University of Wollongong

Research Online
Faculty of Informatics - Papers (Archive) Faculty of Engineering and Information Sciences

2005

The pros and cons of RFID in supply chain

management
Katina Michael
University of Wollongong, [email protected]

Luke McCathie
University of Wollongong, [email protected]

Publication Details
This article was published as: Michael, K, & McCathie, L, The pros and cons of RFID in supply chain management, Proceedings of the
International Conference on Mobile Business, 11-13 July 2005, 623-629. Copyright IEEE 2005.

Research Online is the open access institutional repository for the University of Wollongong. For further information contact the UOW Library:
[email protected]
The pros and cons of RFID in supply chain management
Abstract
This paper presents the pros and cons of using radio-frequency identification (RFID) in supply chain
management (SCM). While RFID has a greater number of benefits than its predecessor, the bar code, it
currently comes at a price that many businesses still consider prohibitive. On the one hand, RFID is
advantageous because it does not require line-of-sight scanning, it acts to reduce labor levels, enhances
visibility, and improves inventory management. On the other hand, RFID is presently a costly solution,
lacking standardization, it has a small number of suppliers developing end-to-end solutions, suffers from some
adverse deployment issues, and is clouded by privacy concerns. Irrespective of these factors, the ultimate aim
of RFID in SCM is to see the establishment of item-level tracking which should act to revolutionize SCM
practices, introducing another level of efficiencies never before seen.

Disciplines
Physical Sciences and Mathematics

Publication Details
This article was published as: Michael, K, & McCathie, L, The pros and cons of RFID in supply chain
management, Proceedings of the International Conference on Mobile Business, 11-13 July 2005, 623-629.
Copyright IEEE 2005.

This conference paper is available at Research Online: http://ro.uow.edu.au/infopapers/105

 The Pros and Cons of RFID in Supply Chain Management

Katina Michael, Luke McCathie

University of Wollongong
[email protected], [email protected]

Abstract cautious approach, waiting to see what global business

leaders do. For this reason, this paper is strategic in
This paper presents the pros and cons of using informing the business community of the pros and cons
Radio-Frequency IDentification (RFID) in Supply of adopting RFID technology for SCM.
Chain Management (SCM). While RFID has a greater
number of benefits than its predecessor, the bar code, 2. Methodology
it currently comes at a price that many businesses still
consider prohibitive. On the one hand, RFID is The primary method of data collection involved
advantageous because it does not require line-of-sight qualitative content analysis. Given that RFID is an
scanning, it acts to reduce labor levels, enhances emerging technology, reliance for literature was based
visibility, and improves inventory management. On the on a wide range of online industry sources, including
other hand, RFID is presently a costly solution, RFID vendor web sites, standards organizations,
lacking standardization, it has a small number of whitepapers and press releases. The online sources
suppliers developing end-to-end solutions, suffers from were complemented by hardcopy documentation
some adverse deployment issues, and is clouded by including books and academic papers. The relevant
privacy concerns. Irrespective of these factors, the material was gathered, categorized and sorted into like
ultimate aim of RFID in SCM is to see the themes which formed the basis for the advantages and
establishment of item-level tracking which should act disadvantages of RFID in supply chain management.
to revolutionize SCM practices, introducing another Two semi-structured interviews were also used to
level of efficiencies never before seen. supplement and further validate the findings of the
content analysis. Participant 1 was an employee of a
1. Introduction leading auto-ID company, and Participant 2 was an
end-user of RFID in one of the worlds largest oil
Supply Chain Management (SCM) is the refineries. This paper is both descriptive and
management and control of all materials and interpretive.
information in the logistics process from acquisition of
raw materials to delivery to the end user [1]. Nine out 3. Non-Line-of-Sight Technology
of ten companies rate SCM and stock control as the key
to their companys future success, even survival [2]. 3.1 Automatic Non-Line-of-Sight Scanning
Radio Frequency IDentification (RFID) technology has
opened the door to a new era in SCM, unachievable One of RFIDs most attractive offerings is its
using existing barcode technology. Leading fundamental attribute of not requiring line-of-sight
corporations have recognized the intrinsic advantages when reading RFID tags. This means items do not
of RFID and recently moved to introduce the require particular orientation for scanning, unlike
technology in SCM by establishing a mandate, forcing barcodes. This inbuilt technological characteristic acts
suppliers to use RFID as well. There is still reluctance as an enabler leading to a plethora of advantages at
in the business community to invest large amounts of numerous levels throughout the supply chain. RFID
capital in such new technology that is yet to prove scanners can communicate to tags in milliseconds and
itself. Compounding this reluctance is the fact that have the ability to scan multiple items simultaneously.
many of these businesses have invested heavily in This ability significantly aids the automation of many
legacy barcode systems. There is a preference to use a SCM tasks that have typically been labor intensive

