IMPACT OF RFID ON DATA SHARING AND BUSINESS PROCESSES

Transcription

1 IMPACT OF RFID ON DATA SHARING AND BUSINESS PROCESSES Jaymeen R. Shah Department of Computer Information System and Quantitative Methods McCoy College of Business Administration Texas State University-San Marcos San Marcos, Texas Mirza B. Murtaza Department of Computer Information Systems Jennings A. Jones College of Business Middle Tennessee State University Murfreesboro, TN ABSTRACT Radio Frequency Identification technology has received considerable attention over the past few years. In this paper, authors present overview of the RFID technology and typical inventory management issues within supply chains. Advantages and limitations of the RFID technology are discussed as it is important to understand them before adopting RFID. Managerial issues related to the adoption of RFID technology are presented along with discussion regarding the business processes that are most likely to be affected by RFID adoption. Finally, discussion is presented regarding how evolving RFID standards may impact adoption and deployment of RFID technology, and how the use of RFID to collect data may affect personal information privacy and security. 1. INTRODUCTION Radio Frequency Identification (RFID) is an automatic identification and data capture technology that has gained wide spread attention in recent years from government to private business managers. RFID is used for many applications such as preventing theft of automobiles, collecting tolls without stopping, managing traffic, gaining entrance to buildings, and dispensing goods. In general, RFID refers to the set of technologies that use radio waves for identifying objects or people. A basic RFID system includes a radio frequency tag, a combination of a microchip and an antenna, and a reader. The reader emits electromagnetic waves, which are received by the tag s antenna. The tag sends the data, which is usually a serial number stored on the tag, by transmitting radio waves back to the reader. RFID technology caught media s attention in June 2003 when in a surprising move, Wal-Mart mandated its top 100 suppliers to embed an RFID chip on all pallets and cases traveling to a Wal-Mart facility by January However, at the end of 2003, Wal-Mart suggested that it would extend this requirement to all of its suppliers by 2006 (Kinsella, 2003). Following Wal- Mart s initiative, several retailers, such as Target and Best Buy, also require their suppliers to use 155

2 RFID. Several pharmaceutical companies such as Pfizer have adopted the use of RFID tags to control sales of counterfeit drugs (Industrial Engineer, 2006). In addition to the business world, US government, including the U.S. Food and Drug Administration and the Department of Defense, is also planning to adopt RFID technology in near future. Although RFID technology is similar to the better known and less expensive bar code technology, it offers several advantages over the barcodes. For example, bar codes must use line-of-sight technology, i.e., the bar code scanner must see a bar code, or be oriented in a position to be able to read the information. Although more expensive, RFID technology do not require the RFID tag to be in line-of-sight of the reader, but only requires that item tagged with RFID be within a range of the scanner. There are some other areas where RFID technology is an improvement over bar codes, bar codes can prove problematic if they are ripped, torn, or soiled. RFID tags tend to be much more durable and safer. Further, RFID tag can store more data compared to bar code. There are several application areas where new RFID technologies are being tested and used. Some common applications include payment systems such as toll collection systems, access control, inventory control and asset tracking. Increasingly, companies are looking to use RFID to track goods within their supply chain. Assets that are RFID-tagged can pass through reader portals that are installed at critical points, such as shipping docks and receiving stations. These types of tracking systems will automatically be updated when the products containing the tags pass through the reader portals. This allows for better visibility of items for a company throughout their supply chain, and also reduces the time and labor required to capture and input data regarding items moving through the supply chain. For instance, the U.S. military uses active tags to track containers of supplies arriving on the ports. One of the most promising opportunities of RFID technology is in support it can provide to supply chain management. 2. INVENTORY MANAGEMENT ISSUES IN SUPPLY CHAIN A supply chain consists of a network of suppliers, customers, and business partners. These organizations collaborate with each other to effectively procure, produce, and deliver products to ensure that the right quantity of the right products are delivered at the right place, at the right time and in right condition. Supply chain management systems are used to coordinate operations of supply chain members. Use of SCM systems can lead to an increase in on-time deliveries, reduction in cycle times, effective management of inventory, accurate and efficient transactions across the supply chain, enhancement in customer service, and decrease in product life cycle (Zheng et al., 2000; Metz, 1998). However, to achieve these benefits across the supply chain it is necessary to share appropriate information between supply chain members, trust should exist between the supply chain members, and conflict of interest should not exist among the supply chain members. Thus, effective management of relations, information, and material flow within the organization and across the supply chain is necessary to achieve the aforementioned benefits of supply chain. As indicated above, one of the most important requirements for an effective supply chain is the need to be able to share the right information with the right supply chain member at the right time. Long-term success of a firm s supply chain depends upon the accuracy and velocity of the information exchanged between the supply chain members. It is also necessary to integrate the 156

