Emerald RFID- from concept to implementation

The current issue and full text archive of this journal is available at www.emeraldinsight.com/0960-0035.htm

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RFID: from concept to implementation Robert E. Spekman

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Darden Graduate School of Business, University of Virginia, Charlottesville, Virginia, USA, and

Patrick J. Sweeney II

Received February 2005 Revised May 2006 Accepted June 2006

ODIN Technologies, Dulles, Virginia, USA Abstract Purpose – The purpose of this paper is to present a comprehensive overview of radio frequency identification (RFID) technology. The goal is to provide insights regarding the implementation and use of RFID by focusing on its advantages and its problems.

Design/methodology/approach – The paper discusses, what RFID is, how its parts fit; what role management plays in its implementation, and where the pitfalls are.

Findings – RFID is discussed as the latest technology to help manage the logistics and inventory problems faced by all companies. Not only has RFID been shown to provide benefits for the firm in its internal operations; its greatest contribution lies in its ability to improve information and materials flows throughout the entire supply chain. With RFID technology visibility in materials flow (from raw material to finished goods) among all supply chain members is improved and the accuracy of the information shared is greatly enhanced. Equally important is the role played by RFID in the development of more collaborative relations among supply chain members.

Practical implications – For practicing managers the paper offers suggestions for improving the probability of a successful RFID implementation. The paper discusses implications ranging from dealing with the physics of the aligning the equipment, to validity and reliability testing, to integrating a complete RFID system inside the firm, to developing the requisite metrics, mindset, and managerial systems to link all members of the supply chain.

Originality/value – The paper combines practice and theory to demonstrate the potential benefits of RFID and provides insight into how to manage the problems that plague the rapid adoption of this new technology.

Keywords Radio waves, Supply chain management, Technology led strategy Paper type Conceptual paper

International Journal of Physical Distribution & Logistics Management Vol. 36 No. 10, 2006 pp. 736-754 q Emerald Group Publishing Limited 0960-0035 DOI 10.1108/09600030610714571

In recent years, you could hardly pick up a trade press magazine devoted to supply-chain management and not read about radio frequency identification (RFID). In recent months, no fewer than 100 RFID-related articles were cited in ABI-Inform.

Although the exact date for compliance is still subject to debate, the US Department of Defense, Wal-Mart, and Target Corporation had all mandated that their key suppliers be RFID-enabled by the end of 2006. In addition to the largest retailers, the pharmaceutical industry and Food and Drug Administration have also taken steps to require the use of RFID by the end of 2007. This industry is unique in several ways, not least of which it is being user driven. That is, advances in RFID technology are being brought to market by end-users with products and services provided by small specialized firms and the big players (e.g. Microsoft, IBM, and Intel) are trying to play catch-up.

The advent of RFID can be traced to British Royal Air Force during the World War II, which used it as a means for identifying friendly aircraft from hostile ones.

Over the years, less dramatic applications of RFID have been developed, such as electronic toll collection and point of purchase payment systems like Exxon Mobile’s Speedpass. From a supply-chain management perspective, companies have touted the benefits of RFID, particularly its ability to create a seamless flow of information through all layers of the supply chain in near real time and to provide such detailed customer information that suppliers can tailor products and services to an individual more accurately than ever before. At the same time, many firms are realizing cost savings by deploying RFID technology internally to monitor production processes.

Ford, for instance, uses RFID for parts replenishment and for the location of vehicles (Katz, 2006). Since, the tagged goods do not leave the factory; companies sidestep issues related to the cost of chips and poor reading because they maintain control over the entire process. These benefits come without the cost or risk of human interaction such as scanning a bar code. International paper had relied on bar codes only to find that RFID eliminated many of the problems resulting from lost tags and damaged readers. Other savings over bar codes are driven by the technology not requiring line of sight and many items can be read simultaneously.

