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RFID: An enabler of supply chain operations

Article in Supply Chain Management An International Journal · June 2007

DOI: 10.1108/13598540710759763

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 Insight from industry

RFID: an enabler of supply chain operations

Mohsen Attaran
School of Business and Public Administration, California State University, Bakersfield, California, USA

Abstract
Purpose – The desire to cut supply chain costs has made RFID technology one of today’s most discussed retail technologies. Given the current
implementation pace, the objective of this paper is to go beyond the hype and explore basic issues related to RFID technology, including its promises as
well as its pitfalls.
Design/methodology/approach – The author provides a conceptual discussion of the evolution of RFID, addresses its capabilities and its application
in various industries, discusses implementation challenges, identifies adoption phases, and reviews RFID’s success factors.
Findings – RFID is the most recent prolific technology that provides supply chain collaboration and visibility. An RFID systems solution will increase
corporate ROI while at the same time improving retail supply chain communication. Handled properly, RFID technology can result in an evolutionary
change incorporating legacy systems with the real-time supply chain management of tomorrow. Its stumbling point seems only to be a variety of issues
outside the technology itself: marketing problems, false promises, security and privacy considerations, and a lack of standards.
Research limitations/implications – The paper was constrained by empirical evidence of, for example, technology deployment, adoption drivers, and
success factors.
Practical implications – The paper confirms the power of RFID – a technology in its infancy with as yet untapped potential for supply chain
collaboration. It also examines some of the popular RFID products and services.
Originality/value – The paper discusses implementation challenges, identifies adoption phases, and reviews RFID’s success factors. It identifies the
biggest implementation challenge as the challenge for IT experts of determining how to integrate RFID with existing supply chain management (SCM),
customer relationship management (CRM), and enterprise resource planning (ERP) applications.

Keywords Supply chain management, Universal coding system, Tracking, Barcodes

Paper type Conceptual paper

1. Introduction
The unending cycle of rising supply chain costs impacts the
bottom line of all players involved. Manufacturers, retailers
and distributors consider supply chain cost reduction as a
critical issue to be addressed in their business. This desire to
cut supply chain costs has pushed radio frequency
identification (RFID) technology – an e-tagging technology
that can be used to provide electronic identity to any object.
Speculation that a five-cent RFID tag will be available in the
near future has made RFID technology one of today’s most
discussed retail technologies.
RFID is not a new technology. It was first used in the
Second World War to identify friendly aircraft. However, the
application of RFID to the supply chain is new. For a nominal
price, a RFID tag is attached to the product in the initial
stages of manufacturing that follows the product down the
supply chain all the way to a retail setting, and finally into the
hands of the consumer. There, it can again be scanned while
in a box or crate, saving labor. In a retail setting, the tag can
The current issue and full text archive of this journal is available at
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Supply Chain Management: An International Journal
12/4 (2007) 249– 257
q Emerald Group Publishing Limited [ISSN 1359-8546]
[DOI 10.1108/13598540710759763]
serve as the price tag. Consumers can count on the tag for
warranty information after purchase.
Mandates from powerhouses such as Wal-Mart, Target
Corp., and the US Department of Defense that require
suppliers to begin using RFID technology is expanding this
technology into supply chain operations. Wal-Mart requires
that its top 100 suppliers embed an RFIP chip on all pallets
and cases of items delivered to Wal-Mart by January 2005.
The next 200 suppliers are required to do the same by
January 2006. By October 2005, the company plans to go
“RFID live” in six new distribution centers and another 900
stores, as well as Sam’s Club stores (Krivda, 2004). Other
retail firms such as Target have also required RFID tags on all
cases and pallets that enter their supply chain. This aggressive
schedule has pushed RFID technology into the forefront, with
the entire industry responding accordingly.
In the wake of retail and government mandate, AMR
Research recently conducted a survey of 500 companies
assessing the RFID market from 2005 to 2007 (Figure 1).
Thirty-one percent of respondents surveyed are currently in
full deployment or in pilot use, 69 percent are planning to
evaluate, pilot, or implement RFID in 2005, with the average
budget for RFID at more than $548K increasing to $771K by
2007. Only 18 percent have no plans for RFID
implementation (Reilly, 2005).
Given the current implementation pace, the objective of this
paper is to go beyond the hype and explore basic issues related
to RFID technology, including its promises as well as its

