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Sustainable Growth of RFID Supply Chain Markets

Saturday, July 14, 2007

by Adi Tedjasaputra

The steadily growing demand for RFID solutions in the Asia Pacific region is inevitable, particularly in the supply chain markets. However, a threat is looming that the current growth will not be sustainable. A fair cost-sharing mechanism, rational motives and justified returns from RFID technology investments are the key ingredients to achieve long-term and sustainable RFID technology adoption.

With the number of contactless smart card unit shipments in the Asia Pacific region at approximately 230 million cards and the Asia Pacific RFID supply chain market that earned $170.3 million in 2006 (Frost & Sullivan 7 Jun 2007, RFID versus Contactless Smart Card and Frost & Sullivan 30 Jun 2007, Asia Pacific RFID Supply Chain Markets), it is hard to ignore the steady growing demand for RFID solutions in the region.

Heating up the emerging markets, METRO Group – the world's fourth largest retailer located in Germany has launched an initiative called Advanced Logistics Asia program since last year. The aim of the program is simply to improve the flow of goods along the supply chain between China (Hong Kong) and Germany with the use of RFID technology.

Boxes in a Warehouse.

Speaking to FoodProductionDaily.com, Christian Maas - a METRO Group spokesperson, recently gave a comment on the pressure on its suppliers for adopting RFID and Electronic Data Interchange (EDI) technology: "Suppliers doing without the innovative technology (RFID and EDI – ed.) will bear the higher process costs resulting from a lower efficiency. Suppliers participating in the RFID roll-out will benefit from a preferred treatment."

The remark implies that METRO Group believes in 3 things:

The technology used by METRO Group, including RFID, is innovative.

RFID will help suppliers achieving lower process costs as a result of higher process efficiency.

A preferred treatment is an incentive for suppliers to participate in the RFID roll-out.

Whether these beliefs are based on facts or assumptions, all suppliers to METRO Group will have to eventually go along with RFID deployment plan. First, the suppliers will have to participate in EDI framework integrating NVE (Shipping Unit Number). This participation requires suppliers to provide NVEs for complete pallets and each individual package. After the EDI System integration, the next step will be the use of RFID tags at the pallet level. Suppliers will have to attach RFID tags to all pallets before delivery.

Asian Elderly Carrying Boxes.

Faced with the requirement for RFID technology compliance, suppliers should ask the following question: Is there any rational motive that can justify the adoption of RFID technology further into internal business processes? The answer to the question is crucial for any supplier to take a strategic decision whether to implement RFID technology only for the sake of compliance or integrate the RFID technology further into internal business processes.

The answer from the 26 METRO Group's industry partners from Asia (not 30 suppliers or partners as published previously in various media) participating in "Tag it easy" pilot project has already been decided: compliance.

As a part of the Advanced Logistics Asia program, the "Tag it easy" pilot project was launched in late May 2007. The project aims to enable consumer good industry partners in Hong Kong to apply RFID labels on the shipments to Unna, Germany.

Basically, there are only 3 things that the Asian suppliers participating in the project need to perform:

Use Metro Link portal to order pre-printed RFID labels for packages exported to Unna, Germany.

Manually attached the RFID labels to the export packages.

Manually read the data on the RFID labels affixed to the outgoing goods using a handheld reader.

The recent press release from METRO Group reported that 40 companies have adapted their processes to use RFID technology. From the press release, it is unclear whether the 40 companies include the 26 suppliers from Asia or not. However, based on the facts that the Asian suppliers solely perform peripheral activities with regard to RFID implementation, and not further adoption into internal business processes, it is fair to assume that the press release excludes the 26 suppliers from Asia.

Forklift and Boxes.

Judging from the manual labour-intensive processes that are still heavily involved in the project, it will be difficult for suppliers to justify that RFID is an innovative technology that can help them to achieve lower process costs and higher process efficiency. The suppliers involved in the project may get a preferred treatment from the METRO Group and detailed proof of good delivery, nevertheless, it is still questionable whether the preferred treatment and detailed proof of good delivery can actually justify the additional operational costs and process waste.

On the other hand, METRO Group can benefit tremendously from data quality improvement, process efficiency improvements along the supply chain, and real-time asset visibility & control, while the third-party RFID vendor - Checkpoint Systems, Inc. can profit from the use of their Check-Net® products and services.

The situation confirms the results of our previous study on RFID adoption in Supply Chain Logistics and Retail Logistics, in which a fair cost-sharing mechanism between retailer (METRO Group) and consumer good suppliers is essential for a sustainable RFID adoption to take place. In addition, it is also necessary for consumer good suppliers to be able to justify their investments in RFID technology with rational motives and justified returns. A specific business case for each unique consumer goods supplier and a customised solution to RFID system integration challenges are no longer nice-to-have. It has already become a fundamental requirement for a sustainable RFID adoption and sustainable growth of RFID supply chain markets.

Send your comments and discuss.

Labels: business, card, china, project, reader, rfid, scm, tag, technology