Scanning intelligence

The use of radio frequency identification (RFID) chips is still in its infancy; many businesses struggle to justify the investment. But those companies brave enough to push ahead with deployments are finding some unexpected benefits.

For many organisations, the impetus for piloting the tracking tags has come in the form of mandates from retail giants such as Tesco and Wal-Mart. But Californian construction materials company Graniterock had its own reasons for pushing ahead with RFID projects; now CFO Steve Snodgrass is seeing the full benefits of placing tags on delivery trucks – and not always in the areas he had anticipated.

Graniterock has used RFID to hone the process of loading trucks in its quarries. "The business problem was that our largest quarry location had a lot of difficulty getting trucks in and out of that facility," says Snodgrass.

The tags can associate trucks with the consignments they need to collect, allowing dispatchers to prepare shipments the moment the vehicle passes through the reader at the front gate. It also automates billing and the entry of load information – weight and destination – into Graniterock's records. "Trucking costs customers $1.10 a minute, so any saved time is money back in their pockets," Snodgrass explains.


How organisations are using RFID today:

° Marks & Spencer is extending RFID trials from nine to 53 of its stores after tagging improved product availability for garments with complex sizing structures, such as suits and bras.

° Aircraft manufacturer Boeing is tagging pallets of parts, which are read at entry into the manufacturing plant triggering automatic payments to suppliers. The project saved $29,000 in labour costs in its first six months.

° UK supermarket giant Tesco reported a 4% increase in DVD sales after using RFID to ensure shelves were replenished efficiently.

° Philips is putting a chip in every ticket for the World Cup in Germany in 2006 to protect against forgery.

° Bars in Barcelona and Glasgow are "chipping" drinkers to enable the venues to store drinkers' names, payment information and favourite drink and so improve service.

° Las Vegas is a hotbed of RFID innovation: casinos are putting it in gambling chips and in waiters' and waitresses' name badges to ensure good table service while the local airport is using the technology for baggage tracking.

° Kraft Foods is improving product quality and manufacturing flexibility by tracking a container's location and cross-referencing the freshness of the contents.

° In August, Sun Microsystems Japan launched RFID-enabled filing cabinets, which recognise tagged files and documents, helping with organisation and protecting against theft.

° Tag manufacturers are promoting RFID to track livestock: pigs, tuna and cows have been tagged to record feeding, medication and travel information to help with meat classification and prevent health scares.



Graniterock uses a reporting tool from business intelligence vendor Business Objects to query a SQL database populated by data from tags. This can report internally on where bottlenecks occur and externally to customers on turnaround times.

This data has allowed Graniterock to streamline its shipment process. "If there's one product selling a lot and customers take 20 minutes instead of the usual 10, we know we have to do something to make it more accessible," says Snodgrass. Emailing reports to customers was an unexpected additional benefit that "didn't really cost us anything" because Graniterock was already using the reporting product.

Price tags

According to analyst group AMR Research, these types of business process improvements are encouraging investment in RFID. It reports that while only 8% of companies have currently deployed RFID, 61% expect to have some form of pilot or project started by the end of 2005.

The launch in April 2005 of the first RFID tags and readers – Gen 2 – to conform to global ultra high frequency (UHF) standards prompted analysts at research house Gartner to recommend that companies "begin to make the transition from tactical to strategic equipment purchases". Gen 2 promises to improve RFID systems' read rates, accuracy and capacity, as well as lower tag prices thanks to greater supplier standardisation.

However, price remains an issue for companies trying to build a business case around RFID: 28% of AMR's survey cited demonstrating return on investment as the biggest obstacle to deployment. There are few case studies to prove RFID's much-hyped benefits in cross-enterprise visibility, a benefit which demands tighter processes and collaboration than many supply chains can manage.

RFID's most obvious benefits are illustrated in "closed-loop" deployments such as real-time process automation and subsequent cuts in labour costs. However, in practice this rarely extends beyond replacing manual pallet scanning.

A recent report by market watchers Ovum notes that RFID's benefits as a process automation tool are "relatively limited today, primarily because it is extremely difficult to use it to trigger events in real time. As a result, the most immediate source of value from RFID resides in the data that RFID systems generate and capture." This information can bring cost savings and generate revenues by comparing processes' predicted and actual efficiency, showing in detail where improvement is needed.

Hewlett-Packard (HP) was an early adopter of RFID and demonstrates the benefits that can be found by collecting and aggregating the data it generates. With one of the world's largest supply chains, tags have helped HP enhance planning and inventory. But alongside the headline operational benefits, such as faster and more accurate pallet scanning, were changes to inefficient processes that RFID highlighted.

"In one of our warehouse facilities, we were starting to identify non-useful movements of pallets," explains Adam Hevey, head of HP's RFID programme in the UK. "Each time a product is handled there is potential for damage and loss." With 14 million pallets passing through the facility every year, this was a significant risk.

