RFID and the Supply Chain: How the Technology Is Increasingly Being Used By Procurement

Spend Matters welcomes this guest article by Jeff Freedman, CTO at ESM Solutions.

Radio Frequency Identification (RFID) is one of the major technologies that will become ubiquitous in the supply chain and is poised to have a dramatic impact. RFID technology has actually been around since the 1970s, but it has only started to have a real effect on the supply chain within the past few years, and its use is expected to increase as a means of tracking goods and assets.

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Similar to bar codes, RFID identifies “things.” Bar codes require a laser to read a single item within line of sight of the reader. In contrast, RFID technology uses a “reader” and antenna that produces radio waves to read product identification at a short distance and does not require direct line of sight. There are 2 types of RFID tags – active and passive. Active tags have their own power supply and are therefore larger and more expensive. Passive tags attached to items use the radio waves as a low power source when the reader scans them. They have limited capability compared to their active counterparts, but they are tiny in comparison and a fraction of the cost. Passive tags are rapidly becoming a commodity and they generally only add 20 cents to each item’s overall cost.

You have most likely already come into contact with RFID technology in other areas of everyday life. Some examples of common use include:

  • Key cards/fobs that you use to access locked office areas
  • Keyless car remotes
  • Animal tracking tags, implanted under the skin
  • Anti-theft hard plastic tags attached to merchandise in stores
  • Ticketless amusement park passes such as the new Disney wrist band

The US Food and Drug Administration is looking at RFID technology to prevent counterfeit drugs and biologics and to manage and monitor the supply of controlled substances. The Department of Defense and some retailers are beginning to use RFID tags to track shipping pallets, cases or merchandise.

There are many ways in which RFID will provide benefits to purchasing organizations. Some business processes that will transform include:

  • Receiving: RFID tagged products can be scanned and automatically received into inventory en masse, speeding the receiving process.
  • Inventory control: RFID can more easily deliver correct and current information about current inventory levels and can eliminate the need for manual reconciliation.
  • Just-in-time purchasing: RFID systems, combined with smart inventory management software and e-procurement systems, can automatically order replacement inventory as stock levels fall below a pre-defined threshold.
  • Asset management: RFID will provide more effective asset management by providing real-time information about the location of assets.
  • Track and trace: Life sciences materials, pharmaceuticals and hazardous materials can be RFID tagged for real-time tracking and tracing of location, thereby establishing a chain of custody for compliance purposes.
  • Theft deterrent: RFID tags can provide real-time notifications when tagged items leave secure areas, thereby reducing the likelihood of inventory shrinkage due to theft.

RFID technology is already being used effectively in the supply chain. It will become truly ubiquitous as the major retailers and government agencies continue to push suppliers in its adoption. It is only a matter of time before you see this transforming technology readily available for introduction into your own organization. Will you adopt RFID technology and will there be a ROI? For many of you the answer will be a definitive, “yes.”

Voices (4)

  1. Pierre Mitchell:

    If you want do dive into IoT, then check out the research from ChainLink. Bill McBeath is an industry colleague of mine. He’s very deep and he writes very well. That is a combination I laud and applaud… http://www.chainlinkresearch.com/IoT/index.cfm

  2. Jeff Freedman:

    Peter … The Web of Things is also referred to as the “Internet of Things” and is often abbreviated as “IoT” so I’ll use this abbreviation in my response. RFID is loosely related to IoT in that both technologies are moving us towards a new, increased level of connectivity with “stuff”. A RFID tag is generally a simple reference used for short-distance item identification. In contrast, the Web/Internet of Things is really just a term used to talk about devices (other than traditional computers, tablets and smartphones) that communicate through the Internet. These devices are much more sophisticated than simple RFID tags and have a purpose other than identification. Examples of IoT devices are the Nest products (nest.com) and the new LiftMaster garage door openers with MyQ technology (myliftmaster.com). Because these devices can be controlled via smartphone apps and through web browsers, they must be nodes on the Internet and have a unique Internet Protocol (IP) address. So, “things” are starting to be connected to the Internet and therefore this has given rise to the new phrase to describe this evolving technology landscape. You’re correct — this would be a great topic for my next article. Thanks for the question and the suggestion!

  3. Paul Marshall:

    They’re soon to explode in the world of retail, especially fashion. The ease at which you can add data to each label so they’re custom to the specific garment they’re attached to will help any retailers sales process, and when the tech knows about stock levels of the same itrm in other sizes, you’re reducing the time staff have to spend helping customers with their purchases.

  4. Peter Smith:

    Jeff
    Very interesting – could you briefly explain how RFID relates to the “Web of Things” that we’re reading about a lot now? (Maybe that’s another post!)

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