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.
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.
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.
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.
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."