Inventory management is but one use of RFID. Its advantages can be seen also in homeland security, allowing agencies to screen people and materials as they pass through an airport, harbor, or any type of checkpoint. In health care, RFID can be applied in hospital settings to ensure that a patient is not given new medication that interacts with other drugs already taken. The pharmaceutical industry can use RFID to resolve issues around counterfeiting and diversion of goods. For any large corporation, RFID can be used to track assets from secure computers to priceless artwork. In courts of law, there are applications both to help manage the thousands of documents lawyers use to build a case and to protect the integrity of a chain of evidence for officers of the court. In libraries, RFID reduced costs associated with lost inventory as we would expect. Now a library can take a complete inventory of its holdings in a few days rather than months, and patrons can passively check books in and out by merely passing by a reader (Singh et al., 2006).

A paper on RFID could focus on the technology and how the system’s components control the flow of data from tags to antennae to readers to middleware and so on. But we are less interested in the technology itself and have chosen, instead, to focus on the managerial implications and benefits that derive from technology deployment. To that end, our objective is to provide an understanding of RFID by addressing the following questions: .

At a fundamental level, what is RFID, how do the parts fit, and where is value created? .

What are the benefits and how can managers assist in making the technology deliver all it can? .

What are its pitfalls and what role does management play in the successful deployment of the technology? .

How can a user create a system wide approach to creating a competitive strategic advantage through RFID adoption? .

What does the future hold and what are the implications for management?

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We begin this paper knowing that other technology enablers such as customer relationship management (CRM), enterprise resource planning (ERP) and a host of other enterprise software solutions have also been widely heralded. We also acknowledge that with rare exception, supply chain-focused technology has over promised and under delivered. Thus, we proceed with caution and will be guided by the rule of conservatism (i.e. whenever in doubt, err on the side of a conservative response). The fact is that the adoption of RFID is growing but its rate is slow as costs remain high and for years it has been a solution in search of a problem (Brown, 2006).

One author asked if RFID met Bill Gates’ 2-10 rule – new innovations are endlessly hyped for the first two years and take a decade to be useful (Moorman, 2005). Even Wal-Mart has not deployed RFID at the rate it said it would in light of the finding that RFID stores reduced out of stocks 63 percent faster thereby allowing an opportunity to recapture lost sales faster (Moore, 2005).

The case for RFID Software for sale From 1999 to 2002, companies purchased an estimated $15 billion-plus in supply-chain software licenses to manage the flows of information, goods, and cash among their customers and suppliers (Kanakamedala et al., 2003). Although there are many success stories of how those information linkages have been harnessed for competitive advantage, for every success story there are other tales of woe. The software alone cannot fix a broken system. If processes are not aligned, if managers do not use words like supply-chain partner or collaboration, and if there is not a basic level of trust among supply-chain members, it is unlikely that any software system can create the level of comfort required for the technology to move proprietary information among supply-chain members who have historically not trusted each other. It is our opinion that the technology is merely an enabler; it cannot overcome a failing set of processes or correct a basic misalignment among the objectives of different functional units in the firm. Further, it cannot focus management’s attention on the importance of inventory management and the critical requirement of seamless information flows throughout the supply chain. Compound those problems with the addition of third-party supply-chain members who also must be integrated into the system, and the urgency and importance of the challenge becomes quite daunting.

Where implementation seems to progress well is when firms move beyond simple compliance in logistics and extend the use of RFID into other areas of their operations.

Clearly, one example of creeping commitment is HP’s migration of RFID from its relationship with Wal-Mart to full integration within its internal supply chain practice (Morton, 2006). This technology has changed HP’s shipping processes in light of the fact that they work with third party logistics providers who have their own shop floor systems, ERP and warehouse management systems.

Nonetheless, we suggest that the benefits of adopting RFID are worth the pain.

