Logistics management capability poised for widespread use.
The U.S. Department of Homeland Security is using RFID technologies to monitor the integrity of seals on shipping containers and to scan electronic manifests to determine their contents.
A former niche technology will greatly improve how military and commercial organizations stock and track supplies and products. The system permits the identification of equipment fitted with radio frequency devices known as tags. This capability allows quartermasters to know a cargo container’s contents immediately as it enters a theater of operation. Inventory information can then be fed into a database to follow incoming parts and equipment shipments, allowing commanders to react quickly to demand spikes.
Although radio frequency identification (RFID) is not new, tracing its origins back to the mid-20th century, recent technical advances and financial backing from major commercial and government organizations have readied it to enter a variety of markets, explains Richard Dean, program director, International Data Corporation, a Framingham, Massachusetts-based market analysis firm.
The U.S. military has employed RFID technology for nearly a decade, but its use has been limited to operational theaters. However, the U.S. Defense Department and commercial business are pushing for widespread use of the technology. Major retailers such as Wal-Mart and Target are heavily investing in RFID systems to track inventory. The technology is especially effective for just-in-time logistics and supply strategies. For example, instead of advance purchasing 500 winter coats and keeping most of them in storage, a modest amount of stock can be purchased and placed on the sales floor. When a set number has been purchased, a message can be sent to suppliers or a warehouse for another shipment, Dean says.
It is this tracking capability that has the most immediate application. Dean notes that for major retailers, reducing storage costs will cut one of their top expenses—inventory. For Wal-Mart, which has $28 billion in assets, these savings are both hard and soft, he says. Hard cost advantages include working more efficiently with fewer warehouse personnel; soft costs consist of knowing exactly where the inventory is at any given moment.
By applying RFID to manufacturing and inventory, a retailer could lower associated costs by 8 to 10 percent. Major retailers stand to save billions of dollars by streamlining inventory processes. “If they can lower the level of inventory and adopt a just-in-time type of manufacturing and delivery cycles so that products are on the shelves when they need to be, it would lower inventory costs. In the case of Wal-Mart, it turns into cash,” Dean says.
The Defense Department also appreciates the savings and efficiencies RFID provides in war zones. The military was an early adapter of the technology, first using RFID tags for deployments to Bosnia in the mid-1990s, says David P. Stephens, senior vice president for public sector sales, Savi Technology, Alexandria, Virginia.
Stephens notes that the U.S. Army’s deputy chief of staff for logistics told Congress that the technology saved some $300 million in logistics costs during operation Iraqi Freedom. He adds that a Government Accountability Office technology evaluation report released after the Balkan deployments indicated that the Defense Department would have saved more than $2 billion during the first Gulf War if the technology had been available.
While RFID has been used extensively in the Persian Gulf and Central Asia, it had not been widely applied to other commands. But this has changed. As of this month, the Defense Department has mandated the use of RFID tagging and tracking across its entire supply chain. The United Kingdom also adopted RFID tracking in 2003, and negotiations are underway to expand this capability across NATO.
To meet its goals, the military is putting an RFID infrastructure in place and developing a variety of tools. One application is known as inside the box visibility, the ability for quartermasters to determine what is inside a container automatically. By using a combination of active and passive tags linked to satellite and global positioning systems, the services will track materials anywhere in the field without the need for an Internet connection, Stephens says. Because the active RFID tags will list the container’s entire manifest, these tags can transmit this data to a handheld scanner or to larger portable scanning facilities.
While it enjoys growing use in the military and in companies such as Wal-Mart, RFID is still in the initial pilot phases of its commercial rollout. This soon will change because Wal-Mart is requiring its suppliers to use RFID if they wish to do business with the retail giant. Despite the technology’s initial costs, Dean predicts that the competitive advantage the technology offers will be too great for competing retailers to ignore for long.
RFID systems also are maturing quickly. According to Patrick J. Sweeney, president and chief executive officer of ODIN Technologies, Reston, Virginia, a major research and development initiative by government and commercial organizations made great strides in the last half of 2004. The technology is now poised for a major expansion. “RFID is where the Internet was in 1988,” he says.