249
 RFID: an enabler of supply chain operations
Mohsen Attaran
Figure 1 State of RFID technology deployment
pitfalls. Section 2 discusses the evolution of RFID, addresses
its capabilities and its application in various industries.
Section 3 discusses implementation challenges, identifies
adoption phases, and reviews RFID’s success factors. Section
4 surveys the state of RFID’s application in various industries.
Section 5 examines some of the popular products and services
in this category. Section 6 evaluates the future of RFID
technology including its challenges and opportunities. Finally,
Section 7 summarizes the paper.
2. The evolution of RFID
The service sector has been using barcode technology since
the mid-1970s. Barcodes are a line-of-sight technology. That
is, a scanner has to “see” the barcode to read it. Barcodes
appear on almost every purchase, from soft drinks to
automobiles. The code itself is made up of a series of wide
and narrow parallel lines and spaces and can store as many as
20 to 30 characters per inch of coded information. That is
enough space to store the Universal Product Code (UPC) for
the item, which tells the computer to respond with the correct
price for the item. In the UPS code, only the digits 0-9 are
represented. Letters are not allowed. Barcodes are read with
the help of a device called a reader or scanner. Over the
course of the last 20 years, UPC has become the dominant
product-tracking standard for the consumer packaged goods
industry. The UPC was created by US manufacturers to
negate the lure of much cheaper offshore manufacturing labor
and was championed by industry retailing giants. UPC coding
has paid off with improved product tracking over multiple
retailers, reduced labor costs, and faster product
replenishment.
Research and development in barcoding technology has led
to the development of the new two-dimensional code which
contains a stack of as many as 90 one-dimensional barcodes,
each just three-hundredths of an inch high. This new
barcodes allows the user to maintain a large block of
information about each product – manufacturer, cost, price,
order size, weight, etc. High-speed laser scanners read the
new barcode quickly and retrieve the information for
continual monitoring.
Barcoding has become very important for all industries,
including both manufacturing and services. However some
situations have environmental conditions, such as
temperature, dirt, or hazardous contamination, that make
optically scanning the barcodes on a label ineffective. In those
cases a different technology, called radio frequency
identification (RFID), is often prefered. RFID does not
require the tag or label to be seen to read its stored data.
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RFID technology originated in the 1940s, when the US
Government used transponders to distinguish friendly aircraft
from enemy aircraft. Through the 1970s, the federal
government primarily used the systems for tracking livestock
and nuclear material. Radio tags have been used commercially
in so-called “closed loop” systems for delivering packages,
handling luggage, tracking food in supermarkets and
monitoring highway tolls in the 1980s and 1990s. In 1997,
Mobil installed an RFID system called “Speedpass” that lets
you wave the tag in front of the gas pump to record your
transaction and debit your credit card. In 1980, the Bay Area
Rapid Transit (BART) installed a RFID system to provide
equal access to the system for disabled individuals. Under the
new system disabled people were issued an ID tag at no
charge. To operate the system, the disabled person holds the
tag close to the reader to activate station elevators
(Hackanson, 1991).
RFID does not require the tag or label to be seen to read its
stored data. RFID uses radio waves to capture data from tags,
rather than optically scanning the barcodes on a label. RFID
systems have three primary components:
1 the tag or transponder;
2 the reader; and
3 the computer.
2.1 The tag
RFID tags are the chips that are embedded in the product,
pallet, or case that store and transmit information about the
specific unit. Tags are made of a hard copper coil consisting of
an integrated circuit (IC) attached to an antenna then
packaged into a housing device appropriate for the
application. RFID tags are very rugged and come in several
forms and sizes. Some can be as small as a grain of rice or
one-third of a millimeter. Data is stored in the IC and
transmitted through the antenna to a reader. RFID tags can
be “passive” (no battery) or “active” (self-powered by a
battery). Passive tags are more popular, less expensive, with a
virtually unlimited life span. They do not have their own
power supply but use the radiated energy from RFID readers
to transmit information. Cost estimates range from $0.05 per
tag to a projected $0.25 per tag. There is speculation that
future development might bring the cost of passive tags down
to $0.01 or less (Homs, 2004).
Less popular and more expensive are active tags. Active tags
are self-powered by a battery and act as miniature computers
and transmitters that receive, store, and transmit information
to the RFID reader about a product. The tag’s life span is
limited, unless there is a way to recharge the battery. Active
tags are relatively expensive – cost estimates range from $4 to
$20 per tag.
Tags also can be read-only, where stored data can be read
but not changed; read/write, where stored data can be altered
or re-written; or a combination, in which some data is
permanently stored while other memory is left accessible for
later encoding and updates. RFID tags can provide vast
amounts of additional information compared to barcodes.
Barcodes provide between 12 and 15 information characters,
while most RFID chips use a 94-character protocol.
2.2 The reader
RFID readers are radio frequency transmitters and receivers
controlled by a microprocessor or digital signal processor that
communicates with the tags. Readers using an attached
 RFID: an enabler of supply chain operations
Mohsen Attaran
antenna capture data from tags then pass the data to a
computer for processing. In passive systems, readers transmit