"RFID provided the holistic visibility of exactly what was going on and why," says Hevey. "It enabled us to design a more efficient layout of that facility, and a more efficient process in terms of movement that really saved us money."

But not every shred of data generated by RFID readers is relevant to operations or worth analysing. "If you do it the wrong way, there will be a tsunami of data," warns Erik Cramer, global director of Atos Origin's RFID programme. Wal-Mart estimates that its RFID systems can generate 7 terabytes of data every day.

Smart checks

Because RFID tags are read constantly, an item sitting on a shelf will regularly signal to a nearby reader. From a management point of view, the only interesting information from that mass of data is the time of arrival and departure and, in some cases, the length of time between. "There's clearly no point having all that data bombard the database or run over the network, using up capacity," says Nigel Woodland, Oracle's RFID director. Once the relevant data is specified, events can be managed by exception, or fed into enterprise systems for cross-referencing with other information.


Case study: Virgin Atlantic

Like many organisations, Virgin Atlantic, the UK’s second largest longhaul airline, is piloting RFID to work out if there is a business case for adopting the tracking tags. “As an airline we’ve been looking at RFID for some time but we hadn’t grasped exactly what it was going to do for us a business,” says Mark Butler, systems implementation manager at Virgin Atlantic. “We were aware of the technical details but we couldn’t ask the right questions around the benefits and practicalities of implementation.”

Butler is targeting the pilot in an area where processes were already tight: maintenance and repairs. The three-month trial will see around 1,200 components tagged, using equipment, infrastructure and services from Symbol, Oracle and Tata Consulting Services. He hopes the technology will allow Virgin to reduce stock levels of high-value components, automate updates to its maintenance management system and help the airline comply with industry regulations.

Virgin will add historical information to tags’ ID numbers, detailing where components have come from, when they were repaired and how long they have been on the aircraft, replacing manual form-filling and giving visibility into parts as they move between airlines. Using a WiFi network and passive tags, parts will also be able to be located and their use recorded without manual intervention.

“Clearly RFID is not a standalone concept, so we have to look at integration with existing systems,” says Butler. “We want to understand what sort of data we will get and in what sort of volumes.”

But he is keeping this “fiddly” problem simple at this stage, by reporting out of Oracle applications rather than from the core maintenance system. “In future we want a full two-way interface with data going back and forth from both systems,” Butler says. “We expect that to be a complicated piece of work – there are a lot of data sets and transactional interaction between the two systems.”

The pay-off for that complexity is the ability to automate measurement of processes and efficiencies, for example seeing how quickly parts are moving through stores or recognising if critical components are not moving fast enough.

But adoption is not a foregone conclusion for Virgin: “The equipment is relatively expensive, so there has to be a real business case for this. There’s nothing I can see that means we have to take on RFID.”



Where this can add real value is in production data in manufacturing plants, packing data in a warehouse, notifications of receipt of goods in a logistics environment and product availability in retail. Once intelligence is applied to that data, businesses can delve into the heart of their physical processes, and iron out hitherto unknown wrinkles.

This might sound simple, but none of the major business intelligence (BI) vendors offer tools catering directly to this market, leaving end-users to do all the work themselves, says Forrester analyst Keith Gile: "BI vendors are sleeping through the arrival of RFID and thus missing an opportunity to supply a demonstrated demand."

He predicts that specialist systems will not emerge until 2007, but recommends that companies try to make use of the data using existing analytic and reporting systems. By integrating RFID-generated information into multidimensional data cubes that encompass more granular dimensions of geography, time, product and environmental information, "an analyst can trace field failures to how supplies and products were handled; drive improvements that make products more durable or changes in how products are shipped and stored," says Gile.

Richard Neale, product marketing manager at BI vendor Business Objects, denies that there is a fundamental difference between data from RFID systems and any other information which is fed into BI tools – apart from the quantity.

"It's just a new data source for analysis and reporting. It gives us an embarrassment of riches. Often a lack of data can hamper a BI initiative – it's not often we have too much," he explains.

While Graniterock has managed without a data warehouse in its analytics system, Forrester's Gile says that other RFID implementations might collect more complex information that demands more sophisticated tools. The additional varieties of data need to be reflected in better data models in OLAP cubes and data warehouses, he says, and "applications will have to be rewritten to support that data if it is all included in the same data warehouse."

He adds that it is too early in RFID's adoption cycle to predict how this will turn out, comparing it to the early days of data warehouses: "People didn't know what they wanted – they just knew that not having the data was driving them crazy."

Even John Clarke, group technology director at Tesco and a leading proponent of RFID, admits that adopting the technology remains a leap of faith.

"Most of the benefits have not yet been quantified but you can't do that until you use it first," he says. "We're focusing on tangible costs and benefits because of the myths that have been created. People's expectations for RFID were getting carried away but the pace of change has been phenomenal in the last two years."

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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