Sweeney predicts that, unlike with the Internet, there will be no five- to 10-year adaptation cycle for RFID. This speed of implementation could lead to some initial confusion that will provide many opportunities for scams and mistakes. “It will create a tsunami of misinformation opportunities,” he says.
But any potential for trouble will be outweighed by the speed with which many markets will adopt RFID. Sweeney predicts that during the next 12 to 18 months, tags and scanners will proliferate and that the drive to acquire new equipment will overcome any initial malfeasance.
The new technology also will have a disruptive effect. Sweeney notes that 30 years ago, inventory was manually recorded and managed with paper records. Bar code scanning revolutionized the data capture element of the process, but it did not automate the way information was recorded. Items can be overlooked and missed during a manual count, he says. RFID closes this loophole because the entire process can be automated. Another side effect of a fully automated inventory process is that fewer employees are needed to operate a warehouse.
RFID has applications beyond inventory and logistics. Sweeney notes that the U.S. government is beginning to use the technology to track equipment clandestinely, such as laptop computers, hard drives and personal digital assistants that carry sensitive data. Passive tags hidden in this equipment raise an alarm if it is taken from a facility without permission.
The U.S. Department of Homeland Security has launched several initiatives to track shipping containers with active RFID. Operation Safe Commerce used smart seals to determine the safety of individual cargo containers. Another related effort is the Smart and Secure Trade Lanes initiative. This undertaking launched a series of pilot programs to establish a tagging and tracking infrastructure in more than 15 ports around the world. Stephens notes that some 2,000 containers were equipped with smart tags as a part of this effort.
In the near future, tagging technology will become more secure, Sweeney explains. He notes that while current active RFID systems list what was logged onto the manifest, they do not note any changes to the cargo. As part of the military’s Total Asset Visibility program, future systems will feature a combination of active and passive RFID tags. The active tags attached to a container will automatically read the data on all tagged items loaded into or removed from it.
RFID also can track individual pieces of equipment. For example, in joint law enforcement operations involving different federal, state and local agencies, large amounts of equipment may be allocated to agents. However, the organizations often do not track these items, which can lead to their loss or misplacement. RFID tagging allows agencies to know what equipment was assigned to each agent and to record its use, Sweeney says.
The medical industry is considering using RFID systems to track patients throughout their hospital stays. Pilot projects run by vendors such as Siemens Business Systems are testing RFID wristbands for patients. Dean explains that the tag contains individuals’ medical history or information about their insurance company. As medications or treatments are administered, the patient’s band is scanned with a wireless device that automatically transmits this information into a database. This allows a rapid exchange of information with insurance companies, speeding and streamlining the billing process and enhancing hospital cash flow, he says.
The technology can be used to speed up billing in other sectors as well, such as mail and package delivery. Further in the future, all items in stores and supermarkets could have RFID tags built into their packaging. As customers leave a store, a scanner would read the tags on each item and automatically bill a credit card or store account without the need for a human cashier.
Other potential applications include tracking prisoners or individuals. The Mexican government recently implanted RFID chips in some of its top judicial officials. The devices allow access to secure areas and can be tracked if the official is kidnapped.
Like any new technology, radio frequency identification (RFID) offers organizations a variety of potential advantages and unforeseen problems. Managers must know what their needs are before they purchase an RFID system, explains Patrick J. Sweeney, president and chief executive officer of ODIN Technologies, Reston, Virginia.
Sweeney cites several common pitfalls to avoid when considering an RFID system, including lack of testing, failure to understand the electronic environment, lack of due diligence and unrealistic expectations. Firms sometimes choose hardware without testing it, but testing is important because other emissions may interfere with the tags or their readers. He notes that there are 30 to 40 different types of tags on the market, and each works differently under certain circumstances. Another common mistake is to ignore environmental issues such as radio frequency interference from employees’ wireless devices or nearby communications and radar systems.
Many firms also do not perform due diligence on the hardware/software combinations they select. Sweeney maintains that many RFID middleware providers work only with specific hardware manufacturers. Buying systems that are incompatible can lead to complications, he says. Organizations must allow for long lead times to let systems develop. He observes that users often have unrealistic expectations of a technology’s capabilities. A final snare to avoid is a heterogeneous equipment acquisitions approach because this ultimately leads to multiple systems that cannot interoperate, he says.