an energy field that “wakes up” the tag and provides the
power for the tag to operate. In active systems, a battery in the
tag is used to boost the effective operating range of the tag.
Readers can have an effective range of a few centimeters to
a few meters depending on the frequency of operation and the
type of tags. Readers come in a wide range of sizes, offer
different features and start at $500. They can be affixed in a
stationary position, integrated into a mobile computer that is
used for scanning bar codes, or even embedded in electronic
equipment such as label printers (Homs, 2004).
The information exchanged between RFID tags and
readers is comprehensive, including everything from
numeric data that summarizes the contents of a carton to
the manufacturing details of complex goods such as
pharmaceutical products (Figure 2).
2.3 The computer
Data collected from tags is then passed through cable or
wireless to host computer systems in the same manner that
data scanned from barcode labels is captured and passed to
computer systems for interpretation, storage, and action.
2.4 The standards
ISO/IEC 15693 is a global standard for 13.56 Mhz RFID tags
and reader electronics. The ISO/IE C 15693 protocol
conforms to FCC (USA), ETSI (Europe) and MPT (Japan)
regulations worldwide. The standard allows tags to travel
around the world under optimal conditions for operation with
region specific RFID readers (RightTag, Inc., 2004).
3. Implementation issues
An important promise of RFID technology is to cut costs and
deliver a wealth of information that helps firms more
effectively understand, predict, and respond to customer
demand. RFID is not a solution. It is an enabler that allows
firms to change their supply chain processes for the better. As
mentioned before, RFID is not a new technology. However,
Figure 2 RFID tags identifying a pallet of trade items
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the application of RFID technology to the supply chain is
new.
RFID technology faces implementation challenges.
Implementing full-fledged systems in a large manufacturer
can cost $13 million to $23 million. Considering the sheer
cost of RFID implementation, there is no ROI for the
technology if you only pursue compliance. However, there are
tremendous cost savings that RFID technology can bring to
supply chain operations. According to experts, it is not the
compliance driving RFID technology; it is the overall saving
opportunities. For example, using RFID technology, retailers
can reduce the costs of receiving, inventory, and shrinkage by
11-18 percent, they can decrease the occurrence of out-of-
stock merchandise by 9-14 percent, and they can cut logistics
delays by up to 5 percent (Krivda, 2004).
3.1 RFID adoption phases
Before deploying RFID system in your company, you need to
determine where RFID will add business value and plan a
scalable deployment approach. The following phases can help
(Krivda, 2004):
1 Elementary phase (or slap and ship) – At this stage
companies begin to learn about RFID technology and
attempt to ensure nominal compliance with customer
mandates. They put the RFID tags on a small sample of
products and deploy them at a limited number of sites. At
this stage, firms buy more time to learn how to manage
the technology while they are making “Wal-Mart” happy.
2 Intermediate phase – Companies that have investigated
RFID early move into the second stage and use RFID
technology as a data collection agent. These companies
apply RFID tags during production instead of afterward
to streamline processes and decrease labor costs. They
also use RFID for receiving goods and processing
shipments, and sharing the data collected from these
operations with back-office business systems. This creates
additional efficiencies and extract value from a variety of
supply chain processes.
3 Final phase – At this stage, ideally, all facilities will be
RFID-enabled. Companies will uses the massive data
generated by the RFID technology to understand
customer demand and use the information to shape
supply chain decisions. The power of RFID lets
companies collect data in real time about how fast
something is selling now. This optimizes profit across the
supply chain.
3.2 RFID success factors
In the past few years, the RFID technology has demonstrated
benefits for hundreds of manufacturers and retailers. Some of
the critical success factors that could influence RFID
adoption for more companies are:
.
top management involvement;
.
partnership with competent technology providers;
.
integrating RFID into a company’s existing IT
architecture;
.
integrating the data collected by RFID systems with a
company’s back-office business software, such as
enterprise resource planning (ERP) systems;
.
determining which practices should be incorporated into
their RFID systems;
 RFID: an enabler of supply chain operations
Mohsen Attaran
.
coordinating the receiving, manufacturing, warehousing
and shipping operations once information delivered from
RFID is shared across the enterprise and plant floor; and
. proper staff training.
3.3 Factors influencing adoption
RFID is a powerful technology that offers businesses
increased supply chain and inventory visibility for greater
operational efficiency, with reduced inventory and out-of-
stocks. Supply chain management (SCM) systems are a
combination of many applications that are tightly integrated.
They automate the planning and coordination of a company’s
supply chain from the gathering and tracking of unfinished
materials and subcomponents, through manufacturing,
inventory, shipment, and receipt of completed products at
the customer’s loading docks.
SCM systems have the analytical capabilities to produce
planning solutions and strategic level decisions. Early
adaptors of SCM systems have reported lower procurement
costs, smaller inventories, shorter cycle times, faster response
to the market, and reduction in forecasting errors. Nabisco
and Wagmans, for example, noted over a 50 percent increase
in category sales. Wal-Mart and Sara Lee reported an 18
percent reduction in inventory level, up to a 20 percent