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 roles such as checking and scanning incoming demands and market trends, improving the ability to
inventory. Organizations also have an accurate picture have the right product in the right place at the right
of stock levels which in turn means lower inventory time. Wal-Marts RFID strategy manager, Simon
costs and less out-of-stock occurrences. Langford, noted that Wal-Mart has visibility today, but
it is quite fragmented. He believes that RFID is all
3.2 Labor Reduction about total supply chain visibility [7]. Real-time
information can be obtained through smart shelves,
RFID promises to help automate the supply chain to which have inbuilt RFID tag receivers. This would help
unprecedented levels, leading to labor reduction retailers track the exact number of products they hold.
throughout the process. The major cost component for
typical distribution centers is labor, accounting for 3.4 Asset Tracking and Returnable Items
around 50-80% of their total distribution costs. Keith et
al., predict that receiving check-in time could be A recent Aberdeen Group survey of 200 companies
reduced by 60-93% with RFID technology [3]. It is found that more than half of the companies with RFID
also estimated that RFID could yield labor savings of systems were using the technology in asset tracking [8].
up to 36% in order picking and a 90% reduction in RFID is ideal for identifying items that require routine
verification costs for shipping processes. These figures calibration, inspections, or that need to be checked in
demonstrate the significance of labor in supply chains or out [Participant 2]. Another advantage of using
and that even small reductions can deliver considerable RFID technology to track assets such as tools is that the
financial savings. For example, prior to Collexs RFID tags are virtually undetectable [Participant 2]. RFID
implementation, drivers had to get out of their trucks at can also track an assets movement, use, and
landfills, manually enter their waste details and wait for placement, helping to improve asset utilization
a ticket [4]. Drivers were also required to wait for a [Participant 1]. Shipping companies find it difficult to
ticket when leaving the landfill; in all a time consuming track containers as they are continually transported
process. When truck drivers now enter a landfill, they around the world. RFID can help shipping and logistics
merely have to stop on the weighbridge, hold their organizations accurately track such valuable assets. In
RFID tag next to the reader and wait a second for their addition, RFID systems can log a containers history; if
printed ticket. Retailers in particular, stand poised to a container has been used for the delivery of dangerous
benefit from RFID, as they can remove the large labor items such as chemicals, RFID tracking can be used to
component required to manage stock in their stores. ensure that government requirements and regulations
Furthermore, RFID ultimately promises the inception are adhered to. Many products require special reusable
of instantaneous operator free checkouts. containers or packaging for transportation purposes as
they move along the supply chain. Objects such as beer
3.3 Enhanced Visibility kegs can be expensive to produce and difficult to track.
TrenStar has successfully developed a system using
The pervasive always-on nature of RFID RFID technology to manage beer kegs as they move
technology equates to greater visibility to all throughout the supply chain. The new system means
stakeholders in the supply chain. It is estimated that the that TrenStar has comprehensive information on where
U.S. retail industry is losing about US$70 billion the carts have been sent and can query retailers who
annually from its SCM practices [5]. About 42% of this have not returned them [8].
comes from product not being on the retail shelf for
consumers, with the remainder derived through losses 4. The Need for Accuracy
within the supply chain. The visibility offered by RFID
could help to reduce this loss, by reducing waste, 4.1 Item Level Tracking
lowering inventory levels and improving safety.
Improving visibility in the supply chain can help Intermec predict that once item-level tracking is
lower distribution and handling costs and reduce achieved, physical inventories and product re-ordering
inventory levels [6]. RFID allows products to be will be done in a fraction of the time it now takes and
followed in real-time across the supply chain providing retailers will be able to take inventory [counts] much
accurate and detailed information on all items, allowing more frequently [9]. Item-level tracking opens the
organizations to use this information to increase door to a whole range of potential benefits, for example
efficiency. Inventory visibility can be used to achieve theft detection or customized manufacturing
gains in areas such as faster response to customer [Participant 2]. Smart shelves can be described as

