Who
Gains, Who Loses, from RFID's Growing Presence in the Marketplace?
In
April 2004, Wal-Mart announced a pilot program that would require
its top 100 suppliers to be RFID compliant -- attaching Radio
Frequency Identification tags on cases and pallets destined
for Wal-Mart stores and Sam's Club locations in the Dallas/Fort
Worth area -- by January 2005. Showing just how much clout Wal-Mart
has, the retailer is boasting 100% compliance, although it won't
know until next month whether the system has led to increased
efficiencies.
"If
it wasn't for Wal-Mart, we would not be having this conversation,"
says Badri Devalla, principal architect with Infosys, a global
consulting and information technology services company, who
spoke about the future of RFID technology at a recent Emerging
Technologies conference. While the technology has definitely
come into its own, said Devalla -- pointing out that the automotive
industry and the Department of Defense have been exploring RFID
for the past few years -- it took a giant like Wal-Mart to bring
it to the consumer goods sector. "Initially suppliers were
scrambling to comply. Now many are stepping back and asking
the million-dollar question: 'Is this just a sunk cost, or can
we find a way to benefit from it?'"
Interestingly,
while it may be considered one of the hottest technologies around,
RFID is fairly old. It was invented in 1948 by Harry Stockman,
but until the late 1990s it was essentially a technology waiting
for an infrastructure. Its three components include the tag
(a digital memory chip with integrated transponder), a reader
(senses the presence of tags, receives and processes tag-level
data) and a host computer (aggregates data from tag readers
and passes RFID data via middleware to core business systems).
Before powerful enterprise-wide computing, there was nothing
to do with the information, so there was no reason to collect
it. After Y2K and the full sweep of enterprise software, fertile
space for new kinds of data was found.
The
next three to six months may be critical, as a consolidation
of technology vendors and software vendors takes place. It's
similar to the Internet boom. Everyone is watching to see who
is going to make the next leap. With standards fairly well in
place -- the EPC global network has established the standards
and software for RFID technology -- suppliers are freed up to
explore what Devalla calls true "green-field" technology.
No
Cow Left Behind
Clients
who want to go further than the "slap and ship" approach,
are looking at it in two ways: closed-loop strategies (focusing
within the company) and supply chain strategies (more collaborative
efforts, possibly including packaging suppliers, contract manufacturers,
third-party logistics players and retailers). Internal closed-loop
systems are an easy starting point because companies can avoid
issues with industry standards and synchronization with exterior
partners. The options for using the technology are unlimited.
Infosys, for example, is using RFID technology to track laptops
at its many offices around the world. Automotive companies are
using RFID technologies within manufacturing plants to track
specific parts. The Department of Defense is currently using
RFID technology in Iraq to track the movement of armored vehicles
and mobile attack units. And the USDA is pushing to give every
cow in the U.S. its own unique ID number, to be tracked and
monitored through RFID technology, in order to more easily trace
diseases back to the originating farm.
Moving
out to the supply chain makes using RFID technology slightly
more complicated, but that is where great gains can be made.
The current Wal-Mart mandate covers only the shipment part of
the retail-supplier value chain. (Essentially, suppliers are
required to have an RFID tag on every pallet arriving at Wal-Mart
stores.) The "holy grail" of RFID technology will
be the ability to track and monitor every product part at each
stage in the manufacturing process. This could include parts
from around the world, assembled in China , packaged in Japan
, shipped through Europe , and distributed throughout the U.S.
At every point along that chain, there is opportunity for the
process to break down, for errors to happen. Setting up RFID
technology to track and monitor the entire process is essentially
the next "killer app."
But
the killer app will need some killer processes in order to make
use of the information. Morris Cohen, co-director of the Fishman-Davidson
Center for Service and Operations Management, says he's impressed
with what RFID can do, particularly when it comes to visibility
within the supply chain. Research indicates there is a surprising
level of error in inventory records, so anything that can tell
us more about what's actually in stores and warehouses has to
be valuable. Yet information alone cannot solve supply chain
problems. An example is the package goods industry. You may
have 100 perishable items on a store shelf; some are two days
old, some are 10, and some are 14. It would be good to know
the age and expiration of each item, but there are no systems
in place to make good use of that information. The people promoting
the technology are talking about how valuable it is to know
all of this information and have it in real time. We can swim
in the data, but knowing it may not be sufficient in the long
run. Just having better information is worth something, but
"figuring out what to do with it should be worth even more."