reduction in replenishment cycle, and a 40 percent more
accurate forecast with a 32 percent increase in sales (Attaran
and Attaran, 2004).
Economic slowdown and the shock of September 11
created major stress for many supply chains. Companies were
challenged to keep critical products and supplies moving,
manage inventory levels effectively, maintain productivity, and
keep emergency transportation costs in check. Despite the
unexpected events and slowdown, many companies continue
to initiate supply chain improvement initiatives. The reason?
The growing recognition that excellent supply chain
performance has strategic value that could lead to (Attaran
and Attaran, 2004):
.
rapid financial payback, often within months;
.
improvements in productivity and profits;
.
improvements in customer positioning and product
quality; and
.
enhancements in long-term relationships with suppliers.
Many companies have benefited from implementing RFID
technology in their organizations. Supply chain cost that
includes receiving, inventory, shrinkage, distribution, logistics
delays, and out-of-stock merchandise is often cited as a major
factor influencing RFID adoption. In addition, RFID has the
ability to provide far more information than bar coding. This
information can be used to improve inventory management at
the retail store and along the supply chain. The result of more
accurate and timely information is a much smoother and
synchronized allocation of inventory to orders. Shelves stay
stocked without increasing inventory levels or safety stock.
Information is crucial to supply chain performance because
it provides the basis upon which supply chain managers make
decisions. The RFID technology enables management in a
supply chain to capture and deliver information necessary to
make a good decision. According to a recent worldwide study
of causes of retail out-of stocks, on average retailers lose
nearly 4 percent of sales to out-of-stocks. The out-of-stock
impact is 50-100 percent higher for high-velocity items.
Additionally, 55 percent of out-of-stocks last one to three or
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more days. The primary cause is a lack of visibility. The
supply chain is all about matching inventory to orders. The
RFID infrastructure provides better access to real-time data
and enables in-store execution and visibility. This increased
visibility can be used to create actionable requests for store
personnel (Gruen et al., 2005).
Organizations who take the time to understand the
technology’s capabilities and limitations can increase their
revenue growth, lower costs, reduce inventory, better utilize
fixed assets, and gain favor with retailers. Some of the most
important benefits that businesses are able to gain by
embracing RFID technology include:
.
enhanced visibility into customer needs;
.
enhanced visibility along the supply chain;
.
accurate and timely asset tracking;
.
smart product recycling;
.
streamlined or better managed business processes within
the company;
.
improved productivity by generating the fastest and lowest
cost method of acquiring the data;
.
improved velocity by responding to demand signals faster;
.
better utilization of fixed assets, resulting in lowered
capital asset requirements;
.
reliable and accurate order forecasts;
.
reduction in inventory costs including stock-out and
holding costs;
.
improved technology return on investment;
.
improved accuracy by reducing the opportunity for
human error;
.
increased productivity and dramatically reduced operating
costs;
.
improved product quality and reliability including
traceability;
.
improved supply chain management by better tracking
transportation and warehousing channels;
.
improved counterfeiting identification, theft prediction,
and faster recalls; and
.
gaining favor with retailers to better position products on
shelves.
4. Applications in various industries
Factors such as mandate from major retailers, supplier
collaboration, and the pursuit of perfect demand information
have spurred the need for technology such as. Numerous case
studies provide ample evidence of early success that
companies in North America and Europe have had in
implementing RFID technology.
RFID is gaining broad appeal. RFID provides enhanced
visibility into customer needs. Data generated by RFID
technology can improve supply chain efficiencies across
industries such as retail, manufacturing, distribution,
healthcare, and government. According to Venture
Development Corp., global shipments of RFID systems,
including hardware, software, and services, reached nearly
$965 million in 2002 and are expected to reach nearly $2.7
billion by 2007 (Bindra, 2004). Similarly, according to a study
by Allied Business Intelligence Inc., the RFID market will
jump from $1.4 billion annually last year to as much as $3.8
billion in 2008. By the same token, an International Data
Corp.’s study indicates that spending on RFID technology
used to track goods in retail supply chains will grow to nearly
$1.3 billion in 2008. Last year, about $91.5 million was spent
 RFID: an enabler of supply chain operations
Mohsen Attaran
on chip-based tags and related hardware, software and
services, according to IDC.
RFID enables trading partners to collaborate more
effectively, plan more accurately, and respond more rapidly
up and down the value chain. RFID technology can help
retailers reduce the cost of receiving, inventory, and shrinkage
losses by 11_18 percent. It can also cut logistics delays by up
to 5 percent, and can decrease the occurrence of out-of-stock
merchandise by 9-14 percent (Krivda, 2004). According to
Consultant Accenture, RFID technology could reduce the
cost of checking inventory by 65 percent, in part by
eliminating the need to physically count boxes (Gogoi, 2005).
RFID technology is used in a range of applications,
including access control to buildings, document tracking,
livestock tracking and identification, vehicle security, pay-at-
the-pump gasoline sales, product authentication, retail, sports
timing, supply chain, ticketing, and wireless payment. More
specifically, it has useful applications in the following
industries:
.
