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RFID Will Be Bigger Than Y2K

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The Bottom Line: RFID will have a dramatic impact on the operation of global supply chains over the next 10 years, and while widespread adoption is 5 years away, world-class supply chain companies are starting to pilot RFID now.

Radio Frequency Identification (RFID) is a transformation in the making. It allows the immediate polling of inventory, supporting real-time monitoring and management of any item or container in the supply chain. Real-time access to this data will revolutionize all aspects of the supply chain planning and execution markets. Already gaining traction in the Retail and Consumer Packaged Goods (CPG) industries, RFID will likely see adoption in aftermarket service, support, and resupply as an effective technology for managing the post-sale supply chain.

However, compliance and complexity management will eventually force the rapid deployment of RFID in complex, consumer-oriented manufacturing industries like Aerospace, Automotive, Pharmaceutical, Food, Consumer Electronics, and CPG. Beyond this, it will be of value to any company looking to improve the execution or reduce the cost of supply chain operations.

RFID will play a substantial role in the next generation of supply chain execution, but the transformation will take time. We expect that for the next several years the market will be slow to develop as companies try to come to grips with the specific opportunities created by RFID and the challenges of working with a rapidly maturing technology.

Think of this as the Y2K problem as seen from 1993. While we expect the eventual market to be substantial, the high growth and adoption of the technology being hyped today is at least several years in the future.

The real implications from RFID come in three key areas

Real-time item identification and location

Real-time item identification and location is valuable and will revolutionize supply chain thinking and strategies:

  • Tags coupled with data-aware storage and conveyance provide a 24x7 view of material availability.
  • This view can be shared (on demand) with customers to support their advanced supply chain efforts, providing a real-time look into a company supply network that enables real-time, constraint-based promising and planning.
  • Locating any part in real time significantly reduces loss as well as the costs associated with physical inventories and cycle counting.
  • The shrink of valuable components can be eliminated by applying software algorithms to monitor the rack and provide real-time alerts of suspicious removal of goods and materials.
  • Vendor-Managed Inventory (VMI) can be automated, including both replenishment and payment.

Compliance initiatives

RFID will be a fundamental technology in new compliance initiatives, enabling the following:

  • Locate specific lot number / serial number / expiration date controlled material in real time
  • Provide component (part) source / serial data
  • Provide Hazmat data and other human safety requirements
  • Locate affected documents/components instantly
  • Use in document management systems, with tagged documents residing in file cabinets equipped with readers that will log every withdrawal and deposit
  • Serve as an authentication device to deter counterfeiting and act as a key for digital rights management

    technologies

  • Play a role in tracking the movement of currency

Service and MRO supply chain

RFID will play a significant role in the service and Maintenance, Repair, and Overhaul (MRO) supply chain in the following ways:

  • Real-time location of partsThis is especially valuable in remote depots and staging areas that may lack sophisticated item management capabilities.
  • Self-describing devices and equipmentA combination of active and passive tags will allow a technician to determine a units current configuration and maintenance history by reading the tags associated with the device and its component parts. This will revolutionize maintenance overall and have a significant impact in the Automotive and Aerospace industries.
  • Customer validation of replacement part authenticityThis will give manufacturers a new opportunity to reduce the use of gray market and counterfeit components.

    So wheres the money? RFID fuels a technology replacement cycle in

    manufacturing, supply chain, transportation, retail, service, and support

    The RFID market will develop in three distinct phasesPilots, Supply Chain Infrastructure, and Item-Level Tagging:

  • The Pilot phase (20032005)This phase is characterized by widespread testing and prototyping. During this phase, the infrastructure market grows slowly. Service providers and integrators do well. Application, analytics, and storage vendors look toward supporting upcoming supply chain infrastructure deployments. Software vendors begin to address the significant development effort required to completely support RFID at the application level.
  • The Supply Chain Infrastructure phase (20052009)This phase will be characterized by the wide-scale deployment of RFID at the pallet and case level. RFID investments will focus on supply chain execution, inventory management, transportation, MRO, and post-sales service and support. RFID hardware vendors face rapid growth and consolidation. Economies of scale in tags and readers will allow hardware and tag prices to drop. Supply chain execution software upgrades will drive new growth in this market and generate significant implementation service revenue. Most applications that support supply chain execution, inventory management, and post-sales service and support will need to be replaced or upgraded to support RFID. This also creates new opportunities for outsourced providers of these applications to win a percentage of the replacement business.
  • The Item-Level Tagging phase (20092013)This phase will see substantial growth across the board. Broad adoption of the technology coupled with significant increases in the number of deployed tags and readers should drive 70 percent to 80 percent market growth rates for several years. Retail will experience rapid change as new racks, Point of Sale (POS) systems, and planning and replenishment applications move to RFID-based technologies. Growth in storage and analytics will take off to capture the huge volumes of data generated by the tagging of most consumer and industrial goods.

    Recommendations

    Ultimately, RFID will be a core technology deployed across the supply chain in most industries. While we see this as a 10-year progression, leading world-class supply chain companies are already beginning to pilot implementations to gain a more complete understanding of the benefits and challenges that RFID presents. The advantages that improved information availability generates and the likely supply chain cost savings that RFID creates make it an essential technology for companies looking to remain competitive. Vendors and service providers need to move quickly to provide products that allow early adopters to pilot the use of RFID in the supply chain.

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