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RFID Adoption Tilting Towards Process Improvements, Report Finds

by Alan Alper, MA Editorial Staff

Posted on Wednesday, December 27, 2006 3:00:00 PM       Sign Up to receive Daily News Alerts in your E-mail Inbox                               

2006 might not have been "the year" of RFID as some pundits had predicted, but it was a time in which manufacturers large and small began deploying the auto-ID technology to support business-critical process enhancements that transcend partner mandates, according to a recently published study from ChainLink Research Inc.

The report, entitled "RFID for Manufacturers: How Manufacturers are Improving Processes by Using RFID", surveyed 275 manufacturers to examine the ROI differences between mandate-driven vs. process-improvement-driven RFID implementations. The report looks at a wide array of RFID-enabled process improvements manufacturers are making in the areas of inbound logistics, receiving, plant floor, shipping, distribution, service and support, asset management, and chain of custody management.

Of the 275 manufacturers surveyed, two-thirds said they are either implementing or plan soon to implement RFID. (Survey respondents carried operations titles spanning manager, director, and vice president across manufacturing, supply chain, quality, logistics, service, materials managers, and plant management functions.) Companies moving forward plan to spend twice as much money on RFID in 2007 than they did in 2005, according to Bill McBeath, ChainLink's chief research officer. Last year respondents said their companies spent $600,000 on average on RFID hardware, software, and services. That figure increased to $850,000 in 2006 and is projected to reach $1.3 million in 2007, he told Managing Automation.

A webinar covering key study findings will be presented on January 10 at 12 PM EST.

The number-one reason cited for not implementing RFID, McBeath said, has a familiar ring: Despite declining tag and reader costs, RFID still is too expensive and not yet cost justifiable.

"That finding is somewhat misleading," McBeath countered. "What I hear them saying is there is ROI, but with competing initiatives, [RFID] did not make the cut -- they have 20 or 50 other big ideas and can only invest in five, and RFID is not one this year."

One surprise: RFID activity is as prevalent among smaller companies (under $5 million in revenues) as it is at larger companies (over $1 billion in revenues), the report noted. Interestingly, as retail industry mandates push down market, smaller manufacturers are as motivated to deploy RFID to improve operational efficiencies as they are to comply with business partner requirements. In fact, respondents from companies with under $25 million in revenue are twice as likely to be deploying RFID to support business process improvements as their counterparts at large companies, McBeath said.

"This was surprising," he confided. "We did not expect to see smaller companies doing anything yet -- but they are."

In the eight process improvement categories studied, outbound shipping (53.8%) and logistics and distribution (47.5%) were the areas most cited by respondents for RFID deployment. Receiving and Inbound Materials (38.3%) and Manufacturing & Plant Floor (34.4%) were the next most cited areas, the report indicated.

ChainLink did not break out the results by industry segment. However, McBeath said anecdotal data suggests that automotive and pharmaceutical companies are among the most active in deploying RFID in support of business process improvements. Food processing was another particular fertile area, he added. One sugar supplier that responded to the ChainLink survey, McBeath said, is tagging trucks as they enter its processing plant to track both supply quantity (for billing purposes) and quality.

"We would not have suspected a sophisticated application like this; this is not a high tech industry, but there were a zillion different examples like this [studied]," noted McBeath.

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