Professor
of operations and information management Gerard Cachon is equally
realistic about RFID in the supply chain, yet cautions against
a mad rush toward an apparent "silver bullet" to supply
chain problems. He thinks that the hope and expectation among
many people is that being able to track every unit of inventory
in every location of the supply chain will somehow magically
make inventory management go to the next level. But based on
his own research into sharing information in the supply chain,
more information does not necessarily buy one a whole lot. What
does buy a lot is reduced lead times.
Order
processing, for example, is a key component of the lead time.
In the 1980s, a retailer would send a fax or a letter with its
purchase order to the supplier; the supplier would then key
in the order and send it to the warehouse, which would then
pick the items to be loaded onto a truck. After that, the process
progressed to electronic data interchange technology, which
allowed orders to be transmitted electronically. Now we have
more information than ever, but that doesn't necessarily translate
to what's most important in order processing -- speed.
"Information
technology can tell us where the product is in the supply chain.
But it's really hard to take advantage of that information.
You don't have to be smarter; you have to be faster. If the
order time is shaved from two days to one, it has a real impact.
RFID has the ability to speed the flow of information through
the supply chain, similar to what electronic data interchange
did. And to the extent that it [RFID] can do that, it will improve
inventory performance in a supply chain."
Intelligent
Shirts
While
the RFID tags are being used primarily at the pallet level,
at least for the Wal-Mart pilot, other retailers have taken
the next step and tagged individual items. British retailer
Marks & Spencer began experimenting with RFID in April 2003
when it tagged all of its men's suits, shirts and ties at one
of its stores. A year later, the retailer expanded its suit-tagging
trial to nine stores and recently announced it would expand
this trial to 53 stores starting in the spring of 2006. RFID
is helping the retailer keep track of in-store inventory to
ensure that a full range of sizes is available to its customers
at all times. In response to customer feedback, the company
is providing "explanatory leaflets," available in
all the stores in which the tagged items are sold.
In
addition to describing the tag's purpose, the leaflet also states
--reflecting the kinds of concerns expressed by customers --
that the "Intelligent Label," as M&S calls them:
- does
not contain a battery, is completely harmless and can be thrown
away after purchase
- will
not be scanned at the checkout and that therefore no link
will be made between the garment information held by the tag
and the customer's details
- will
not need to be retained by the customer to obtain a refund
or to return the garment.
Wal-Mart's
stated policy regarding privacy, which is available on its web
site, focuses more on specific concerns about personal privacy.
The statement reads, in part: "We are only focused on using
RFID in such a way that it would benefit the customer by providing
better product availability. The RFID tags that are used at
Wal-Mart do not collect additional data about consumers or their
purchases. The tags will contain a product code and a serial
number unique to the tagged item, but will not contain any information
about a consumer. Wal-Mart is not looking at RFID technology
to track customers but rather to serve them by enhancing its
supply chain process."
This
does not mean that Wal-Mart is ruling out item-level tagging.
In its April 30, 2004 , press release announcing the pilot,
it left the door wide open to moving the tags closer to the
consumer. "We can certainly understand and appreciate consumer
concern about privacy," said Linda Dillman, executive vice
president and CIO. "That is why we want our customers to
know that RFID tags will not contain nor collect any additional
data about consumers. In fact, in the foreseeable future, there
won't even be any RFID readers on our stores' main sales floors.
However, down the road there are so many possibilities to improve
the shopping experience that we hope customers will actually
share our enthusiasm about EPCs (electronic product codes),"
she continued. "As we look forward five, ten years, we
see the possibility of offering expedited returns, quicker warranty
processing and other ways to minimize waiting in lines. There
are also positive product recall implications and a critical
ability to combat counterfeit pharmaceuticals."