3 internal business processes of an organization with those of the supply chain members to facilitate business-process information synchronization across the entire supply chain. The success of an organization that is part of a supply chain depends not only on the internal efficiency of the firm, but also on the efficiency and productivity of its supply chain partners. RFID applications can be actively used across the supply chain to collect and track information regarding material and products flowing through the supply chain in almost real-time. Such applications of RFID technology to support automatic data collection and data sharing can potentially lead to reduction in data-entry errors and delays, and significantly improve the quality and timing of the information shared with supply chain partners. These information sharing enhancements can reduce inventory carrying costs, stock-out costs, and facilitate decision making for the supply chain partners, which can enhance supply chain partners competitiveness. 3. RFID TECHNOLOGY The components of RFID technology utilize electromagnetic spectrum to identify objects and transmit information without contact and even without line-of-sight transmission. A basic RFID system consists of the following three major components (Sarma et al., 2003): A tag that includes powered or non-powered microchip along with an antenna. A reader with an antenna that communicates with the tag that is sending and receiving information. A middleware that records and transmits the tag information to a centralized data repository. 3.a RFID Tag The RFID Tag consists of a microchip and a coupling element - an antenna. There are two types of RFID tags in use today passive tags and active tags. Passive tags do not have a built-in power source; they are powered by the electromagnetic field generated by the reader. On the other hand, active tags are powered by an internal battery and transmit data to localized readers when they sense a reader is querying the information. Table 1 summarizes the differences between these two types of RFID tags. Active Tags Passive Tags Advantages Disadvantages Advantages Disadvantages Longer read ranges Larger size Smaller size Short read ranges Self-activated in presence of a reader Tags are write/readwrite Limited Long operational Needs higher-powered operational life life reader Higher cost Lower cost Most read-only Table 1: Advantages and disadvantages of active and passive RFID tags* *(Source: Radio Frequency Identification, Department of Commerce, Washington DC, April 2005) 157

4 3.b RFID Reader The RFID reader perform a variety of functions, like, activating tags by sending querying signals, supplying power to passive tags, encoding the data signals going to the tag, and finally, decoding the data received from the tag. RFID readers communicate with tags through the method of induction known as inductive coupling. The read ranges of the tag depend on both the reader s power and frequency used to communicate. Higher frequency (850 MHz to 950 MHz, and 2.4 GHz to 2.5 GHz) RFID readers can read from longer distances but require more energy, therefore, they tend to be more expensive (Landt, 2001). Conversely, lower frequency (30 KHz to 500 KHz) RFID readers are less expensive but they do have shorter reading ranges. The antenna of reader puts out radio-frequency (RF) signals. The RF radiation does two things; it provides a means of communicating with the tag (the RFID chip) and (in the case of passive RFID tags) it provides the RFID device with the energy to communicate. The information transmitted in the form of RF can be codified and modulated. When an RFID tag passes through the field of a reader s antenna, tag s antenna detects the activation signal from the reader s antenna. The RF radiation activates the tag chip, which in turn will execute the commands from the reader; either it will write information on memory or it will transmit the information on its microchip to be picked up by the reader. The information received by the reader will be demodulated and de-codified and sent to the company database through a middleware. 3.c RFID Middleware RFID Middleware is the interface needed between the RFID reader and the existing company databases and other information management software to move data read by the RFID readers to company database. It consists of computer hardware and data processing software connected to enterprise inventory or identification management systems. A middleware platform provides the operating system, data repository, and processing algorithms that convert multiple tag inputs into visible tracking or identification data. 4. RFID BENEFITS There are several benefits that a company can reap if it implements RFID technology: 4.a Cost Reductions RFID technology reduces the amount of labor and time necessary in receiving, order-picking and shipping. For example when bar codes are used in a warehouse, order pickers have to move to a pick location, scan the UPC tag on the case or location, check digit (to confirm correct location or product), pick up the case, and place the case on the pallet. RFID technology can help eliminate some of the steps such as scanning, handling of a scanning unit or applying a case label. According to some estimates this can result in savings of up to 36% in order picker labor (Alexander et al., 2002). 4.b Data Accuracy RFID technology reduces the need to check, audit or verify that the correct product and quantity is available. The accuracy in receiving, order-picking and shipping is improved significantly 158

