Distribution Slow To Adopt RFID

Perfect accuracy — or close to perfect accuracy — is what warehouse managers expect of their warehouse management systems (WMS).

Adam Fein, president of Philadelphia-based Pembroke Consulting Inc., and author of the new distribution book, Facing the Forces of Change says WMS is commonly known as “the brains of the warehouse.”

By this, he means that all decisions about the movement of products and people can be automated. “In the warehouse, the productivity improvements of warehouse management systems come from substituting technology for potentially error-prone human activities such as order processing, inventory control or picking,” Fein explains.

One of the most important requirements of WMS is that it have real-time order tracking capability through the use of radio frequency identification (RFID). Without RFID, systems simply report where products are in a warehouse and prints lists of what needs to be picked and shipped.

But what is the advantage of implementing RFID in the warehouse? And is it feasible for adoption by distribution centers in the jan/san industry?

The ABCs Of RFID
Thousands of supply chain companies have implemented radio frequency identification (RFID) into their warehouses over the last 25 years. But why is it just now becoming a possible investment in jan/san distributor’s warehouses across the country?

Mainly, the cost to implement RFID in a warehouse has made it economically unfeasible for many. For many applications, companies can’t justify the cost of RFID by the savings a system can generate. However, when RFID is used to track assets or reusable containers within a company’s own warehouse, the tags can be reused.

But tracking goods in the supply chain where RFID tags attached to cases and pallets of product by one company and read by the receiving company, cost has been a major obstacle towards adoption.

RFID tags are dispensable items because the company putting them onto cases can’t recycle them; therefore, they get thrown out with the box. However, tags built into pallets can be reused, and some companies are looking for ways to recycle tags on cases.

Each RFID tag is composed of a tiny antenna and silicon chip that work together to send a unique location signal. The signal allows warehouse and shipping managers to track the location of the tag.

With RFID tags, warehouse managers can hire fewer employees because the tags essentially monitor themselves. Every RFID tag has the capability of sending out its own unique location signal that stays with the product from the moment it leaves the manufacturer.

When a manufacturer ships a pallet of goods, the tags on the cases and pallet are scanned as the shipment leaves the warehouse, and software is used to automatically let the distributor know the shipment has been sent. The distributor can look up data associated with the serial numbers on the shipment and learn what’s coming and when it will arrive.

When the distributor receives the shipment, it scans the tags automatically, and a message is sent immediately to the manufacturer to let it know the shipment arrived.

Efficiency & Communication
Experts say that RFID has numerous potential efficiencies, including the fact that RFID doesn’t have the “line of sight” requirements like bar codes. So this greatly reduces physical handling in the warehouse.

“In theory, items can be uniquely identified and tracked through the entire supply chain without ever being physically scanned,” Fein explains.

RFID also grants all parties the ability to share information about the location of products anywhere in the supply chain. Companies linked to the same network cannot only identify products throughout the supply chain, but they can also share information about the location of products.

For instance, “Company X” can let “Company Z” view — in real time — what is in “Company X’s” warehouse. Also, “Company X” can let “Company Z” know the instant that goods were scanned leaving the warehouse and when “Company Z” should expect its goods.

The benefits of RFID also is beneficial within a single company. “To date, the benefits of RFID appear to be greatest when used within a single company on specific projects, such as reducing stock-outs and tracking tools, expensive equipment, or frequently stolen items,” Fein explains.

Research by the Information Technology Research Institute at the University of Arkansas found that RFID reduced stock outs in Wal-Mart stores by 30 percent in 2006 by improving shelf replenishment from the backroom to store shelves.

Wal-Mart was the first major retailer to require suppliers put tags on cases and pallets of goods. In June of 2003, it told its top 100 suppliers that they would need to begin putting tags on shipments starting in January of 2005.

Currently, Wal-Mart has implemented RFID in 1,000 of its 6,500 stores and clubs, covering 200,000 items, manufactured by about 600 participating suppliers.

Thus, with Wal-Mart forcing its top suppliers to begin buying tags, it has led to reduced costs for RFID tags, which enables more companies to use the technology.

