled

item being resold.

Security and Product Authentication: Probably no products have higher security

requirements than those in the pharmaceutical industry. Products are extremely high

in value, chemical analysis is required to determine if a product is counterfeit, and

many products have elicit uses and thus, high street value. There is an ongoing

problem of product diversion as well as the reintroduction of expired products into the

supply chain. Because RFID can passively track the movement of an individual

object, it can be used in a similar manner as sensormatic and other loss-prevention

technology to help reduce theft. Product authentication is another area that may

prompt enterprises to turn to RFID for greater security. If every object has a unique

identifier and detailed information on the object is stored in a PML server, any

purchaser can validate the object's authenticity by interrogating its RFID tag. The

information contained in the RFID tag could be encrypted so that counterfeiting will

become nearly impossible. This would provide pharmaceutical manufacturers a

powerful tool to combat product counterfeiting and product diversion and end

users/customers will be able to ensure product integrity from the manufacturers.

Some of the key benefits projected with the use of RFID include:

The ability to identify drugs at the individual and container level.

Assurance that the ID on the bottle has not been forged or mislabeled.

The ability to track exported drugs being re-imported and resold in U.S. markets at

lower costs.

Minimized line-of-sight requirements to read product information.

Remote tracking of product movement and location.

Increased potential for reducing clinical trial times by reducing errors and improving

delivery accuracy.The potential for improvements in tracking and visibility are crucial to the long-term


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supply chain success for both the pharmaceutical and medical product industries to

ensure that consumers are protected, product integrity is maintained, and shrinkage is

minimized to maximize revenue. In addition, full visibility of the supply chain

inventory will reduce out-of-date stock and returns, further improving profitability.

But even the most fervent supporter must admit that the potential benefits from RFID

will vary greatly among supply chain operations. While some promises may seem a

bit over-optimistic, RFID does provide significant advantages over bar coding. Before

any organization can seriously contemplate using RFID to support its operations, it

should have a firm understanding of the benefits that the technology can provide.

Future impacts of RFID on e-supply chains in grocery retailing

Automatic replenishment programs: failure to deliver

The main driver in recent grocery retailing research on supply chain issues is the

program of efficient consumer response (ECR) that was initiated in the USA after a

key report by Kurt Salmon Associates (1993). The motivation for this report was the

declining profitability of the grocery industry in the face of competition with Wal-

Mart and other warehouse clubs/superstores. The key finding in the report was that in

the early 1990s the grocery supply chain was extremely inefficient. On average it took

104 days for dry grocery products to go from the supplier to the consumer. The main

reason for the large amount of held stock was the fragmentation of the supply chain.

Specifically, stock was pulled through the supply chain by way of replenishment

orders for stores, but inventory was pushed through the warehouse system by trade

promotions and forward buying practices. Forward buying emphasizes acquiring

larger quantities of products based upon the purchase volumes necessary to get the

best discounts from manufacturers. These quantities are stored in the warehouse.

However, products are removed from the warehouse and sent to the stores based upon

what the stores forecast they can actually sell. This difference, between acquired

(pushed) volume at the warehouse and actual sold (pulled) amounts at the stores,

causes substantial inventory growth within the warehouses of the supply chain.

Forward buying began in the 1970s as a way for manufacturers to use discounting to

bypass the price controls implemented by the Nixon administration. Forward buying


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is a practice on the part of the buyers, who are stocking up, to take advantage of low

price offers due to special promotions, quantity discounts, or special pricing

discounts. However, in the 1980s, instead of phasing out these programs, they became

more heavily used because consumers were hooked on discounting. In fact, grocery

manufacturers spending on trade promotions from 1981 to 1991 increased from 34 to

50 percent while advertising fell from 43 to 25 percent. Kurt Salmon Associates

argued that this inefficiency, if removed, could save around $10 billion (10.8 percent

of sales turnover) in the dry grocery chain. In general, the report held that ECR would

reduce inventory levels to 61 days.

Kurt Salmon Associates argued that by jointly focusing on the efficiency of the total

grocery supply system, rather than the efficiency of individual components, they are

reducing total system costs, inventories, and physical assets while improving the

consumers choice of high quality . . . grocery products (Kurt Salmon Associates,

1993). ECR is in the same family of programs as continuous replenishment planning

(CRP) and vendor managed inventory (VMI). All these programs fall under the

umbrella term of automatic replenishment programs (ARPs). The basic structure

showing the reliance on reliable information can be seen in Figure 1.

