Beyond Compliance

While many manufacturers are adopting RFID by force of mandate, others are seeking ways to use the technology to improve operations. In fact, mandates were the primary driver of implementation plans for only 34 percent of respondents to a recent ChainLink Research/Managing Automation survey of 275 manufacturing companies. Approximately 41 percent of respondents say both mandates and process improvements drove their implementations, while 25 percent point primarily to process improvements as the reason for implementing RFID. Despite RFID's high implementation costs, the majority of manufacturers polled are moving ahead with their deployment plans. About 10 percent have already implemented RFID, 16 percent are in the process, and more than 40 percent plan to implement RFID, the survey finds. Large manufacturers are slightly more aggressive in their implementation plans, but, surprisingly, company size does not have much impact on implementation pace for companies with less than $1 billion in revenues. In fact, smaller manufacturers -- with less than $25 million in revenue -- are implementing or planning to install RFID in slightly higher numbers than small to mid-size companies (with revenue in the $25 million to $1 billion range), according to the survey. Because of robust adoption across a wide range of company sizes, RFID technology solutions are becoming stratified. Why? The needs of a $5-million manufacturer are obviously different than those of a $5-billion manufacturer. The largest number of manufacturers are implementing RFID in process areas most affected by current mandates, such as outbound shipping (38 percent), and distribution and logistics processes (32 percent), finds the survey. Nevertheless, nearly a quarter of respondents are implementing RFID in manufacturing (24 percent) and inbound materials processes (23 percent), demonstrating a willingness to invest in non-mandate-oriented process improvements. Chain-of-custody tracking (12 percent) and service and support (11 percent) are areas that don't span all industries and firms, but rather are concentrated in certain segments. Half of pharmaceutical companies surveyed, for example, plan to use RFID for chain of custody or e-pedigree, most likely in response to FDA guidelines, which many predict will become requirements. Few manufacturers see RFID as a way to facilitate dispute resolution with customers. Given the burdensome level of retailer deductions many manufacturers face -- in some cases, more than 5 percent of the manufacturer's revenues -- RFID's ability to provide electronic proof-of-delivery seems like a high-value use. Of the 38 percent of manufacturers surveyed that use RFID to improve outbound shipping processes, 80 percent say RFID helps automate shipment content verification. By contrast, only 47 percent use RFID to automate picking and packing, and 45 percent employ RFID to automatically generate advanced shipment notices (ASNs). That 35 percent of these manufacturers expect to use RFID to automate shipment verification, but not to automatically generate ASNs, seems like a missed opportunity because both Wal-Mart and the Department of Defense require ASNs. Of manufacturers using RFID in distribution and logistics, only 20 percent use or plan to use it for yard management. The number is higher for large manufacturers -- slightly more than 30 percent use or plan to use RFID for this purpose -- compared with only 15 percent of manufacturers with less than $1 billion in revenue. Roughly 80 percent of manufacturers using RFID in distribution and logistics use or plan to use it in warehouse and inventory management. Nearly 75 percent say they use RFID for trace-and-track applications, and slightly less than 50 percent report employing the technology for container security, confirming that trace and track is more important than container security for most companies. SERVICE AND SUPPORT From an ROI perspective, using RFID for service and support functions is promising. While only 11 percent of respondents report using RFID to increase service and support process efficiencies, these companies have comprehensive and progressive plans for using RFID to improve service across many dimensions. Out of the 11 percent indicating that they will use RFID in service and support processes, 80 percent said they will use RFID to track service history and quality of individual serialized products. Roughly 70 percent plan to use the technology to track the configuration of individual products, while 67 percent will employ RFID to track service parts inventory. About 63 percent plan to utilize RFID to help track the service history of each customer, 57 percent to improve failure analysis, and 54 percent to help customers track their assets. These numbers indicate that the manufacturers using RFID for service and support, while a minority, are serious about the effort -- they are implementing broad and deep programs. These are high-value-add applications that can result in meaningful differences to the end customer. Expect RFID-enabled processes to play a key role in heated battles to differentiate service offerings. WHERE'S THE ROI? Our research shows robust implementation plans for RFID across a range of processes. Many manufacturers, however, complain that there's no ROI in RFID. How true is this? Sixty-four percent of survey respondents believe it is "too soon to tell." Only 12 percent say they've achieved "good ROI," whereas 14 percent report "poor ROI." On the surface, these numbers don't constitute a resounding endorsement of RFID's financial benefits. It is important, however, to consider these factors:

• It's still early for the majority of manufacturers deploying RFID, as highlighted by the two-thirds that say it's too soon to project ROI. Many are still figuring out where and how to use RFID to make real improvements.
• Many manufacturers lack staff with the necessary knowledge to use RFID to maximum benefit.
• RFID requires executive champions with both the vision and guts to change the way their organizations operate. An organization's ability to change is often the primary limiting factor in realizing ROI.