Through RFID technology the supply chain can be used to improve customer relationships by tracking interactions and determining how to better serve key customers. Supply-chain optimization offers greater efficiency and improved effectiveness, and those gains need not be limited to first-tier suppliers as the systems can be migrated to smaller vendors. Those advantages bode well for RFID given that the technology can piggyback on the enterprise level ERP system and can

enable near real-time information gathering that is far more valuable than that which other integrative systems can provide. It does appear that the major obstacles affecting the adoption of RFID are the physics associated with RFID implementation. However, a firm’s ability to communicate across large enterprise-level systems that facilitate an integration of data and information will serve to diminish the problems associated with complex physics of these systems.

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RFID as an enabler of supply-chain transformation End-users, not technology companies are driving the adoption of RFID. Leading the charge is the world’s largest retailer. Wal-Mart’s aggressive stance on RFID is motivated by a belief that by being first to deploy the technology can sustain a competitive advantage (Rutner et al., 2004), as RFID can, at a fundamental level, improve a firm’s business processes. Wal-Mart has already proven tangible value with their limited RFID pilot which currently receives goods from 300 companies at 500 locations mostly in the southwestern USA (Ferguson, 2006). A study from the University of Arkansas showed a savings of 16 percent in out of stock items at RFID enabled stores (Hardgrave et al., 2005). This 16 percent has significant meaning when one considers that Wal-Mart loses $1B in gross revenue due to out of stock condition at store level. Beyond the cost savings there are other benefits directly related to changes in attitude. For instance, both Target and Wal-Mart have announced that they would share RFID data with their suppliers. Sharing data is not a new concept but the technology makes the process more seamless and there are fewer excuses for not sharing. Accenture reported in 2004 that a three tiered system in the electronics space could generate a $4.0 B net value from full RFID implementation (Mongelluzzo, 2005).

A further examination of the three levels of the value chain makes clear that RFID can deliver what it promises. RFID can support quality control processes by checking that parts and subassemblies are included in finished products. As trucks enter a distribution center, arrival times can be logged and the trucks’ contents can be verified with little or no human interaction. Beyond logging arrivals, all that information could be electronically (read: with no human intervention) compared with the bill of lading or advanced shipping notification (ASN). Productivity is improved, because the probability of lost goods would be greatly diminished, merchandise-picking accuracy would improve, and storage space would be used much more effectively.

But the benefit is not a zero-sum gain to the retailer, the additional information can benefit all participants in the extended enterprise. From the supplier perspective an RFID enabled supply chain solves one of the most contentious issues of doing business with a large retailer like Wal-Mart – it eliminates chargeback’s for items that were not recorded as received. No longer can there be a dispute over what showed up at the dock door, versus what was sent if every case coming in the door has a unique identifier.

Currently cases are received and manually counted causing many errors in what was received vs what was recorded. Suppliers spend millions of dollars simply disputing received goods. At the retail level, a great deal of relevant information would be collected. That information could include answers to the following questions: .

Which location in the store is best for the sales of a certain product? .

Did promotional display cases get out at the right time to coincide with marketing programs?

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What is the shopping pattern of consumers who plan their purchases as compared with those who are impulse buyers?

Where does greater shelf space need to be allocated to certain stock keeping units versus other locations in the store?

How should inventory be rotated to minimize spoilage and waste? (Recall that deliveries can be time-stamped.)

Are we out of stock of an item on the shelves and/or in the back room?

When can I get paid for inventory that is being provided on consignment?

A correctly designed RFID network can answer many of these questions without human involvement, and the system is capable of taking action based on predetermined set of heuristics. If a store is getting low on a particular SKU, the system would recognize that because it sets thresholds based on replenishment speed and automatically generates orders based on RFID information tied to forecast systems. Automatic replenishment systems are not new, but RFID does improve the accuracy of the process.

Potentially more important than the retail supply chain is RFID’s possibility to secure the pharmaceutical and healthcare supply chain. The World Health Organization (WHO) estimates counterfeiting and diversion of drugs like Viagra, Lipitor, Ambien and others that the pharmaceutical industry loses between $10-30 billion annually to counterfeit drugs (US Department of Health and Human Services, 2004). This does not consider the patient safety concerns when counterfeit drugs are administered to people in real need. In 2004 for instance 25,000 cancer patients may have received diluted, sub-potent treatments of Procrit. Not only is this a dangerous problem, enforcement is nearly impossible for criminal investigative professionals at the FDA because there is currently no chain of custody, or pedigree, as to where drugs came from or which distributors processed and potentially diverted them to illegal operations..