In general, the goal of ARPs is that the system must at any time provide sufficient

supplies of goods in demand at the right spot and at competitive prices. These goods

are standardized with a limited shelf life, with little opportunities for market

segmentation and with a high demand for efficient logistics. Therefore, there has been

a shift from pushing goods through the distribution network to a situation where the

goods are pulled through the distribution network (Ciborra, 1995). Thus, goods need

to be replenished more frequently with a smaller average order size. This means that


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the optimization of replenishment processes has been a focal strategic issue

(Damsgaard and Lyytinen, 2001). In short, the ultimate goal is that, the right

products reach the shelves at the right time and at lower cost and thus boost sales and

profits (Cottrill, 1997).

Since the Kurt Salmon Associates report was released, research has shown that many

grocery firms have implemented ECR/ARP programs (Daugherty and Myers, 1999).

Unfortunately, the results have not been as good as hoped. For example, inventory

stockpiles have actually increased since 1992, along with their attendant costs (Stank

and Crum, 1999; Brown and Bukovinsky, 2001). Bowersox and Closs (1999) studied

nine retail grocery chains that had implemented ECR from 1992-1997. They found

that the chains had decreased average inventory turns and increased inventory levels,

but net profit margin increased 22 percent and ROA increased 7 percent. The report

concluded that the improved profits came from larger volume purchases, which

generate increased promotional money at the expense of lower operating efficiency.

More recent research (Brown and Bukovinsky, 2001) also found that most ECR

adopters inventory efficiencies, asset efficiencies, and cash cycles generally

deteriorated compared to non-adopters. Some have argued that ECRs promised

savings are limited because retailers and manufacturers refuse to abandon forwardbuying practices (Partch, 2000). So, we see that the current use of technology is not

providing the desired results, and we must look for other options. This is becoming a

more pressing issue because market saturation is changing the basis of competition.

Certain guidelines should be followed when implementing technology within the

grocery environment:

Specifically, the system must not prevent the practice of forward buying (sinceretailers have shown they will not give it up).

In addition, the system must allow for more efficient shelf space utilization, thus

allowing for a greater variety of products to be displayed. This will allow grocers to

grab some of their leaked market share.

However, this reduced shelf inventory cannot have the negative impact of increasing

stockouts. Rather, forecasting must be accurate enough or replenishment must be

quick enough so that high service levels are maintained.


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Next, the impact of any modified packing methods must improve supply chain

performance.

Finally, the system must be able to withstand shocks in demand and react quickly.

These shocks, while infrequent, do occur. For example, a recent Homeland security

alert caused a run on duct tape. Unexpected bad weather can cause a run on milk and

bread. The effect of these demand spikes on the reduced in-store inventory must be

assessed.

Research on RFID implementation

In addition to modeling-based research on operational decisions, researchers need to

investigate how to best implement RFID technology in the grocery industry. Figure 4

shows the various barriers to technology adoption. In applying this framework to the

grocery industry, we have already seen that there is a compelling reason for grocery

stores to manage their operations more efficiently, despite the failure of ARP

implementations. The magnitude of effort required to adopt RFID is no greater than

that required for ARP implementation. Concerning cost/benefit justification, the fact

that Wal-Mart is moving ahead with this implementation (Boyle, 2003) should put

downward pressure on the cost of the technology. In spite of RFIDs promises,

adoption of any new or advanced technology (and the management thereof) includes

risks and uncertainty. Further research on RFID applications in the grocery industry,

such as the research issues proposed in this study, can help to mitigate many of these

risks.

As for entrenched business practices, two key factors were pinpointed in our

discussions with grocers. As mentioned earlier, one of the reasons for ARP failures is

the desire of grocers to continue with forward buying practices. Research needs to be

conducted to see how the use of RFID can be integrated with forward buying if

inventories are being managed by the DC. That brings up the second issue that is loss

of control by the individual store managers. This is a distinct issue that must be

addressed by the grocery chains. However, some corporate supply chain managers

believe that it would be easier to implement a system like this because it would be

driven by the DC (Carson, 2003; Salmon, 2003).

From the view of management, this eases the transition because many store managers


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are hesitant to learn new technology and operational styles. This is because most

managers have moved up the ranks from bag boy. Their focus is instead on customer

service and interaction with the customers. Moving ordering decisions to the DC frees

up time for store managers to focus on what they would rather do: interact with the

customers. This is the traditional view held in process innovation research by Zmud

(1984). It is also suggested, by the latest research in innovation, that the best way to

implement a disruptive process innovation of this type is to . . . centralize the

function. Legacy processes are typically embedded in each of the enterprises

operating units. Bring them together under a shared-services model, and put an

operations-focused manager in charge. This will free resources that are performing

duplicate functions (Moore, 2004).