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 shelves that have inbuilt RFID scanners allowing them RFID is performing at a high reliability with accurate
to automatically monitor stock. For smart shelves to read rates. The RFID community has devoted a large
realize their maximum potential, item-level tracking is amount of research to airport baggage tracking trials.
a necessity. It will allow management systems to After performing numerous trials and modifying their
identify and store individual product properties such as RFID system, San Francisco International Airport has
expiry dates. However, item-level tracking for been able to reach read rates consistently above 99.5%
perishable items such as apples and oranges, that do in a production environment [11]. Despite many
not require any packaging, is a separate problem promising applications, John Brand, a consultant from
altogether. According to Wal-Mart, fully automated Meta Group, notes that tags are still not 100% reliable
item-level tracking for all products is inevitable, though with anything from 3-5% error rates.
applications like automatic checkouts are not likely to
be introduced for around 10-15 years [7]. In the near 5. Tag and Data Characteristics
future, most organizations have decided to focus on
pallet and case level tracking [Participant 1]. 5.1 Quality Control and Regulation
4.2 Traceable Warranties and Product Recalls RFID empowers organizations to monitor the
quality of products not only internally within their
Product recalls can be attributed as a costly source manufacturing process, but also as their goods move
of loss in the supply chain. This is often because it is along the supply chain. The technology permits the
extremely difficult for organizations to pinpoint only collection of real-time information in the
the specific faulty instances of a product [which] often manufacturing process for quality control purposes,
leads to the destruction of perfectly good products lowering the chance of customers receiving poor
[10]. The level of information included on a units quality products as well as reducing the time spent
packaging can be the difference between making a monitoring and reworking orders. Tags can monitor
mass recall, requiring extensive advertising and large things like temperatures, bacteria levels and provide
quantities of possibly non-faulty product being tamper evidence, regardless of the product position in
recalled, or a highly specific and personalized tracking the supply chain. This is an important capability in
of customers who have purchased the faulty products. modern supply chains where many products are
RFID and the Electronic Product Code (EPC) can shipped around the world, exposing them to countless
uniquely identify every individual item in the supply environmental stresses, all of which could hamper the
chain, allowing manufacturers to obtain instant access quality of the finished good. Smart semi-active or
to information that allows them to issue targeted recalls active RFID tags can monitor these environmental
of only affected products. Subsequently, suppliers can forces and can automatically detect events without
maintain a strong and trusted brand name. Tagged necessitating the inspection of every single product.
items that require repair and are covered by a warranty For example, the U.S. army is piloting the use of RFID
can be authenticated, ensuring that the warranty period tags with battery-powered sensors that can monitor
of the product has not expired. The item can also be temperatures in the areas where goods are shipped and
monitored as the product moves back up the supply stored [12].The tags are being placed with food sent to
chain to the manufacturer or authorized repairer, troops in the field and are designed to ensure that food
allowing customers to receive detailed information on is used before the shelf life is exceeded. The RFID
where their item is in the process. technology ensures troops receive food fit for
consumption. RFID tags used within the EPC Network
4.3 Reliability can also reduce the incidence and negate the impact of
counterfeiting.
The reliability of RFID tags is an issue that could
determine the technologys ultimate success. A 5.2 Yard, Warehouse & Factory Management
multitude of pilot tests already have been carried out
under a variety of operating environments. Airports are In todays operating environment, it is important
testing the technology to help track baggage and that business achieve the maximum productivity
supplies, while manufacturers are using the technology available from their assets. Organizations often have
to manage incoming and outgoing inventory. While large levels of capital tied up in yards and factories and
some RFID tags are currently not achieving satisfactory as such, they need to be managed efficiently. It is often
read rates, there are numerous applications wherein difficult for these organizations to know what goods