Shipping and distribution – In this industry, RFID
technology enables suppliers to accurately determine the
location of a pallet, to track its journey through the supply
chain, and to make instantaneous routing decisions. At a
major trucking and logistics provider company, RFID tags
are embedded in the fleet of 2600 trucks. At the service
center, the tag automatically determines what loading/
unloading activities are needed and assigns an appropriate
crew to service the truck (Intermec, 2004).
.
Retail industry – RFID technology offers a very significant
advantage over bar coding. Wal-Mart’s initiative and move
in using the technology was heralded as the most
important tech development for retailers since the
barcode. RFID tags continually gather information as
products move from shelves to the checkout counter. The
technology not only helps the retailer to reduce labor and
manual costs, it also curbs shoplifting and boosts store
productivity (Gogoi, 2005). The tags already help Wal-
Mart with reordering, stocking, and keeping track of
purchases. According to an estimate, Wal-Mart can save
$6.7 billion in labor costs alone from RFID
implementation (Rockwell Automation, 2004).
.
Manufacturing sector – This sector has been finding
different ways to derive value out of this technology. For
example, manufacturers are using RFID product tracking
mechanisms to ensure accuracy. Parts can be individually
tagged and tracked throughout the manufacturing process
while on the production line. Parts received from the
production plant can be tracked throughout the assembly
process. This certainly helps manufacturers with their
carefully scheduled just-in-time (JIT) assembly lines. Tags
containing equipment specifications can be attached to
enable easy upgrading. Similarly, tags can be used to keep
track of usage, availability, location, and maintenance of
material handling equipment. Procter & Gamble (P&G),
for example, believes that RFID technology can help the
company to track where every item is in the
manufacturing process and supply chain. P&G expects
the cost saving of up to $1 billion in working capital and
$200 million in inventory carrying costs. The savings on
inventory will offset the cost of the RFID infrastructure
and tags, and other savings will help P&G’s bottom line
(Robbins, 2005).
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Volume 12 · Number 4 · 2007 · 249 –257
.
Agriculture, cattle and food production – Increased
government regulation about food traceability in the
USA and a mandate from the European Union (EU) for
tightened traceability requirements beginning in 2005 has
pushed RFID technology into food sourcing. RFID can
help these traceability requirements at a reasonable cost.
The technology should also reduce recall costs by
increasing the ability of the manufacturers to identify
and recall only the affected items (Homs, 2003). Similarly,
RFID technology is used to secure the identification of
cattle by means of inserting a tag into the stomach of an
animal, enabling accurate records for automated farm
management (Jain and Klastorin, 2004).
.
Health care – RFID technology can be used in health-care
industries to improve quality and reliability. In the US
Navy, RFID tags, embedded in wristbands, are used to
identify patients and update their status automatically. A
British firm is using RFID tags to match blood samples to
patients (Philips Semiconductors et al., 2004). Jacobi
Medical Center is using RFID technology to track and
manage assets, such as medical devices, and wheelchairs.
Medications and dosages are tagged so doctors and nurses
can ensure that the right medicine is given in the right
amount at the right time to the right patient (Krivda,
2004).
.
Pharmaceutical – The drug industry uses RFID
technology to self-police in the fight against thieves and
counterfeiters. For example, Purdu Pharma, the
manufacturer of the popular painkiller OXYContin, is
using RFID tags to track shipment of its theft-prone drug.
Pfizer is planning to put the radio tags on bottles of its
widely counterfeited Viagra drug by the end of 2005. With
RFID tags, pharmacists will be able to identify counterfeit
drugs and law enforcement officers also will be able to
quickly check whether bottles they recover have been
reported stolen. The US Food and Drug Administration is
requiring the drug industry to deploy RFID labels by
2007 (Patton, 2005).
.
Government – This sector is another emerging application
area for RFID. Government agencies are using RFID
technology for supply chain management, inventory,
security, and military strategies. The Army uses tags on
supply containers for detecting shock and variances in
temperature. These tags have a range of up to a mile to
enhance supply management capabilities. The Navy, on
the other hand, uses RFID tags for weapon management,
with a range of less than six inches to protect sensitive
data. Weaponry data collected by RFID tags reveal
anything from materials to capabilities and mission details
(Aitoro, 2005). The Department of Defense is requiring
suppliers to deploy RFID tags on cases and pallets they
deliver to the department by January 2005. The
department will use the technology to track packaged
meals, chemical and biological warfare suits, as well as on
supplies moving from military distribution centers to
tactical forces (Bacheldor, 2003).
.
Gaming industry – This industry has been finding other
ways to derive value out of this technology. For example,
the Wynn Las Vegas Casino is using radio tags on betting
chips to deter counterfeiting, card-counting and other
illegal behavior. Casino executives envision RFID
transforming the way they operate table games. The
casino is installing RFID readers and PCs at game tables.
 RFID: an enabler of supply chain operations
Mohsen Attaran
Dealers can take a quick inventory of chips that have been
wagered. In addition to monitoring wagers, the technology
will let dealers or cashiers see when the value of the chips
in front of them does not match the scanners’ tally. The
casino industry is also planning to use the technology to
help casinos keep tabs on how much players bet and how