Privacy
Concerns
According
to Dillman, the kind of consumer uncertainly around RFID technology
is similar to the kinds of fears that came with the introduction
of bar codes into Wal-Mart's stores in the late 1980s. Her sense
of calm, however, is not necessarily shared by consumer groups,
many of which are vocalizing their concerns about ways the technology
could threaten privacy and civil liberties. Consumers Against
Supermarket Privacy Invasion and Numbering (CASPIAN) is among
the most outspoken groups, calling for strict regulation of
RFID usage at the item level.
In
November 2004, CASPIAN, along with the American Civil Liberties
Union, the Electronic Frontier Foundation, the Electronic Privacy
Information Center and others issued a position statement calling
for a halt to item-level tagging until formal technology assessment
can take place. They are proposing federal labeling legislation,
the RFID Right to Know Act, which would require complete disclosures
on any consumer products containing RFID devices. Until these
protections are in place, CASPIAN is encouraging consumers to
vote with their pocketbooks, leading a boycott of Gillette and
other companies employing item-level tagging and supporting
the worldwide boycott of Tesco, a British retailer that uses
RFID tagging. The group's slogan for the boycott: "Don't
let Tesco spy on you!"
While
personal privacy is at the heart of the privacy issue on the
retail side, there are some potential positive outcomes of companies
monitoring one another's behavior. This kind of transparency
can add to new and more creative contracting between companies.
Revenue-sharing contracts, where a supplier charges a flat fee
-- essentially the wholesale price -- plus negotiates a usage
fee, has a potential role for RFID. In the movie rental industry,
for example, a company might sell 1,000 tapes to a video store
chain at a base price, and then collect a fee based on number
of rentals. You may have a situation where the video store chain
claims to have rented a movie 3,000 times, but the film distributor
feels that number is more likely around 30,000. "Disputes
can arise when you have no way of monitoring the activity. With
RFID, there's the potential to monitor more easily.
Moving
Forward
Meanwhile,
the potential uses of RFID appear to be growing. A March 7,
2005, New York Times article reports on the airline
industry's interest in using the technology to keep track of
luggage, specifically to cut down on the number of lost bags.
The only catch is that individual airlines must invest "tens
of millions of dollars to adopt RFID luggage tracking."
One
development that Infosys' Jaffer does not expect is indiscriminate
launching of RFID programs just to see where they may lead.
"I think there's a healthy skepticism here," he said.
"If you look at the pattern of technology development in
the 1990s, we saw companies trying to produce the coolest toaster/telephone
combination simply because the technology was available,"
he joked. The novelty factor of RFID is being outweighed by
the costs of entry and concerns about the real business value.
"Companies looking at RFID need to ask: 'How does this
make me a market leader in my space?' We believe that the business
value considerations far outweigh the short-term gains of compliance
to a retailer mandate," he said, adding that RFID should
be part of a company's five- to ten-year strategy.
Send us
your solution at b-cognizance@iiita.ac.in by 29th
October, 2005
CASE solution for the last issue - Haygood
Brothers Construction
Submitted By:
Parul
Sachin Agarwal
Hiranyamai Chaudhary
MBA Class of 2007
IIIT-Allahabad
Solution:
1: Critical Path Length
: 61 days.
Critical Path :
AB-BC-CD-DF-FJ-JK-KL-LO-OP-PQ
= 5+5+7+4+7+11+6+7+6+3
= 61 days
Significance :
The critical path is the longest –duration through the network.The
significance of the critical path is that the activities that
lie on it cannot be delayed without delaying the project.Because
of its impact on the entire project,critical path analysis is
an important aspect of project planning.
2: The amount of time that the completion
of each event can be delayed without affecting the overall project
is 3.6136 days.
This was calculated using the formula for expected time which
is (p + 4m + o) / 6
Where, p= pessimistic time(maximum time reqt.)
o= optimistic time and(minimum time reqt.)
m = mean time(average of o and p)
then variance is calculated using the formula
V = (P-O / 6)*(P-O /6) which comes out to be 3.6 days approximately.
For this purpose only the time taken along the critical path
has been taken into consideration.
3: The probability that this project can be
completed by September 30 is 0.375 i.e 37.5%
This was calculated on the basis that taking variation of 3.6
days the range comes out to be from 58 th day to 65 th day.
Favorable cases are 58 th , 59 th , and 60 th day. Total number
of days in the range are 8 . Therefore,
P = 3/8 or 0.375 .