5 (Jones et al., 2005; Jones et al., 2004). The picking error is always present in manual operation because there is no way to guarantee the accuracy of the reported counts against the actual quantity selected. RFID remedies this problem by providing absolute identification of exact products and quantity, and will virtually eliminate errors in picking, which, in turn, will greatly enhance shipping accuracy and customer service. All of this increase in accuracy ultimately leads to better customer or business partner satisfaction and higher company efficiency. 4.c Throughput RFID technology improves throughput to make products available for customer orders more quickly and promotes on-time delivery. For example, the exclusion of product verification on the shipping dock eliminates the need for staging. Instead of order pickers dropping the pallets in a staging area for auditing, they can now directly load the pallets into the trailer. This eliminates the need for auditors and loaders, improves throughput, and reduces congestion on the shipping dock. 4.d Inventory Planning Increased visibility and improved information accuracy can result in reduced inventory carrying costs and transportation costs. Inventory cost can be further reduced as cooperation and information exchange between trading partners improves through RFID implementation, which can lead to improvement in supply chain members capabilities in areas such as forecasting accuracy. 4.e Theft Control The system can prevent and trace any unauthorized movement of products, which can effectively prevent theft. In addition to the reduction in direct loss, reducing shrinkage contributes to lower inventory levels and improves order-filling capabilities. 4.f Product Movement Tracking Readers connected to product tracking system determine travel distance, travel time, number of cases picked, number of stops made, delays, and other useful information. Having the productivity data at this level and in real-time allows for quicker decisions by management to improve business processes and information flows, as well as productivity. 5. RFID DISADVANTAGES There are several issues associated with RFID implementation that must be addressed to enable widespread use of this technology. 5.a Technical Issues RFID technology s use in industry is relatively new, therefore it is not perfect and it needs more improvements. When implementing RFID system, the businesses need to anticipate a number of technical problems such as: 159

