The Value of RFID

RFID’s ability to generate value is evolving rapidly. Businesses appear to be taking an increasing look at the ability to add value with RFID by leveraging its automated features to more quickly discover process exceptions or to provide item level visibility into large pools of products. This week, we offer a guest column from industry consultant, Chris Hanebeck, who offers some perspective on how RFID can generate value. Enjoy reading Chris’ thoughts and please provide your comments.

Guest Column – Chris Hanebeck

Our industry has matured considerably over the past few years. We have seen many innovative applications for RFID in fields that we did not even begin to imagine in the late 1990s when UHF technology first took off. Still, we need to ask ourselves periodically where the underlying value of RFID technology for users really lies. On the surface, RFID is an identification technology that allows the collection of large amounts of data in a fast and efficient way. Obviously tags can be placed on items, cartons, pallets or even shipping containers which can be read as soon as they pass a RFID gate, scanned with a handheld or are transported on a forklift with RFID antennae. Unfortunately most of the resulting data a RFID system captures is either redundant or obvious. If a company plans to ship 10 pallets of its product to a customer and actually does so, then the RFID system has little value beyond knowing that warehouse personnel has just executed well. However, as soon as exceptions occur, the value proposition for RFID changes drastically. Now the technology can become a deterrent of errors where other technologies such as barcodes fail since they require that each item, carton or pallet is physically touched. The ability to prevent mistakes and errors before they occur obviously stems from the automated nature of RFID. There was a good example a few years ago when a large US automaker began to track tradeshow displays through RFID after they had mixed up two trucks – one going to their largest auto show annually and the other going to small town exhibition. The effects of this simple mistake were far reaching and obviously the cost to remedy it was much higher than the cost for the implementation of a RFID system to prevent misshipments before they happen. In addition, we have seen substantial labor savings in virtually all industries through the automation of business processes and the elimination of clipboards and barcode scanners.

This case serves as a good, illustrative example of how RFID technology often generates business value. Mistakes happen in daily processes just as things are lost or stolen. We cannot always change the human element and it is hard (as well as costly) to define sufficient business controls to reduce errors to an acceptable level in many cases. This is where RFID plays a crucial role. It allows users to identify exceptions and manage business processes much more efficiently. This simple ability leads to a fundamental shift in how processes are managed: we move away from managing all aspects of a process (e.g. supervise an operation) to mainly managing exceptions. In other words, for process applications we should expect RFID to provide the ability to manage errors and processes that could break down.

There is a second aspect to RFID which is equally valuable in that its ability to scan things quickly and from a distance allows us to locate items efficiently. Libraries and book stores are great examples. As soon as a book is misplaced, because someone took and displaced it, it becomes the ominous needle in the haystack. It is virtually impossible to find it unless someone performs a manual check by looking at every book in every shelf. Through the use of RFID tags, this process can be handled fast and efficiently when a clerk uses a handheld device to scan through rows of books to identify misplaced items. The system on the handheld only needs to know which shelf it is scanning and what should be expected in terms of tag reads on that shelf. The same is true for other, related fields such as government offices, law firms, hospitals and medical practices – all of which need to manage large amounts of documents and files. Finding the needle in the haystack does not necessarily have to be a remedy to mistakes. In many yard applications for example, it is just an efficient way to locate items that range from cars to ocean containers. However, there is a very substantial business case behind this capability. DARPA has estimated that the cost of not being able to efficiently locate shipping containers which were dropped into “desert warehouses” during the first Gulf war cost the US military roughly $740 million throughout the war. This figure includes the cost of double orders in that commanders in the field would reorder supplies, to be shipped to the troops directly, once they did not receive them in time after their first order. Here, the effects of a lack of trust become apparent in that doubts about the reliability of a supply chain quickly lead to excess inventory and thus unnecessary cost.

Both, the avoidance of errors and the ability to locate something, have a common basis, which is often referred to as “visibility”. RFID enables us to obtain granular data, convert it into meaningful information and to share the resulting knowledge to ultimately make the right decisions. When we design applications, it is thus important to focus on those issues that are most pressing, can save the most money or have the strongest effect on a company. This point was poignantly made at a recent Zeitgeist event, the Google user conference in London, where co-founder Larry Page said that his company will only focus on what he called “toothbrush problems”. He defined a toothbrush as an item that people spend more time with than most other items during a given day. Obviously what he meant was that his company, while not literally reinventing the toothbrush, should focus on those applications that impact people the most such as consuming vital information, using mobile phones or operating a vehicle. For RFID solution designers and implementers the toothbrush problem is one that can be solved efficiently, has lasting, sustainable effects and touches a business in substantial ways. What is important is that we often have the luxury to measure the impact of RFID technology on a company or organization through its return on investment. Hence the best business cases can often become the biggest toothbrush. Of course, we have to keep in mind that innovative applications and those that touch consumers may not be easily quantifiable. These are the toothbrushes we did not know existed before a solution has been implemented.

In the automotive industry for example, there are several dozen meaningful applications for RFID technology across business processes. The key is not so much to define each and every one in detail, but to see past this variety to focus on a few pressing issues and high return applications such as returnable container management, yard management and manufacturing automation opportunities. While there are substantial opportunities in customer facing processes at the dealership, these may not be the first opportunities to go after due to the existence of more attractive solutions. On the other hand, in the hotel and resort industry there are well over 20 meaningful applications for RFID and the ones that stand out today are all related to the ease of use such as access to rooms and facilities, automation of the check-in and check-out process as well as automation of payments. None of these may have a strictly quantifiable business case, yet the same was true when American Airlines invented Sabre, the first real-time airline reservation system, almost 40 years ago.

In summary, it is important to identify the effects that visibility has on a process before RFID is used to solve a problem. Visibility leads to confidence, which in turn leads to tangible savings. Any application designer should identify these savings before the technology is implemented. The key, obviously, is to maintain a focus on applications that create a strong return of investment or have a high impact on customer facing activities. At the same time, investments in RFID infrastructure often allow for secondary and tertiary application opportunities which leverage the same infrastructure and thus have a far lower financial hurdle in order to achieve a lasting and solid ROI. There are probably dozens of such issues in our industry which we have yet to uncover. The task for RFID application designers and implementers is to identify and implement them swiftly. The motto for RFID technology thus becomes to “think big, start small and move fast”.

Chris Hanebeck has over a decade of experience in international management consulting, strategy development, change management, software implementation and technology innovation. He has successfully completed projects for over 65 clients on three continents, authored over 50 publications, holds US patents on RFID and wireless technology and regularly speaks at major conferences. Chris also teaches MBA courses on supply chain strategy at the University of North Texas. Chris can be reached at hhanebeck@yahoo.com

This article reprinted with permission.

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