Gilmore Says:

So it seems to me the real elephant in the room is: How are these companies going to take advantage of RFID for their own benefit in the DC when tagged product finally starts showing up in receiving? What do you say? Send us your comments here

The preparation for our upcoming Supply Chain Videocast™ on “The RFID-Enabled WMS” has me thinking about what the future for using RFID in distribution holds.

Without giving away too much before the event, which features a couple of world class experts on this topic, including our own Mark Fralick, these discussions led me to the following logic path.

• There is obviously no real opportunity for savings in the warehouse from slap and ship, only cost. Whether slap and ship provides ROI downstream by increasing sales through reduced stock outs is still some matter of debate, but whatever opportunity exists it is there, not back in the DC.
• The game changes when we reach the magic “tipping point,” meaning when a supplier to Wal-Mart and other retailers reaches an RFID volume level at which it can economically begin tagging products in manufacturing or other sourcing points. It’s actually interesting that 2-3 years ago, there was a ton of discussion of this and several other related “tipping points” (to excess, really), but lately we haven’t heard much about this concept even as Wal-Mart vows to keep rapidly expanding the program.
• The game really does change when source tagging occurs at any meaningful level. Why? Because now, regardless of the cost of the tags and tagging itself (the latter of which will go down significantly with source tagging), there is now finally a chance to use RFID in a meaningful way in the DC. This would no longer be RFID as just a shipping appendage (slap and ship) but with potential use and benefit for the full lifecycle of the product in distribution.
• (And this is the key point.) Almost no one has a WMS really equipped to take advantage of this looming opportunity .

There may be a handful of exceptions, but I am aware of only one significant distribution center running largely on RFID. That is the much publicized International Paper warehouse in Texas.

That system was installed in 2002. It really involves two parallel systems – a middle of the road, home-grown warehouse system, and then an RFID tracking system bolted on top.

There were two good reasons for IP to develop this system. First, handling floor-stacked rolls of paper, which are then frequently taken to converting equipment and then returned to storage, makes the use of bar codes very difficult. They are taped and retaped onto the rolls, they fall off, they are on the opposite side of where the clamp truck driver could scan them, etc. An RFID tag on the paper core makes perfect sense and solves these problems.

Second, IP has several RFID business interests, and this was a great way to test and build systems and capabilities.

So, the rub of the situation is this: I don’t believe many current WMS systems being shipped/installed even today have welll-developed RFID capabilities, for any number of reasons, in part a lack of customer demand, and also due to some important core technology issues.

But that’s just a small fraction of the total warehouse systems out there. Warehouse Management Systems are often hard and expensive to upgrade. Many companies have had their current systems for years, sometimes more than 10 years. I shouldn’t be, but I am consistently surprised when I find major companies still running a WMS that was installed in say 1994 or something. “Green screens” are a lot more common than many might realize.

So it seems to me the real elephant in the room is: How are these companies going to take advantage of RFID for their own benefit in the DC when tagged product finally starts showing up in receiving? You have a few choices:

1. Make modifications to the system you have: That will be expensive, and depending on what you are starting with, unlikely to really leverage RFID capabilities. The foundation is just not right to do so.

2. Build a parallel RFID infrastructure of some kind. It’s possible, and some vendors are pushing this, but I believe it has a lot of integration and functionality challenges.Replace the system you have with a new WMS from your current vendor, if they can deliver true RFID-based functionality, or find a new vendor who can.

3. Replace the system you have with a new WMS from your current vendor, if they can deliver true RFID-based functionality, or find a new vendor who can.

4. Don’t use RFID in the warehouse, or do so in a very limited way.

What’s the right choice will depend on many factors, but I don’t believe enough companies are really thinking this through, even some fairly prominent consumer goods companies. I say this because I recently saw a WMS RFP from one of them, and there were about three lines devoted to RFID, which basically amounted to asking the vendors to indicate they supported RFID, which I have no doubt all of them said they did. But will any of those solutions really support what that company will need for RFID in say 2010? And what are companies that have older and even fairly recently installed systems to do?

These are important questions, and the key to consumer goods manufacturers really driving ROI from RFID on the supply chain and distribution side, not just improving shelf availability at Wal-Mart.

What do you think the current situation is in terms of support for RFID in the DC? What do you think companies with older systems should do? Is this going to be a large and not much discussed barrier to gaining ROI at some point? Are companies investing in new WMS technology now thinking far enough ahead about RFID?

Let us know your thoughts at the feedback link below.