Still Too Pricey For Most
Pricing is still the major factor why many distributors haven’t implemented RFID technology in their warehouses.

Today, tags cost between 20 and 40 cents, depending on their features and packaging. Add that cost to the price of encoding the tags, the readers, as well as the software associated with the technology, and the price gets to be too high to justify a healthy return on investment.

“There’s a lot of distributors that are balking at implementing RFID,” says Chris Householder, executive vice president of distribution services for JanPak Inc., Davidson, N.C. “It sounds great, it sounds neat, and conceptually from an operations standpoint, it’s a phenomenal concept, but the cost has to come down so there’s not a significant added price to be passed along to the consumer.”

Bob Shaunnessey, executive director for the Warehousing Education and Research Council, Oakbrook, Ill., says RFID will probably not be a useable technology for small to mid-size jan/san distributors because there’s not a lot of payoff for most of their product offerings.

“For small players, I don’t see RFID being a big issue,” says Shaunnessey. “There’s not a lot of payoff to it unless you have a very efficient operation. The less efficient you are, the lower return you get from a RFID application and in some aspects, depending what the products are, it costs you money to have RFID.”

Even though RFID may help a distributor streamline its warehouse, Householder says small- to mid-sized distributors are realizing that adopting RFID simply may not be necessary.

“The mid- to smaller-sized distributor is looking at RFID and is saying, ‘gosh, I don’t have that many people in my warehouse, I don’t have that big of a warehouse, and I’m pretty darn efficient right now with what I’ve got,’” says Householder.

Householder says large jan/san distribution centers are finding value in bar-coding. But for small-to mid-sized distributors, it’s tough to get a return on investment.

“At large distribution centers you can absolutely see the value in bar-coding,” Householder. “But what you see now is that for a lot of small- to mid-sized distributors, it’s tough for business owners to justify the return on investment. With RFID, you could slip right past bar-coding and go straight to RFID if the cost is there. The main reason most small- to mid-sized distributors haven’t gone to bar-coding is because the value proposition is not as straight forward as a lot of vendors would like to make it.”

Experts say that because a lot of distribution centers aren’t even using bar-coding technology, RFID, a natural extension of bar-code technology, may not be realistic for the jan/san industry.

“Bar codes have been proven to be a highly accurate method for identifying products, with most errors tied with human failures in scanning the machine readable tags,” Fein explains.

But adoption of bar code technology remains surprisingly low among small and mid-sized distributors, Fein says. “Less than 40 percent of smaller distributors are currently using bar codes today, although most plan to implement bar codes by 2012,” he notes.

Although there haven’t been any industry specific studies, experts project the number for the jan/san industry to be remarkably less because of the market’s historically slow adoption of technology.

With that in mind, Fein says distributors should remain wary of the RFID hype, given the ongoing uncertainty about technological feasibility, costs and the willingness of supply chain partners to embrace the technology.

What’s Next?
With the adoption of RFID unlikely to grab hold unless the price of implementation drops significantly, experts see the jan/san industry shifting towards a different form of technology that’s raising eyebrows — wireless voice-directed WMS systems.

“Advances in wireless technologies are now at the forefront of internal operational improvements in distribution,” Fein notes. “These systems increase productivity regardless of the product identification technology used.”

Fein says that wireless technologies will increasingly be the basis for transmitting data from the warehouse floor into the system, rather than manually recording and entering information later.

“Wireless voice-directed systems can also reduce human picking errors by pointing warehouse employees to the right location and quantities,” Fein explains. “Wireless systems also change both the cost and usefulness of warehouse automation by allowing a distributor to achieve the benefits of new systems with an existing warehouse configuration.”

Voice-direction is helping free up workers in the warehouse, allowing them to be safer, more accurate and more productive, says Householder.

Householder also notes that the software is helpful for warehouses that employ Spanish speakers. Because it has a Spanish-speaking capability there is less room for communication mishaps, which is the source of some of the biggest errors in warehouses.