With this real-time information flows come apprehensions about privacy and exactly what information is open to RFID scrutiny. The concern around what information can be gathered and stored by this technology is real and has been addressed by legal scholars and the courts in existing cases. It is possible, for instance, to track a shopper’s complete buying patterns/habits during a visit to a store or shopping mall, and that information can then be linked to a frequent shopper database.

The resultant data set can easily contain potentially sensitive personal information.

The major concern is that the same agencies will be able to track consumer purchases and movements for nefarious purposes. If you own a cell phone or have an automobile with OnStar, some company knows exactly where you are (Smith, 2005).

Aside from the Big Brother effect of RFID, the implications of increased availability of information could alter the nature of dependence and power within the retail channel. Retailers will have greater access to consumer information than do their suppliers. Information about consumer tastes, behavior, and shopping habits could bestow on the retailer a level of knowledge that it need not share with the supplier.

Retailers (especially the larger ones) are now able to increase their bases of power due to the asymmetry in category management information at the store level. Rather than rely on suppliers for their expertise in category management, retailers can now build

decision models based on their own data. One outcome is that the role of channel captain is no longer owned by the supplier and will be assigned to the level in the channel where the RFID-related information is collected and stored. It appears that RFID technology will contribute to transforming traditional supply-chain relationships (Koroneos, 2005).

Depending on the level and method of RFID data shared with suppliers (i.e. where and when were various cases were read, what the best architecture for systems, etc.) and a supplier’s ability to effectively leverage that data will determine the centers of power radiating from an RFID network. RFID in the supply chain is new and poorly understood but all but a few specialized firms, therefore the potential benefit for all participants in the collaborative supply chain is astronomical if the parties collaborate and mimic an open-source model to create a cooperatively built system of data sharing, system monitoring, and traceability throughout the entire value chain (Brown and Hagel, 2006).

Show me the money Wal-Mart moved in excess of 2.5 billion cases through its distribution centers in 2000; RFID’s potential savings in time and labor associated with inventory-tracking alone is enormous (Sliwa, 2003). Similarly, Procter & Gamble (P&G) estimates that at any moment, about 14 percent of its products are not in stock at store level; if that percentage were reduced to 12 percent, P&G believes, it could increase its revenue by $400 million (Sliwa, 2003); Gillette has already proved that by accurately knowing when and where promotional displays are put on the retail floor there can be a greater than 20 percent increase in sales compared to non-tracked stores (Prater et al., 2005). Add to those numbers the $30 billion in loss and theft of inventory at retail alone and the financial savings become even more profound (Levinson, 2003). Yet, there are risks in the implementation of RFID programs as the costs of readers and related equipment are high (between $1,000 and $2,500 for readers and $0.07-1.00 for tags) and would need to come down significantly for mass adoption to take place in the low margin retail supply chain (Odin technologies, 2006). The price is somewhat volume-dependent, particularly with tags, and business processes will have to be reengineered to support the added volume. Complicating the cost issue is that the inherent technology is not without its challenges. Different materials react to readers differently; for instance, metals and liquids have different properties that have varying effects on RF communication and different frequencies also behave differently. Radio waves respond differently to those properties, so there is likely to a great deal of testing, or at worst, a great deal of trial and error (and expense) in determining the best combination of RFID equipment for certain products.

