Implementing Radio Frequency Identification (RFID) Technology into Supply Chain of Small-to-Medium Manufacturing Factories Mahmoud Al-Odeh 1 1 Bemidji State University, Department of Technology, Art and Design, Bemidji, MN,56601,USA Abstract Technology has helped manufacturers to be successful and more competitive in the global market by improving their customers satisfaction level and providing more reasonable prices compared to their competitors. RFID is a new technology that is used by different manufacturers to achieve their goals including supply chain management (SCM) improvement. The literature shows that RFID technology has been used for many years, but manufacturers did not achieve the maximum benefits from this technology because they misused it and did not implement the right plans. Implementing this technology in manufacturing organizations is a complicated process for large scale, in general, and smallto-medium manufacturers, in specific. There is a need for clarifications on managing this technology and a strategic plan that helps managers, especially at small-to-medium manufacturing organizations, to clarify some of the ambiguity in this area and to implement this technology successfully in their organizations. Therefore, the advantages and the challenges of using this technology in SCM have been explained and a nine-step plan for implementing RFID at the supply chain of small-to-medium manufacturing organizations has been illustrated. Visual instructions have been provided to facilitate understanding the plan. Keywords Technology Management, Manufacturing, RFID, Supply Chain Management, Implementation, Small-to- Medium Organizations. I. INTRODUCTION Steele [14] believes that technology pervades all aspects of an enterprise. One area that has been affected and changed by technology is manufacturing. Technology has helped U.S. manufacturers to be successful and more competitive [15]. Technology is used as a tool for reducing wastes during manufacturing, improving quality, and offering different options for consumers. Manufacturers recognize technology s pervasiveness and its crucial role in establishing a competitive advantage in manufacturing [14]. The rapid technological changes have allowed manufacturers to use new technology inventions to improve the overall performance and reduce the total cost. One new technique that has emerged in the manufacturing arena is the Radio Frequency Identification (RFID) techniques. 343 RFID is a method of remotely storing and retrieving data from so-called RFID "tags" attached to objects [17]. Recently, the RFID technique has been used mostly for improving the supply chain management (SCM) of large manufacturing. In the U.S., Wal-Mart is the first to have asked its suppliers to attach RFID tags to pallets and cases of products. In Germany, Metro is a pioneer in the usage of RFID [3]. Hargrove, Queen, Olubando, and LaRochelle [4] state that Wal-Mart admits that it does not fully understand the impact RFID (p.2). Also, Yüksel and Yüksel [16] believe that even RFID technology has received a fair amount of attention in media, but many managers are still unfamiliar with RFID and its benefits. Hargrove et al. [4] assert that the stratgy of using RFID technology for managing supply chains has many complications of implementation. However, Yüksel & Yüksel [16] indicate that although implementing RFID technology is a complicated process, the right planning and development of an RFID strategy can offer important advantages to business systems for efficient and successful supply chain management (p.54). Recognizing the difficulty some small-to-midsize manufacturers may have with implementing RFID, a nine-step plan for implementing RFID, in the supply chain, has been illustrated. Also, the advantages and the challenges of using this technology in SCM has been explained. Moreover, visual instructions have been provided to facilitate understanding the plan of developing this technology in the supply chain for small-to-medium manufacturing companies. II. THE ADVANTAGES AND CHALLENGES FOR DEVELOPING THE RFID TECHNOLOGY There are many advantages and challenges of using RFID in SCM of manufacturing organizations. The benefits of implementing RFID can be summarized by three important points: RFID will help the manufacturing company to reduce inventory by 15%, improve the ordering process by 17%, and reduce the cash-to-cash cycle times by 35% [5].
A real example of these benefits is Procter & Gamble (P&G) company that expects to reduce $3 billion in inventory to $2 billion by combining real-time information about its operations with more timely data about sales from its retailer partners. If it can achieve this, P&G will free up $1 billion in working capital and cut inventory carrying costs by $200 million per year (Kellam). Nevshehir [4] believes that there are six important issues that may hinder the process of adopting RFID technology. These challenges are the high costs, the lack of standards, 80% accuracy, the software integration is not mature, lack of knowledge and experience, and security concerns. Several vendors have helped manufacturers and retailers to comply with the challenge of meeting RFID requirements. Global software suppliers such as Oracle, SAP, Microsoft and IBM are all accelerating efforts to meet the RFID challenge [12] by producing off-the-shelf applications that are much cheaper than the customized ones. Also, these applications will solve the accuracy and integration problems of this technology [4]. Evaluate the RFID technology against the organization strategy. Outlining the benefits and risks of the change. Working with external parties. Involving the employees. Prototyping the technology. Finding a suitable RFID standard. Starting the implementation. Testing. Documenting the details of the plan. III. DEVELOPING A PLAN FOR IMPLEMENTING RFID TECHNOLOGY Managers should develop strategic plans that help their organizations take full advantage of the RFID benefits and overcome its challenges. Developing a good plan will assist managers in making the correct decisions regarding the development of this technology in the supply chain of organizations. One strategy that might be effective for a manufacturing company to adopt RFID technology is described. Adopting RFID technology needs for the organization to change its strategy in managing its supply chain (SC) [6]. Changing the SCM strategy needs involvement of different parties in the development process. If the organization aims to cut the supply chain costs, it should involve internal and external parties. The internal parties (e.g. the manager and the employees of each department) should be involved in the planning process. The external parties (such as suppliers and distributors) have a significant impact on adopting RFID technology and they should contribute in the process of making decisions. IV. THE STRATEGY Figure 1 summarizes the strategy that consists of nine phases: Figure1: The phases of developing RFID technology in the SC of small-to-medium manufacturing organizations. Phase 1: Evaluate the RFID Technology The first step is to evaluate the RFID technology against the organization strategy [9]. The evaluation could be done by forming an internal committee, which consists of the managers of each department and the vice president of the company. They should discuss the importance of implementing this technology in supporting the company s strategies and goals. This step will help managers to be familiar in the technology effectiveness and its effect on the company goals. Phase 2: Outlining the Benefits and Risks of the Change The second phase in this strategy is outlining the benefits and risks of the change. Managers should prepare a cost and benefit analysis that lists what they hope to gain from the change and any risks that might be associated with that change. The best way of doing this analysis is by developing SWOT analysis. This analysis can help the managers make the correct decision through defining the strengths, weaknesses, opportunities, and threats of the RFID technology. Also, it can help them make a decision and move forward or drop the project. In this phase, they should focus on internal benefits that could be achieved by adopting this technology [11]. They can ask whether this technology cut the overall costs of the manufacturing, shipping, receiving, and/or packaging process. 344