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 are on which truck without first unloading the truck, 5.4 Security
which also makes it complicated to direct the truck to
the right drop off or parking yard location. RFID tags RFID tags are virtually impossible to copy, making
can be placed on truck trailers and RFID readers placed them suitable to security applications. With the cost of
at entry and exit points of yards allowing management goods lost within the supply chain estimated to cost
systems to log the incoming and outgoing data in real- European companies 50 million euros a day, securing
time. The incoming truck driver can then be directed to SCM with RFID technology is paramount [16]. It is
the most efficient drop-off location. Items are unloaded estimated that airlines will have to spend about $5
faster with the yard being managed in the most billion over the next 10 years to upgrade baggage
resourceful manner, maximizing an organizations screening systems to comply with laws passed after
utilization of the asset and order fulfillment 9/11 [17]. Theft that occurs in the supply chain is
capabilities. The same principle applies to forklift referred to as product shrinkage. Product shrinkage is
drivers at warehouses. Amcor Fibre Packaging rampant, with up to US$30 billion being lost each year,
successfully uses RFID to manage its warehouse [13]. the majority from the middle of the supply chain. The
Before the warehouse management system (WMS) was EPC Network allows products to be monitored, alerting
implemented, their warehouse would often reach 2500 SCM systems with specific details in real-time when
pallets, 500 more than what the warehouse was products go missing, allowing the organization to take
designed for, requiring production to be stopped. In anti-theft measures in future occurrences. RFID can
addition to this, there would be between 15 and 25 also provide theft prevention in retail outlets and
trucks waiting to be loaded. The new RFID capable distribution centers. For example, numerous uniforms
WMS has reduced the typical number of pallets in the were being stolen from Star City Casino, so officials
warehouse to 800 with no more than 2 to 5 trucks placed RFID tags inside employee uniforms to prevent
waiting. Since the systems inception, production has such theft.
not been stopped.
5.5 Ability to Withstand Harsh Environments
5.3 Improved Inventory Management
When environmental issues come in to play, RFID
Manufacturers persistently struggle to get the right will be a godsend to read [Participant 1]. RFID tags
products to the right retailers at the right time. RFID are extremely durable and can be read through almost
can help solve this problem while reducing inventory all non-metallic materials. Tags can continue to work
levels and lowering distribution and handling costs by flawlessly in harsh conditions, whether the temperature
providing accurate and real-time information on is minus 40 degrees or plus 200 degrees centigrade,
inventory quantities and movement. The technology and will also survive in most acids [18]. This means
promises to transform the way organizations currently that tags can be inbuilt into objects such as wire baskets
forecast demand, manage inventory and distribution, that can travel through any number of environments.
and market to consumers within the store [14]. Item The durability of RFID tags makes them ideal for
level tracking is pivotal to effective inventory dirty, oily, wet, or harsh industrial and commercial
management. Smart-shelves would allow exact environments [19]. The technology can last for
inventory stock takes to be carried out instantaneously, extensive periods, often longer than the items they are
thanks to RFIDs non-line-of-sight property. It can attached to. Chrysler had attempted using barcodes in
relay data about location, design and history [14]. its vehicle assembly process, with limited success due
This can help companies avoid out-of-stock situations. to the environmental demands. However, as tags can
With research revealing that out-of-stocks can be as survive very high temperatures their use is now
high as 17% for some fast-moving items, the common within the automotive industry. This means
prevention of these occurrences is important.15 RFID that manufacturers can continue to track vehicles
can enhance inventory management in a number of regardless the demands of the manufacturing process.
ways, for example, RFID systems can improve the
ability to forecast product demands by 10-20% when 5.6 Information Properties
compared to traditional systems. In addition to this,
RFID systems could help lower inventory levels by 10- The data capacity of RFID tags permits them to vary
30% and increase sales by 1-2% through reduced in size, from holding only a few bits to thousands of
occurrences of out-of-stock scenarios [6]. bits. Tags can have the capacity to store and handle the
needs and wants of most users. This data capacity is

