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RFID: Star Potential or Big Bomb?

July 1, 2006
RFID is the "American Idol" of the warehousing and logistics industry. How will you cast your vote?

RFID is the new hit reality series for the warehousing industry. Everyone is watching it to some degree — perhaps directly in day-to-day business or at industry events and in trade magazines. And it seems to be something everybody's voting on. Some vote for it to go away while others vote for it to become more widely adopted. No matter how you cast your vote, it's here to stay. This article will help you discover what it means to you, your organization and the electrical industry.

What is RFID? The acronym RFID stands for radio frequency identification. It's the process of communicating wirelessly with unique identifiers from tags (labels) to a reader (RF device). It will allow you to track product as it progresses through your supply chain. Ultimately, it could mean products can arrive at your docks and not have to be detail-received by a warehouse employee.

A reader positioned at dock doors would identify each tag, whether affixed to a case, master pack or pallet, and update your warehouse management software (WMS) system automatically with the correct quantities. This means each case master pack and pallet must be labeled with an RFID tag. Before you think about eliminating your receiving department, let's elaborate on the process.

Not all vendors are in favor of this technology. There is a list of reasons why, but the No. 1 reason is cost. A standard bar-code label costs less than a penny, and the actual cost is probably considerably less depending on the quantity purchased. However, RFID tags can cost between 20 cents and $6 a piece, depending on the amount of memory necessary to store the product data. This data can include product code, quantity, date shipped, the order it needs to fill, customer purchasing history and many other important pieces of information that help track and identify each product pallet or shipment.

There are five different classes of RFID tags:

  • Read only.

  • Write once read only.

  • Read write.

  • Read write with board sensors, which have the ability to record temperature, motion, pressure, etc.

  • Read write with integrated transmitters, which are able to communicate with other tags without a reader.

Along with the cost and complexity of the tags comes a reader's cost. Simple readers cost as little as a few thousand dollars, and more complex readers can cost tens of thousands of dollars. On top of the expense of the tags and readers come other obvious costs: integration, software, current system upgrade, consultant, training, printers, etc.

You must also consider the difficulty of labeling fittings, pipe and wire for smaller warehouses and not massive distribution centers, where the standard order quantity is not in multiples of the case. And will-call orders are a whole other story. Because of these challenges, it's easy to understand why many electrical distributors and vendors are skeptical about this not-so-new technology.

As a side note, some folks believe this technology is a danger to society and must be adopted with cautious skepticism. For example, in Hoboken, N.J., the traffic department is issuing parking stickers in the form of RFID tags. The police can now walk down the street and their reader will automatically tell them whether a car is permitted to be parked on that street just by reading the RFID tag affixed to the back of the parking permit. It can also tell them the owner's name, the license-plate number, the make and model of the car and any other information stored on the tag — the parking permit in this case — at time of issuance. The concern is with all this information readily available, it won't be long before criminals begin getting readers of their own.

Some people are also concerned about the possibility of viruses being placed on tags and corrupting not only your reader but also your ERP/WMS system. Imagine getting a virus that infiltrates your ERP (enterprise resource planning) system from warehouse boxes. The only thing a distributor wants to be concerned about when it comes to inventory is whether it's turning as fast as it should and the accuracy of records kept. Your concern should not be whether or not it's lethal to your day-to-day operations.

In reality, your warehouse is probably several steps away from being ready for you to even begin thinking about implementing RFID technology in your distribution center. The first step must be addressing your current process and procedural issues. The second step is purchasing and implementing a warehouse management system. Knowing 50 pieces of a particular item came in the back door today does not help the picking department. Nor does it help customer service, because they already have that information every time they get a proof-of-delivery when an item has not been received for several days. Knowing 50 came in the door will not help the pickers find them 30 minutes after they have been received either. RFID technology can provide the data, but what happens to that data is still dependent on your warehouse employees.

Wal-Mart's vendors must comply with its RFID standard. In addition, several other large retailers now mandate this technology, costing inefficient supply chains that do business with them millions — if not billions — of dollars. But the non-RFID portion of what's required — an increase in efficiency, a reduction of data-entry errors, the ability to free up staff — should have been part of the standard operating procedures within these organizations years before Wal-Mart's mandate.

Distributors should have pushed technology to make them more efficient, drive costs from their supply chains and reduce the number of times product is touched in their warehouses. But the warehousing industry is consistently slow to adopt new technology. Less than 30 percent of warehouses have a WMS system, and less than 30 percent of all warehouses are efficient. That's why I predict less than 30 percent of the warehouses will have RFID systems five years from now.

Who wants to throw good money after bad money? If you have already invested heavily in your warehouse, you will be disappointed with the return on investment if inventory is still inaccurate. After all, receiving sometimes still doesn't get received and put away for days, and you are still processing the same percentage of returns.

Bar coding alone can increase the accuracy within a warehouse to well above 90 percent. RFID tags, because they don't have the same drawbacks as bar-code labels, can pick up where the bar-code labels leave off. But that doesn't mean much if you are not even reaping a WMS system's benefits.

Many distributors parallel the man who sat in front of the stove and said, “Give me heat, and then I will add the wood!” We want the benefits of an effective and efficient warehouse, but we don't want to pay the cost or implement the systems. You need accurate inventory and want customer-service personnel on the phones and not in the warehouse checking inventory. You also want orders in the receiving department to be processed the day they arrive, so you don't have to rummage through the product sitting on the receiving dock to fill important orders.

RFID has the ability to provide:

  • Reduced shrinkage.
  • Full visibility of returned items.
  • Reduced labor costs.
  • Enhanced customer service.
  • Increased inventory accuracy.

Ask yourself what are you willing to invest in order to receive these benefits. Are you still waiting for heat (benefits) so you can add the wood (paying the price)? Your warehouse personnel play a big role in your organization's success and failure, and they deserve the systems, processes and disciplines to perform their jobs efficiently.

If you don't provide them with the correct tools, but you still expect warehouse personnel to process your orders more efficiently and maintain accurate inventory, it's not fair to hold them accountable for something they have little or no control over. That would be like auditioning for “American Idol” with no talent whatsoever and then wondering why you were voted off the show.

René Jones is the founder of Total Logistics Solutions Inc., a warehouse efficiency consulting company headquartered in Burbank, Calif., and the author of “This Place Sucks! What your warehouse employees think about your company and how to change their perceptions.” Jones can be reached at (818) 353-2962 or by e-mail at [email protected]. Visit the firm's Web site at