If the internal committee reached the decision that the RFID technology will be beneficial to the organization and the technology should be adopted, then they should move to the next step. Phase 3: Working with External Parties The third step is working with distributers, suppliers, logistics providers, and other external parties that could help the organization in adopting this technology. External parties will assist the organization achieve the successes in implementing this technology. Without involving these parties in the process, the organization will face huge challenges. Also, sharing information between different parties will bring the greatest benefits to each party in the supply chain (Blecker & Huang, 2008). By developing a strategy that focuses on achieving benefits across the entire supply chain, each individual player has a greater chance of achieving lower costs or reducing out-of-stocks [11]. Establishing long term partnership between different parties should take place in this phase. Phase 4: Involving the Employees The next step is allowing the employees to take place and be involved in the process of implementing the RFID technology. At this level, the organization should provide its employees training sessions about the advantages of RFID. These sessions will improve the employees knowledge regarding this technology. In addition, this will overcome the challenge of resistance to change [10] because the employees will be aware of the importance of this technology. In the later stages of developing the technology, the organization should train the employees on using this technology. Phase 5: Prototyping the Technology The fifth step is prototyping this technology, developing a mini-implementation, or launching a pilot project. This phase will help the organization collect real data about the performance of this technology. Also, it will lead to accurate evaluation of the RFID technology because the pilot project will be applied to the organization processes and it will be much better than a brochure or sales presentation [1]. Launch pilots will help the company understand how to use the technology to lower costs and become more efficient. During the pilot project period, if the managers find that the RFID technology benefits the organization, they will move to the full implementing phase. If it is not beneficial, they might still need to improve, revise, or update the strategy to reach a wellplanned strategy before their competitors take the advantage of this technology. Phase 6: Finding a Suitable RFID Standard The sixth step is finding a suitable RFID standard or creating special standards that help the organization use the best practices in implementing this technology. Also, using standards will ensure the highest quality during the implementation process. In addition, these standards will help simplify the electronic transactions that occur between the organizations systems. Also, standards will determine how middleware handles data scanned by an RFID reader as goods enter a warehouse and will pass the data to an enterprise application [13]. Phase 7: Starting the Implementation The seventh step is starting the full implementation of this technology. This phase includes buying and installing equipment such as RFID tags, label printers, high-speed label applicators, antennas, and readers. The organization can use an external company to implement the equipment or use an internal team from inside the company to install the equipment. This phase needs a timeline to identify the responsibilities for the implementation process. Phase 8: Testing and Training The testing process is important because it helps the organization determine the effectiveness of the new technology. Developing new technology may have some problems or will not work as expected. In this case, technical support has to revise the implementing process to solve the problems and to reach the highest reliability and efficiency. Feedback from the stakeholders and different parties can be collected at this phase. The training process is important in this step because it helps the employees to be familiar with the technology. Phase 9: Documenting the Details of the Plan The last step in the plan is documenting the details of the plan. This should include project communications, such as status, timetables, phases, issue resolution, and cost. It also should include how you will communicate with employees, suppliers, distributers, vendors or consultants assisting with the implementation. Figure 2 provides virtual instructions for using this plan. These instructions will help managers understand this strategy and develop the FRID technology in their organizations. V. CONCLUSION Managing this technology needs an assessment program that helps the company correct and revise company practices. Also, using appropriate standards will help the org. to achieve best practice of developing this technology. 345
In addition, some a professional organization is offering certificates and workshops that help the organization improve its employees skills (e.g. Council of Supply Chain Management Professionals). In addition, integrating this technology with other techniques (e.g. agile SCM) will help the organization to maximize the benefits of using this technology and to overcome the challenges of the RFID technology. To summarize, the individuals who are involved in the strategic planning process are the department managers, the employees of the organization, the suppliers, and the distributers. Each party has a different role in developing the strategy for implementing the RFID technology. The most important factors that need to be considered during the process of implementing the RFID technology include thinking about the importance of developing the RFID technology. This factor includes the process of identifying the consistency between the technology and the organization s goals and objectives. If not consistent with the company s goals, the internal committee should adapt this technology to be suitable for the organization s goals. Another factor is discussing the risk of the change. If it is harmful, the organization should prepare alternative plans that help them adopt this technology. Another factor is comparing the costs with the internal and external benefits. If it is beneficial, they should start thinking seriously about the process of the development. Sharing information with suppliers and distributers is another important factor in adopting RFID technology. Another important factor is choosing a RFID standard that helps the company follow the best practices. Training is also an important factor in the adopting process that helps in improving the employees knowledge. Finally, the assessment programs help organizations measure the performance of the technology. Figure 2. A plan for implementing RFID technology in small-tomedium manufacturing companies. 346
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