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 what makes the identification of individual products airline networks span a large number of airports
feasible. Tags can hold vast quantities of information, generating significant financial implications.
ranging from an items serial number, color, size,
manufacture data and current price as well as a list of 6.3 Cost of Technology
all distribution points the item touched before arriving
at a store [9]. In addition to this, tags can be updated Presently, RFID technology is expensive and the
dynamically, storing new information from RFID price of RFID tags has traditionally been a significant
readers as they move across the supply chain. obstacle to its widespread deployment in SCM. An
Accenture survey found cost to be one of the two
6. Cost Considerations primary barriers to the implementation of RFID [22].
Reports on the current cost of RFID tags vary, however
6.1 Cost Savings they all find common ground in noting that the current
cost of tags is too high to justify tagging all items. This
Cost savings through RIFD systems are derived is why most companies mandating the use of RFID are
through many of the areas already discussed in this focusing on tagging pallets and cases, as opposed to
paper, namely labor reduction, enhanced inventory item-level tracking, which is years away. Current
management, advanced security and more efficient passive tag cost estimates range from US$0.15 to
management of assets. Through deploying RFID US$0.75, with the volume of tags purchased having a
domestically, it is estimated that the U.S. economy significant impact on the cost.
stands to save over US$500 billion annually, solely
through RFIDs superior inventory management 7. Deployment Issues
capabilities [17]. European companies are set to reap
billions of dollars in savings upon RFIDs wide 7.1 Manufacturing Sector Concerns
acceptance, just through reduced inventory levels [16].
While the anticipated total savings expected from A large portion of the push for RFID uptake is
RFID range significantly, most reports predict that coming from retailers who are forcing manufacturers to
there will be considerable savings. AMR has estimated absorb the additional costs associated with tagging
that Wal-Marts supply chain costs are in the vicinity of items and processing the information they generate.
10% of all sales. AMR expects Wal-Mart to realize a Many consumer goods manufacturers are struggling to
saving of around 6-7% of supply chain costs through see any short-term gain from upgrading to RFID
the use of RFID, equating to around US$1.4 billion technology on their packaging and distribution systems.
[20]. Consequently, it is being viewed as the cost of doing
business with major customers such as Wal-Mart,
6.2 Software and Equipment Upgrades Target, Albertsons and the U.S. Department of
Defense, which have mandated that suppliers phase in
The integration of RFID into existing practices the use of RFID from 2005. Some manufacturers are
requires considerable investment from organizations investigating the slap and ship option where they keep
[Participant 1]; reengineering the business and aligning their current processes in place. This involves only
the systems takes time. The process of implementing tagging items as they are shipped, in an effort to
the technology will affect all facets of the organization, minimize costs and meet mandated requirements.
with the entire process expected to cost millions of However, even such minimal approaches can cause
dollars. Wal-Mart has come under fire from many of its problems such as errors with the placement and
suppliers, as it is believed that the cost of compliance engineering of tags that need to be readable by
with the retailers mandate will reach US$9 million [7]. customers [8]. Clearly, organizations lack standards for
Gartner has indicated that companies should allow a integrating RFID into their daily practices.
five-year period and US$20 million to integrate RFID
technology into current processes [21]. Some parties 7.2 Supplier and Retailer Cooperation
are concerned that there is a skills shortage in the RFID
industry as well, which will become apparent when the RFID tags using the EPC standard only contain a
number of firms installing RFID equipment increases. serial number. Databases linking these serial numbers
Capital outlays required by RFID are likely to deter the to further information are then required to make use of
cash strapped airline industry from using the this information. Data synchronization, integration,
technology in their baggage handling systems. Many transformation, and communication are huge barriers in