long or often they play for incentive programs. For
example, Hard Rock Hotel plans to use its RFID system
to monitor gamblers to reward good customers with free
rooms, meals, or other perks based on how much and how
often they wager. RFID is giving the casino a more
accurate and efficient tool to rate players and allow casinos
to be more aggressive (Gilbert, 2005).
.
Security industry – Giant retailers and manufacturers
aren’t the only adopters of RFID technology. RFID seems
to be moving quietly into the people-tracking realm,
especially in the area of monitoring children. Lauren Scott
of California, the $2 million-a-year apparel company, will
launch a line of pajamas with RFID tags sewn into the
hems. RFID readers installed at various points throughout
a house will be able to scan the tags within a 30-foot
radius, and will trigger an alarm when boundaries are
breached. The passive tags that Lauren Scott will insert in
the sleepwear collection cost less than 30 cents each.
RFID readers required to work with the tags will be priced
at about $500. The company will introduce the sleepwear
in its spring 2006 collection. An estimated 250,000 pieces
will be shipped to various retail stores, including Target
Corp., in December and are expected to be available to
consumers by February (Sullivan, 2005).
5. RFID products
Recently, there has been a significant growth in demand for
the chips used in product tagging. Companies are beginning
to emerge with products supporting RFID technology. The
endorsement of giant retailers and growing awareness of
RFID benefits will continue to persuade more companies to
explore the opportunities.
Some innovative companies, including Intel, along with
SAP and IBM, are working with academic and industry
leaders to develop the IT processes and applications to
improve efficiency in the retail supply chain, with a particular
focus on RFID applications (Intel, 2004b). Table I
summarizes some popular products in this category.
6. A look ahead
6.1 Opportunities
With mandates from powerhouses such as Wal-Mart,
METRO Group, Target, the US Department of Defense
and others that require near-term RFID use for their largest
suppliers, the future of RFID is arriving fast. In addition,
recent technology advances and a strong industry-wide
commitment to standards and investment point to a bright
future.
Furthermore, the large companies that are among the early
adopters have experienced some positive results. For instance,
Wal-Mart expects to achieve $8.4 billion in annual savings.
This is greater than the total revenue of half of Fortune 500
companies combined (Rockwell Automation, 2004). Table II
summarizes the benefits and initial savings estimates to Wal-
Mart.
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Volume 12 · Number 4 · 2007 · 249 –257
Moreover, in October 2005, Wal-Mart announced that an
independent study by the University of Arkansas found the
retailer was able to reduce out-of-stocks by 16 percent by
tracking cases of goods with RFID tags. The study also
showed that out-of-stock items with RFID tags were
replenished more quickly than comparable items labeled
only with barcodes. This study is the first to compare the
impact of RFID tags on merchandise availability in RFID-
enabled stores (Roberti, 2005a, b). This was the most in-
depth analysis of Wal-Mart’s RFID project and it shows that
there are benefits.
There has been a great anticipation about the success of
RFID use for Wal-Mart’s largest suppliers. Recent research
published by Incucomm, Inc. painting a positive picture
regarding Wal-Mart’s RFID deployment is likely to get the
attention of other retailers. Incucomm, Inc. conducted a
market research study during the November and December of
2004 to explore preparations by 137 firms that are supposed
to ship RFID tagged goods to Wal-Mart in 2005 (Incucomm,
Inc., 2004). They found some surprising facts, including:
.
active resistance was much less common than has been
anticipated;
.
spending per vendor has been far less than projected;
.
the most promising areas of ROI for Wal-Mart and its
suppliers may be achievable by mid-2005; and
.
the study found many firms achieving 100 percent read
rate success.
The initial saving of RFID-enabled stores encouraged Wal-
Mart to expand its RFID tagging requirements. The company
is working with suppliers that are not tagging all of their stock-
keeping units and asking suppliers to ship to distribution
centers and stores in other parts of the USA that have been
RFID-enabled. Wal-Mart is also moving ahead with plans to
require an additional 200 suppliers to begin tagging specific
items. These requirements will generate significant activity
and give a boost to RFID technology and service providers
that have been growing frustrated at the slow pace of adoption
(Roberti, 2005a, b).
Another reason for possible growth of RFID is that the
technology can be used as a “closed-loop RFID”. In this
approach, RFID technology is used across the enterprise on
projects designed to enhance internal corporate applications
rather than supply chain operations that share data with other
business partners along the supply chains. “Closed-loop
RFID” can help streamline a business process, enhance
visibility into what customers need, and improve productivity
by generating the fastest, lowest cost method of acquiring the
data within the boundaries of a company.
6.2 Challenges
Although RFID has enormous potential for reducing the total
costs of the supply chain, there are also a number of reasons at
the fundamental and technical levels for its delayed
acceptance:
.
Fundamental – The business benefits RFID technology
promises will not arrive with a big bang. There must be
incentive for retailers and manufacturers to adopt the
technology. Similarly, there is the question of the “drivers”
for adaptation. In a recent AMR Research survey of 500
companies, a majority of survey respondents cite
significant challenges in finding the return on investment
(ROI) to justify their RFID spending. Twenty-eight
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Mohsen Attaran Volume 12 · Number 4 · 2007 · 249 –257