The initial considerations, then, are how you build the business case and what kinds of results you might expect. Put simply, what factors contribute to the estimated return on investment (ROI)? Fontanella (2004) suggests that there is a continuum of applications that range from using RFID for a specific application to applying the technology across the entire supply chain. That continuum is illustrated in Table I. As the potential gain increases, it is more likely that the technology is going to be used across layers in the supply chain. The more layers in the supply chain RFID permeates, the greater the expected resistance, and the higher the probability that a technology

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Table I. The range of RFID applications

Discrete processes

Intra-company

Inter-company

Across the extended enterprise

Goes beyond inter-company links and tries to gain synchronization over the entire supply chain Silo mentalities do get The benefits are huge The barriers are in the way, but if tightly and the challenges are significant and begin many. For the channel with the need to get managed, these system wide buy-in, applications yield good captain, it might be results. Once control is easier to implement, but shared vision, and a common goal. The relaxed, problems can if firms do not issues to address are relinquish control, it multiply less technical and more could be a disaster managerial and behavioral ROI can be determined It is possible to build the case for such adoption, but the ROI is ephemeral at best Usually used to fix a process that can be improved by RFID. An example is replacing bar codes with tags Success is easier to accomplish because the application is circumscribed and well defined

Link parts of the business that typically cross functional lines

Attempts to link a limited number of suppliers but not the full supply chain

Source: Fontanella (2004)

solution alone will fail. RFID represents a significant business transformation and change management becomes an essential tool (Table I).

As the price of tags and infrastructure falls, the number of potential applications multiplies and the data requirements alone could place serious demands on a firm’s IT infrastructure, particularly if the RFID network must be functional 24 hours a day seven days a week and the data is not being evaluated and acted upon locally rather being transmitted to a central location for analysis and action. What do you do with the potential massive increase in data? Where does it reside, what kinds of data should be retained, and what should be purged from the system? The heuristic that guides the decision to retain data is probably a function of the extent to which the data tie to other business functions and the ability to create rule-sets which can be based locally at a specific read point or warehouse for automated action. The data retention issue becomes more critical as the data move from the supply chain to the selling floor and creates the opportunity for a sales-driven replenishment system. One potential solution is referred to as edge computing, in which data are captured at the local level and stored throughout the corporate network but are available on an as-needed basis at the central corporate location (Levinson, 2003). However, in one of the most potentially beneficial applications, the pharmaceutical supply chain, many nodes in the supply network would need access to the complete data to ensure the integrity of the drug, thus requiring greater data volumes be transmitted to participants from the manufacture to the retail pharmacy.

Looking beyond your own benefits We have spoken about RFID benefits and have alluded to the costs associated with the price of readers and the potential impact on a firm’s IT infrastructure. Although those

are real costs that have impacted the decision to deploy RFID systems, an important consideration is being neglected. For this technology to really make a difference, the benefits should be realized system wide, and the value gained should transcend the entire supply chain. Once a determination has been made regarding the efficacy of RFID in one firm, an analysis must be done across the supply chain to determine if performance holds for all supply-chain members. For example, questions must be asked that force management to confront issues germane to the hardware/software installation. Questions such as the following become important (Coyle, 2003): .

Will the cost of integration with current systems be prohibitive? .

Will the coding requirements and data management problems be excessive? .

Will implementation seriously disrupt current business practices? .

Will the effort required to implement these systems detract from your core business? .

Will the system have the same reliability and up-time as current infrastructure?

As focus shifts from the firm to the supply chain, issues arise especially as they relate to systemwide performance metrics. The inherent problem is that traditional measures of performance tend to be short-term and profit-oriented. Those measures are usually one-dimensional and focus on outcomes at the firm level. To make matters worse, those metrics are often void of systemwide thinking and do not encompass the entire supply chain. To overcome those flaws, metrics will have to reflect topics ranging from shortened new product development, improved cash-to-cash cycles, leaner inventories, reduced shrinkage, greater patient safety, reduced stock-outs, more accurate data, and enhanced security systemwide. The technology also should streamline collaborative planning, forecasting, and replenishment (CPFR).