6 i) False reads as a result of radio waves being easily distorted, deflected, absorbed and interfered with. For example, read errors may occur when reading information on RFID tags attached to containers containing certain types of liquid chemicals. ii) Tag separation issue, that is, whether a reader can distinguish one shelf tag from another. If one tag passes by a reader several times, it is not certain if the reader system will record them separately or recognize them as one and the same tag. iii) False read as a result of the inability of a reader to pick-up information from every item on a pallet when items have metal foil packaging or have high fluid content. 5.b Integration Issues Integration with company s backend applications determines whether the application of RFID can be successful. However, currently there are few software products available in the market designed to easily integrate the RFID data with the enterprise applications and databases. Thus, companies may have to find their own way to make the RFID data interface with related business applications and databases such as accounts receivable and inventory management. Because of the high costs of the RFID infrastructure, dynamic nature of RFID technology and the lack of standards, most companies deploy a slap-and-ship model, implementing tags before shipping, and not right off the manufacturing line. If a company plans to deploy a moreintegrated RFID model, the high speed of manufacturing machinery, coupled with the immaturity of RFID technology, may prevent this option. If full, in-line integration with the manufacturing equipment cannot be achieved, then it may result in millions of dollars in additional costs, and increased cycle times for RFID tagging and data synchronization with appropriate business applications and databases. 5.c Managerial Issues RFID can provide real-time inventory and consumption information back to Tier 1 suppliers to smooth out the load on their facilities and allocate their production capacity to avoid the build up of excess inventories. However, it is unlikely to provide much value in the environment where just-in-time (JIT) inventory management has not been implemented. Without an optimized JIT system in place, RFID is unlikely to provide any value except providing more information at a faster speed. With the application of RFID system, the volume of product data will increase at least 30%, which will require enhanced capabilities to interpret the voluminous data. Real-time transmission of data poses additional challenges in the ability of managers to process the information in a timely manner. Many of the routine tasks will need to be automated since managers will be required to handle alerts and exceptional cases, and they will have to learn how to make decisions in fast moving environment. 6. IMPACT OF RFID ON BUSINESS PROCESSES The implementation of RFID technology has great impact on following business processes: 160

7 6.a Inbound Processing (Automated Receiving) Once an RFID tag has been affixed to a case or pallet, the RFID readers at the entrance of warehouse will read tags as the case or pallet is moved off the truck and into the receiving area and transmit information to company database, where the system will verify match between pallet RFID tag and cases on pallet, and identify the source of product and purchase order. If the products received match the purchase order, the system will confirm the order automatically. Thus, the implementation of RFID will eliminate the line of sight review by a counter/checker at the receiving entrance, which would allow for a faster and more accurate receiving process. 6.b. Order Fulfillment When picking up the products to fulfill customers order, the RFID reader will read case or pallet tags as products are taken from their warehouse location and placed on a pallet or conveyor belt. The readers affixed along a conveyor belt will read case tags as products travels on the conveyor. The RFID readers are integrated with warehouse management system, which validates product quantities, updates inventory database, and control the product movement on the conveyor system. In this step, RFID technology eliminates the manual steps to count and record picks, and to manually update inventory data in the database. It also eliminates the time spent on detecting and correcting product quantity and storage location errors. Such improvements can result in dramatically enhancing the order-line fill rates. Real-time inventory updates also improves the accuracy and visibility of the data regarding products in the database for inventory management. 6.c. Outbound Processing After the products are ready for shipment, readers at exit will read pallet-level and case-level tags as product is moved onto the truck. The shipping information will be sent to the warehouse management system to confirm product, customer, truck and load sequence. The company information system will send the shipping information to customers for them to check the status of shipment. Elimination of manual steps enables faster and more accurate loading. RFID technology also enables direct loading from pick, which eliminates the time spent on quantity check and order match. 7. STRATEGIC INTEGRATION WITH BUSINESS PARTNERS STANDARDS, PRIVACY AND SECURITY For widespread acceptance and use of RFID, standards and agreements among major players are essential. Unfortunately, there are competing RFID standards at this time. As a result, many companies are reluctant to adopt RFID because of potential compatibility problems (Jones et al., 2005). However, there are several organizations currently active in standardization of RFID technology. The leading institutions include, the International Organization for Standardization (ISO) and EPCglobal. Some of the other institutions that work on RFID standards include the American National Standards Institute (ANSI) and the Automotive Industry Action Group (AIAG). Since the technology is relatively new, standards are evolving and vendors do not yet stringently adhere to standards. Certainly encryption and authentication will come in to play with federal 161

