Peter Griffin: Radio tags set to short circuit supply chains

COMMENT

If you are at all interested in the technology that sits behind supply chain management systems you will know that the buzz in this area overseas is around what's known as RFID (Radio Frequency Identification).

The technology is based on electronic tags that can be attached to goods working their way through the supply chain, keeping track of their progress from production to purchase.

The tags can actively give out information to be picked up by a wireless receiver or sit passively, waiting to be scanned like a bar code.

The promise of RFID is huge and a multi-billion-dollar industry is expected to spring up to serve companies adopting the technology.

But there's virtually no one using RFID locally and IT managers enthusiastic about it are few and far between.

Considering the country's bread and butter business is harvesting, processing and exporting forestry, meat, wool and dairy products, you would think RFID would be a major hit here.A handful of companies are considering using the technology, but the problem is that New Zealand's relatively small scale of production may, for some time to come, make it prohibitively expensive to implement for companies other than big operators such as Fonterra and The Warehouse.

The other factor is that many companies have spent a lot of money and time getting their supply chain systems to run like clockwork.

Pet accessory seller Masterpet's Lower Hutt factory, for example, has everything from budgie food to dog collars picked, packaged, shunted onto a conveyer belt and loaded onto Mainfreight trucks for distribution the length of the country.

It is already a pretty efficient system. Factory "pickers" wear wireless radio headsets which are fed orders over a wi-fi network.

The orders are electronically dictated to the pickers who are directed to a particular lane and shelf on the warehouse floor. The pickers can speak back to the computer to clarify the order.

At the other end of the supply chain, Masterpet's salesforce inputs orders into a handheld computer. The data is transmitted over the CDMA mobile network to Masterpet's Navision enterprise resource management system.

This means an order can be sent back to base and processed before the salesperson leaves for their next pet shop visit.

Masterpet's IT manager Monib Moayyed wants to raise the bar in the name of efficiency and is looking at RFID to help him do so.

Masterpet's system can't stop what's known as "slippage" - the unexplained disappearance of stock.

The promise of RFID is that it can keep tabs on the merchandise through every stage of the supply chain, from warehouse shelf to shop shelf.

"The advantage is the products themselves tell you where they are going. And in the shop the products will scream if its placed next to products it shouldn't be beside," said Moayyed.

The only thing blunting his enthusiasm for the technology is the cost of it. At 50c to 60c per tag, slapping RFID on every bag of dog biscuits would be prohibitively expensive.

Masterpet is just one of several New Zealand companies trying to take on Aussie competitors on their own patch.

If Masterpet can introduce a system that makes the supply chain more efficient for the retailers it deals with, it will have an instant one-up on its rivals.

Moayyed is fairly comfortable about being able to integrate RFID into Navision.

Microsoft is writing code to accommodate RFID for its Axapta, Great Plains and Navision systems and is expected to have the software RFID-ready by the middle of next year.

SAP is embracing RFID which will please Fonterra and Air New Zealand, both major SAP customers.

When you're talking RFID, scale is everything.

The more tags you buy the cheaper they get, the more stores and warehouses you can co-ordinate via one central server, the less people you need to employ in those stores and warehouses.

It's not surprising then that United States retailing giant Walmart has dictated that its top 100 suppliers must be using RFID for pallets and cartons next year.

Other retailers, such as Target and Circuit City are following suit with similar initiatives.

But it seems like its going to be a good few years before RFID tags replace the common barcode on individual products sitting on shelves in shops, because barcodes are pretty efficient and cheap.

The tags are only one element of the cost. There are also the electronic readers needed to pick up the information from the tags, an RFID server to collate the information, software to run the whole system and staff training, to be accounted for.

All of that's likely to push the entry cost for RFID over the $100,000 for companies running a supply chain the size of Masterpet's.

However the payoff in terms of customer service and efficiency could eventually be massive - once the price of entry to the technology comes down.

* Email Peter Griffin