Table I RFID products for supply chain

Name/company Features
Texas Instruments The Sensors & Controls segment of TI designs and manufactures sensors, electrical and electronic controls, and
(www.ti.com/) radio frequency identification (RFID) systems. Its RFID systems consist of a transponder, receiver, and other
components, such as antennas
Zebra Zebra has long been helping companies with barcode printers and smart label compliance solutions. Now, Zebra
(www.zebra.com) offers RFID printer/encoders and smart labels to users in a variety of industries, including manufacturing,
healthcare, hospitality, retail, security, and warehousing
Printronix, Inc. Printronix, Inc. has been providing intelligent industrial and back-office enterprise printing solutions for the
(www.printronix.com) industrial marketplace and distribution supply chain for 30 years. Recently, Printronix has adapted new
technologies to create SmartLineTM: RFID printers enable encoding and printing of various label sizes and
antenna designs for a variety of uses in different industries
Datamax Datamax is headquartered in Orlando, FL, and specializes in the design, manufacture, and marketing of products
(www.datamax.com) for barcode and RFID labeling including thermal demand printers, label, ticket and tag materials, and thermal
transfer ribbons. Datamax markets its products exclusively through a network of resellers in more than 100
countries world-wide
ThingMagic LLC ThingMagic LLC is a leading developer of radio frequency identification (RFID), sensing and embedded computing
(www.thingmagic.com) technologies. Its new product, Mercury4, launched in June, is an RFID reader technology that supports both
multiple protocols and multiple antennas, and uses advanced software-defined radio technology to read any tag,
with no compromise in performance
M/A-COM, Inc. M/A-COM, Inc., is a business unit of Tyco Electronics and a leading provider of wireless radio frequency (RF),
(www.macom.com) microwave and millimeter wave components. Holding hundreds of patents in the field, M/A-COM currently serves
wireless telecommunications, aerospace and defense, and automotive markets
Intel Corporation Intel’s microprocessors power the systems and networks that gather and manage RFID data. Intel is deeply
(www.intel.com/) involved in driving open standards and distributed computing architecture that will make RFID an affordable,
reliable and fully interoperable technology

RFID creates huge volumes of data that are difficult to

Table II Initial saving estimates to Wal-Mart
Process Total saving ($)
Labor costs reduction (no barcode scanning
required) 6.7bn
Out-of-stock supply chain cost reduction 600m
Theft reduction 575m
Improved tracking through warehousing and
distribution centers 300m
Reduced inventory holding and carrying costs 180m
Grand total 8.4bn
percent cite it specifically as their biggest obstacle with
regard to RFID adoption (Reilly, 2005). A return on
investment (ROI) is not always a straightforward
calculation. What promotes a desire on part of buyers
and suppliers to collaborate using RFID? From a supply-
chain, manufacturing, or warehouse standpoint, RFID
technology still has limited applications. Uncertainty
around standards (a lack of standards maturity) and
high capital costs will also need to be addressed before
retailers can adopt and benefit from the technology.
.
Technical – Among the technical problems are imperfect
read rates, unproven systems, and conflicting problems
with assembling low-cost tags. Given that tag prices are
now half what they were a year ago, RFID is still more
expensive than barcodes, and there are problems using the
tags on metal objects. To reduce tag cost is to reduce the
size of the chip. However, reductions in the size of the chip
make assembly more expensive. Another problem is that
manage. According to an estimate an RFID system could
generate 10-100 times the data of conventional barcode
systems, causing a huge increase in the daily volume of
data on the corporate IT system. Recently, RFID retailers
have made a great deal of noise about the massive
hardware costs required to deal with the mountains of
data created by RFID systems. The solution lies in
implementing a proper data-management system that can
analyze huge amounts of data quickly (Winans, 2005).
.
Organizational – Handled properly, a RFID system can
result in an evolutionary change incorporating legacy
systems with the real-time supply chain management of
tomorrow. IT experts must determine how to integrate
RFID with existing supply chain management (SCM),
customer relationship management (CRM), and
enterprise resource planning (ERP) applications with the
entire system. Proper integration will increase corporate
ROI while at the same time improving retail supply chain
communication.
Despite the above challenges, the future of RFID technology
will hold exciting opportunities for almost every business. It is
expected that over the next ten years, retailers will continue to
use barcodes and gradually introduce RFID tagging. When
the price of tags becomes economical enough, it is expected
that RFID will take off in other venues. For an ultimate
example: if the tag cost only a penny or two, it could be placed
on supermarket products, and everything in the shopping
cart, except produce, could be read at once.
On the technical front, several companies are collaborating
to develop an active tag that can transmit signals up to 600
feet. These active tags have numerous applications in the