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 making the technology work for organizations.23 it is reading multiple types of items. However, RFIDs
Previous endeavours to collaborate across ability to read through most packaging material such as
organizations have been unsuccessful as information plastic wraps and cardboard containers is one of its
could not be readily extracted and shared. All parties most valuable assets. Metal and liquid have been
are required to collaborate with one another to decipher described as the kryptonite to RFID as they can play
specifically what information they need and how it havoc with RFID signals [23]. Determining the best
should be disseminated. position for RFID tags can be time consuming, with
one company testing six areas on a liquid product, with
7.3 Lack of Standards only one or two of those giving a best read [8]. Procter
& Gamble created RF-friendly and RF-unfriendly
While RFID technology has been around for product categories, with those containing some form of
decades, it has only been recently that its uptake in metal packaging or liquid often making the RF-
SCM has been touted. As a result, there is an apparent unfriendly category [24].
lack of standards hindering the technologys adoption
and support for widespread use in supply chains. 7.5 Privacy Concerns
Participant 1 noted that as past RFID products did not
possess interoperable qualities, they could not be easily Privacy issues loom as one of the biggest threats to
integrated into the supply chain between partners and the unbridled success of RFID. Privacy concerns have
as such they did not add value. The development of the potential to stop a technology dead in its tracks
standards has progressed somewhat through the [23]. Current RFID protocols are designed to offer the
formation of the EPCglobal network, a member based most optimal performance between readers and tags,
organization comprised of numerous large firms neglecting to address consumer privacy concerns.
funding its operations. However, EPCglobals standard Privacy advocates are worried that if RFID tags are
is yet to be backed by the International Organization placed in common items, the product may continue to
for Standardization (ISO). There is still no standard be tracked once purchased by consumers [25]. Human
supported by all stakeholders that meets the needs of rights organizations have already raised their disquiet
all users. Incompatible systems exist across different over the technology. In an effort to counter privacy
industries, from rail, truck, toll collection, retail and concerns, the Auto-ID Center has published a paper
manufacturing. Hence, interoperability is a foremost outlining three fundamental privacy policies for all
concern for the seamless use of RFID across supply users of EPC technology [26]. Clothing retailer
chains. The EPC standard is of paramount importance Benetton came under fire for placing RFID tags in its
to the success of RFID. Ongoing refinements and the clothes. Once the public was made aware of this,
backing of numerous multinational organizations mean consumers called for a boycott against Benetton,
that it will most likely become the adopted standard in causing the retailer to abandon its RFID plans. One of
SCM [Participant 1]. Another perplexing issue is radio the publics biggest concerns with the plan was that
spectrum allocation. Radio spectrum is a finite resource there was a lack of information about how the tags
and although numerous institutions try to ensure could be turned off once an item was purchased [27].
spectrum management, it is ultimately in the control of
government agencies in different countries. 8. Conclusion
7.4 Interference and Reading Considerations The results of this paper are relevant to all
organizations concerned with optimizing their supply
As RFID uses the radio spectrum to transmit its chain through the adoption of RFID. Recently, a
signals, it is susceptible to interference, hindering its number of the worlds largest retailers and government
ability to transmit clear and reliable information to agencies such as Wal-Mart and the U.S. Department of
RFID readers [Participant 1]. Similarly, RFID suffers Defense introduced mandates for RFID adoption. As
from the inherent range limitations associated with the the use of RFID for SCM is relatively new and
radio spectrum. Tagging is also not simply a matter of undocumented with only a limited number of RFID
attaching RFID tags to items. Readers are only able to deployments, many businesses are unsure what they
read tags that are facing a particular way, so items need stand to gain. Compounding this issue is the fact that
to be packed accordingly [Participant 1]. Another most large organizations have already invested heavily
problem arises when a pallet containing different in barcode systems and are skeptical about RFID
packaged items is read, as the reader needs to be aware technology. This paper provided an extensive

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