Nonetheless, one of the most significant mistakes that many companies make with regard to measurement is pursuing measurements for measurement’s sake rather than as a vehicle to drive expected behavior. Because measurement is related to strategic direction, all three should be aligned. Strategic intent (direction) drives performance and its metrics that, in turn, establishes the kinds of behaviors that support the goals and objectives of the extended enterprise; that is, the entire set of collaborating supply-chain members, not just the individual firm. The objective is to optimize the flow of products, information, and cash across the entire supply chain. To accomplish that goal, we must achieve synergy across all levels of the supply chain through effective design, integration and implementation of key levers that span the entire supply chain.

Thus, supply-chain integration must include mechanisms that ensure that the entire supply chain is acting in concert over the long haul. This is a critical philosophy that Wal-Mart, Target, the Department of Defense and others forcing this technology on their suppliers must understand. If they can make the adoption of the technology simple – from having one technology standard (EPC Generation 2.0 protocol and data format) and open their collection data to partners for analysis, the benefits can cascade down the supply chain.

If retailers, at one level in the supply chain, do not share the data, are ambivalent about their technology standard requirements, and do not provide a real time 24 ÂŁ 7 operational system, RFID will simply be an added cost of doing business for suppliers.

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Under these circumstances there will still be continued resistance. This implies that any supply-chain strategy, design, monitoring and operations, should be done collaboratively. In addition, decision pathways/architectures must be in place to ensure that joint strategic, tactical, and operational decisions can be made efficiently and effectively. Finally, control mechanisms must be in place to detect and correct unfavorable variances from the master plan. For example, the CPFR approach being adopted in the grocery and consumer products industries encompasses very specific business processes that prepare joint market-oriented plans, translate those plans into forecasts and replenishment schedules, and deal with variance conditions.

Integrated supply-chain thinking takes a total system view of the supply chain. The data that is available to the supply chain members enables forecasting, trend analysis, “scorecarding,� performance measurement, optimization modeling, and performance management. The goal is to create customer-driven and cost-efficient integration of business-process among supply-chain partners. There are a variety of ways that IT can be used between companies to achieve business process redesign (Davenport and Short, 1990), among them: . transforming unstructured processes into routinized transactions; . making processes independent of geography; . reducing the labor content of inter-firm processes; . sharing information and analytical methods to speed and improve processes; . enabling parallel processing of tasks; . eliminating intermediate steps in a process; and . providing the ability to track process status at a detailed level.

The challenge of building consensus about RFID direction One of the principal challenges to achieving seamless integration involves building consensus about RFID strategy. This is difficult to do in a single firm of any size, let alone across a network of linked firms. Success has often been tied to strong channel leaders who are close to the ultimate customer and who have the buying power to influence the pace and direction of investment upstream in the supply chain. The ability to drive an RFID strategy has its appeal since it avoids (or minimizes) the time and effort required to achieve consensus on a strategy and vision among trading partners, many of whom will have made substantial investments in their current systems. Many of the stronger channel leaders such as Wal-Mart and Target have adopted a dual strategy from a technology perspective and therefore have led other users into a de facto standard. In fact, this standard is emerging as a true regulated standard with formalized process and governing bodies.

With the power of the channel captain comes the ability to execute a strategic-planning process and to drive the specification of an RFID architecture and associated migration path. Absent such power, it is difficult to gain consensus on a technology direction given the previous legacy investments of the respective trading partners and the likelihood that a given company will be operating in more than one extended enterprise, thus facing the need to integrate with multiple architectures.

Although those problems may eventually be addressed as the industry gets better at B2B integration, enterprise application integration, and distributed computing, they will remain a significant hurdle for the next decade or more, due largely to the

challenges of systems integration across different firms. To be sure, Wal-Mart’s mandate alone is impetus for its major suppliers to become RFID-compliant. At the same time, the use of power in a supply chain can negatively affect the degree of collaboration among supply-chain members. Studies by John (1984) and Murry and Heide (1998) suggest that behaviors that appear to be coercive in nature and less trusting are likely to result in compliance and not commitment. Specifically, those studies examined the use of monitoring to achieve certain outcomes and found that the partner who was monitored closely found such behavior to be less than helpful and conflict often resulted. Given the size of Wal-Mart and the level of seller dependence, we would expect actual conflict to be held in check but the potential for conflict to be quite high.