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 RFID: an enabler of supply chain operations
Mohsen Attaran
retail industry and will move fast into the people-tracking
realm. They are being considered in the case of body recovery
for identification purposes. For example, these tags would be
inserted into vests, jackets, and leg-wraps for hikers, bikers,
and skiers, as well as law enforcement and government
personnel. If clothing were separated from the individual, the
RFID tag would give law enforcement information as to
whom it belonged (Sullivan, 2005).
Some innovative companies are also working with academic
and industry leaders and are using hardware and software to
develop powerful integrated RFID solutions. For example,
Intel, along with SAP and IBM, are the primary technology
leaders in Future Store Initiative, which has piloted the use of
RFID-based inventory management and “smart shelf”-based
replenishment. Intel is also working with Procter & Gamble to
implement RFID throughout its supply chain and explore
ways RFID can enhance the shopping experience by reducing
the number of out-of-stock items, ensuring products are on
the shelf when consumers want to buy them (Intel, 2004a).
Finally, without a set of global RFID standards, companies
such as Wal-Mart, Target, and Home Depot cannot fully reap
the benefits of RFID technology. Many large US and
European companies have already embraced a set of RFID
standards. However, China has not yet adopted the
“international” standards and has indicated that it intends
to chart its own course. Nonconformity by China or other
Asian countries may lead to a proliferation of regional
standards that ultimately limit the potential benefits of RFID
(Harmon and Downey, 2005).
7. Conclusions
RFID technology is firmly establishing itself as the way
forward for successful and sustainable supply chain
operations. The promise of RFID technology is to help
companies succeed in moving goods around efficiently, to cut
costs and deliver a wealth of information that helps companies
more efficiently predict and respond to customer demand.
RFID is the most recent prolific technology that provides
supply chain collaboration and visibility. Order visibility is the
touchstone of concurrency. The opportunity to concurrently
have many people acting on problems has tremendous benefit
not only for the planned order, but also for the unplanned
order. An RFID systems solution will increase corporate ROI
while at the same time improving retail supply chain
communication. Handled properly, RFID technology can
result in an evolutionary change incorporating legacy systems
with the real-time supply chain management of tomorrow.
The challenge for IT experts today is to determine how to
integrate RFID with existing supply chain management
(SCM), customer relationship management (CRM), and
enterprise resource planning (ERP) applications with the
entire system.
Today, many companies have embraced RFID and are
beginning to generate real business benefits from the
technology. Many regard RFID as a technology in its
infancy with as yet untapped potential. This assessment
seems true. The technology has many benefits to offer. Its
stumbling point seems only to be a variety of issues outside
the technology itself: marketing problems, false promises,
poor management and execution of RFID efforts at the plant
level, security and privacy considerations, and a lack of
standards. Key privacy concerns include tracking an
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Supply Chain Management: An International Journal
Volume 12 · Number 4 · 2007 · 249 –257
individual’s movements and profiling an individual’s habits,
among others. Important security concerns include data
confidentiality, integrity, and availability.
RFID technology can be a useful tool in supply chain
management system. Organizations who take the time to
understand the technology’s capabilities and limitations can
increase their inventory visibility while streamlining their
operations. The key is to go beyond the first level of
elementary phase or “slap and ship” implementations to
systems that intelligently use the information supplied by
RFID tags. According to Joe Owen, RFID program manager,
Rockwell Automation, “RFID is less an issue of technology
and more an issue of information flows and business process
change” (Robbins, 2005).
Industry members, however, have become painfully aware
of these problems and are trying to do something to remedy
the mistakes of the past. If they are able to successfully unify
the industry with standards, deliver on future promises,
combine RFID with existing manufacturing information
systems, and convince end users of the technology’s
benefits, then RFID’s future looks favorable. At the current
stage, this RFID industry needs to focus on a team effort
between integrators, end users, and manufacturers.
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Mohsen Attaran
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To purchase reprints of this article please e-mail: reprints@emeraldinsight.com
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Supply Chain Management: An International Journal
Volume 12 · Number 4 · 2007 · 249 –257
Winans, A. (2005), “Sink or swim?”, RFID Journal,
December 12.
About the author
Mohsen Attaran is a Millie Ablin Outstanding Professor of
Management at California State University, Bakersfield. He
obtained his PhD in Systems Science with a specialization in
Operations Management and Business Forecasting from
Portland State University. He is the author/co-author of
three books, over 80 papers, and ten commercial software
packages. He has taught in the USA, Europe, Mexico, and the
Middle East, and was a three-time recipient of the MPPP
(Meritorious Performance and Professional Promise) award
for outstanding performance in teaching, research and
community services. He has been involved in professional
designation programs with a few companies including the
Industrial Management Institute, where he designed five
courses in their Project Management certificate program.
Professor Attaran has been a consultant for public and private
organizations and has conducted numerous in-house
workshops and seminars for Caltrans Environmental Branch
Managers, Chevron Western Business Unit, Shell Oil Co.,
Texaco USA, Bakersfield Division, Arco Oil and Gas, Contel,
Computer Science Corp., Phillips Laboratory, Mission
Energy, Bechtel, Corps of Engineers, and Edwards Air
Force Base. His research interests include global
manufacturing, management of technology, operations
strategy, project management, continuous quality
improvement, and managing the total quality
transformation. Mohsen Attaran can be contacted at:
mattaran@csubak.edu