8 agencies involved in creating standards and guidelines regarding these new technologies. Companies, such as VeriSign are working on developing future enhancements meant to make RFID more tamper-proof within the tag and device levels. IT managers are being forced to re-evaluate the data security and information privacy issues associated with the adoption of individual product-level RFID technology as it results in organizations holding large amount of data about its products and customers (Anonymous, 2005). Specifically, they have to establish a clear code of conduct including commitment not to link tags with personal data, and to be up front regarding informing customers about when, where, and how the RFID technology is being used. But even after being open to all concerned parties about using RFID technology, the use of the technology may still alienate current and potential customers. Other privacy issues play a part as well in consumer fears of the new RFID technology, such as desire that purchases remain anonymous, and not having other people know what is being bought by a consumer. Being able to know whether or not a tag has been inactivated after being scanned at the checkout counter is important to some consumers feeling confident that the purchase is not being tracked without knowledge. The thoughts of big brother watching and taking note of consumer buying habits are certainly unnerving to some consumers. Other privacy concerns, such as the possible tracking of an individual's movements, the profiling of buying habits or preferences, or allowing for the secondary uses of information that has been gathered are equally as important to the consumer and advocacy groups. Security is of the utmost importance to all organizations and RFID technologies pose new security threats and opportunities that will have to be dealt with. For example, the wrong RFID tags could be placed on an object or a container of objects. These concerns are certainly very viable now with heightened awareness of security and threats of terrorism. On the other side of the security issue, however, is that the new RFID technology could enhance current technologies in security. For instance, placing RFID technology in buildings, fire alarms and motion detectors may allow for increased physical security within an office building. Ensuring that only authorized personnel or consumers are able to enter the secure areas of office buildings or concert arenas may help with crowd control and terrorism threats. Use of RFID tags on containers shipped can assist law enforcement agencies in tracking containers and verifying that containers received at ports are valid containers that were shipped by legal entities. 8. CONCLUDING REMARKS Although the evolving standards and implementation costs have been a hindrance to the widespread adoption and deployment of RFID technology, its use by businesses is on the rise. This may be due to the resultant benefits outweighing the costs and uncertainties associated with the use of RFID technology for collecting and sharing of data within and outside an organization. Managers need to be aware that to achieve the full benefits linked to the deployment of RFID technology, it may be necessary to reengineer existing business processes and applications. Organizations also need to be sensitive with regards to the impact of RFID technology on the privacy and security of consumer and organizational data collected. These are important issues that can eventually have a significant impact on consumers satisfaction with how the organization is using their personal information. 162

9 9. REFERENCES Alexander, K., Birkhofer, G., Gramling, K., Kleinberger, H., Leng, S., Moogimane, D., and Woods, M. (2002). Focus on Retail: Applying Auto-ID to Improve Product Availability at the Retail Shelf. PWC Consulting, Cambridge, MA. Anonymous (2005). The Pros and Cons of RFID. Strategic Direction 21(5), Industrial Engineer (2006). Tracking the Little Blue Pill. Industrial Engineer 38(3), 16. Jones, P., Clarke-Hill, C., Hillier, D., and Comfort, D. (2005). The Benefits, Challenges and Impacts of Radio Frequency Identification Technology (RFID) for Retailers in the UK. Marketing Intelligence & Planning 23(4), Jones, P., Clarke-Hill, C., Shears, P., Comfort, D. and Hillier, D. (2004). Radio Frequency Identification in the UK: Opportunities and Challenges. International Journal of Retail & Distribution Management 32(3), Kinsella, B. (2003). The Wal-Mart Factor. Industrial Engineer 35(11), Landt, J. (2001). Shrouds of Time, The history of RFID. Aimglobalhttp:// Metz, P. (1998). Demystifying Supply Chain Management. Sarma, S.E., Weiss, S.A., and Engels, D.W. (2003). RFID Systems and Security and Privacy Implications. Workshop on Cryptographic Hardware and Embedded Systems, Redwood City, CA. Springer-Verlag. Zheng, S., Yen, D., and Tarn, J. (2000). The New Spectrum of the Cross-enterprise Solution: The Integration of Supply Chain Management and Enterprise Resources Planning Systems. The Journal of Computer Information Systems 41(1),