Figure . Barriers to technology adoption

Research on daily operations

Within the military, it is said that no plan lasts longer than the first contact with the

enemy. In a similar vein, once an RFID technology plan is implemented, grocers must

begin to address the daily operational issues that may change the assumptions of the

plan. For example, as mentioned earlier, Kurt Salmon Associates argued that forwardbuying practices are inefficient and if removed could save around $10 billion (10.8


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percent of sales turnover) in the dry grocery chain. However, grocers seem to be

hooked on forward buying. How would this reliance on forward buying impact RFID

use? On one hand, the research may show that RFID use allows firms to better adapt

to varying demands and inventories brought on by the use of forward buying. On the

other hand, experience has shown that once a technology is implemented, business

people search for new ways to take advantage of it. This adaptation may have

unforeseen consequences on the use of RFID.

Another daily operations issue that must be addressed is security. Shoplifting is a

serious problem in the retail industry. Every year, organized retail crime causes retail

loses of $12 billion to $35 billion (Hayes and Roberts, 2003). One method is to stuff

stolen merchandize into shopping bags lined internally with duct tape (the duct tape

shields the security tags on stolen merchandize from sensors and scanners). An

average booster steals purely for profit and will steal $5,000 on an average day.

Many will make $125,000 per year on shoplifting (IOMA, 2003). Grocery stores

implementing RFID must respond to this threat. The costs for increased security

measures may somewhat offset the benefits of RFID. But to what degree will these

benefits be impacted?

OBJECTIVES

To study the RFID technology used in the supply chain management

To study the impact of RFID in the inventory management.

To study the future of RFID in the supply chain management


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RESEARCH METHODOLOGY

The research strategy to be used is the descriptive approach in research since the aim

of the study is to study the role of RFID in the inventory management in the supply

chain management.A descriptive research intends to present facts concerning the

nature and status of a situation, as it exists at the time of the study.

SECONDARY DATA:


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The secondary data will be used that is through internet, magazines, journals etc and

some books will be referred to obtain the objective of the study.

CONCLUSION

The long term vision in logistics is a system providing the necessary real-timeinformation on the supply chain, this information being extensively utilised. RFID isthe key technology to make this happen. Real-time information on the location,contents and conditions of individually identified shipments, products, transport units,and transport vehicles can be gathered in a controlled manner. The collected data can

be combined with the planning information and processed into appropriateinformation to be used at different stages of the process. Product history will becomeavailable via B2B networks. The information can be distributed effectively and in realtime to the stakeholders.


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BIBLIOGRAPHY

http://en.wikipedia.org/wiki/Radio-frequency_identification

http://ieeexplore.ieee.org/xpl/freeabs_all.jsp?arnumber=5759839

http://www.activewaveinc.com/technology_rfid_advantage.php

http://www.bit.vt.edu/faculty/documents/Warren%20RFID%20Literature%20Review.pdf

http://www.decisioncraft.com/dmdirect/pdf/rfidapplications.pdf

http://www.jsums.edu/cms/reu/2010/html/..%5Cdocs2010%5Cpresentation-1%5CThomas-Davis-Pres-1-Doc.pdf
http://en.wikipedia.org/wiki/Radio-frequency_identificationhttp://ieeexplore.ieee.org/xpl/freeabs_all.jsp?arnumber=5759839http://www.activewaveinc.com/technology_rfid_advantage.phphttp://www.decisioncraft.com/dmdirect/pdf/rfidapplications.pdfhttp://www.jsums.edu/cms/reu/2010/html/..%5Cdocs2010%5Cpresentation-1%5CThomas-Davis-Pres-1-Doc.pdfhttp://www.jsums.edu/cms/reu/2010/html/..%5Cdocs2010%5Cpresentation-1%5CThomas-Davis-Pres-1-Doc.pdfhttp://en.wikipedia.org/wiki/Radio-frequency_identificationhttp://ieeexplore.ieee.org/xpl/freeabs_all.jsp?arnumber=5759839http://www.activewaveinc.com/technology_rfid_advantage.phphttp://www.decisioncraft.com/dmdirect/pdf/rfidapplications.pdfhttp://www.decisioncraft.com/dmdirect/pdf/rfidapplications.pdfhttp://www.jsums.edu/cms/reu/2010/html/..%5Cdocs2010%5Cpresentation-1%5CThomas-Davis-Pres-1-Doc.pdfhttp://www.jsums.edu/cms/reu/2010/html/..%5Cdocs2010%5Cpresentation-1%5CThomas-Davis-Pres-1-Doc.pdf


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http://www.mendeley.com/research/literature-review-impact-rfid-technologies-supply-chain-management-9/
http://www.mendeley.com/research/literature-review-impact-rfid-technologies-supply-chain-management-9/http://www.mendeley.com/research/literature-review-impact-rfid-technologies-supply-chain-management-9/

ASHUTOSH KR JHA(39)

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