T stands for trust and technology Trust Because business issues and personal relationships lie at the core of an integrated supply chain, trust is a necessary condition of firms’ working closely. Trust manifests itself in the integrity of information shared, in the belief that partners will do as they say, and in the willingness to share risk and reward equitably in pursuit of common goals and interests. Trust is truly the cornerstone of any collaborative relationship because it is the foundation for social order.

In research on the US automobile makers, Dyer (2000) demonstrates that trust lowers transaction costs ranging from the cost to search for potential suppliers to costs associated with negotiating, monitoring, and enforcing contracts. Trust also increases knowledge-sharing and encourages partners to dedicate assets on behalf of the others.

He argues compellingly that trust creates economic value and is not based primarily on personal relationships. Trust is based on predictable behavior and fair dealing. Dyer credits much of Chrysler’s success with its supplier cost reduction or SCORE program to such attributes when working with its suppliers.

Partners often come to the relationship with history of past supply-chain relationships gone badly or not having lived up to their potential. It appears that the largest barrier to success is organizational, rather than technical or financial. One of the key obstacles is the “people costs” resulting from old habits that must be changed and cultural legacies that do not support the new mind-set, and the managerial skills required to support those supply-chain alliances. The changes required are quite far-reaching and entail developing a climate that fosters trust and open communications, supports a win-win orientation, and sets firmly in everyone’s mind that supply chains compete, but individual firms do not.

The definition of trust converges on a confidence in others’ intentions and motivations (Lewicki et al., 1998). Trust is the belief that one’s supply chain partner will act in a way that will not negatively affect the other. Trust lessens the concern that this knowledge would be expropriated and used later to compete against the partner.

Although trust is the glue that holds the supply chain together, it is quite fragile and subject to a number of stresses and strains. Character-based trust is one component of trust and is important because firms have choices regarding the selection of their supply-chain partners. Given a choice, why work with a firm that has a questionable reputation? There are firms that because of their size and dominance seem to control their supply-chain relationships. At the same time, those relationships tend to be both

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contentious and fragile. Those supply chains should be less competitive in the long-term, although power dependence might sustain them for longer periods of time than you might predict. Other theorists are more emphatic and state that without a clear and mutual interdependence based on trust, it will be very difficult to attain the degree of supply-chain integration needed to compete favorably (Cox et al., 2001).

If partners can agree on the goals and purpose of the integrated supply chain, it lays a foundation of mutual interest and the need to collaborate. Reputation (or good will) often serves to get a foot in the door so that the parties can begin that conversation. It is especially critical that mutual gains be stressed, that all partners are given voices, and that their strategic interests become part of the overall plan for the supply-chain network. Technology can physically link the members of the supply chain; however, trust ensures the linkages will be utilized and that reliable and accurate information will flow among the supply-chain partners.

When problems occur Thus, far, we have described the merits of RFID and have placed the technology in the context of collaborative relationships among supply-chain partners. It would appear that a great deal of the emphasis given to RFID has been prompted by major retailers like Target, Wal-Mart, Albertsons and Best Buy in the USA and by the Metro Group in Germany. Those programs are similar to ones in place at the US Department of Defense, Boeing, and Airbus (Moorman, 2005). The technology requirement has been end-user driven and have been fueled by specialized vendors not in the Global 500.

New ventures such as ODIN technologies, OAT Systems, Alien Technology and existing supply chain infrastructure providers like Symbol Technology and Intermec (Smith, 2006) are the current leaders in the industry. To some degree this is an example of why innovation tends to come from new companies and not the large incumbents.

Utterback (1994) and Christensen (1997) suggest that incumbents have too much invested in the current paradigm and have little incentive to lead the RFID charge. Yet, in light of the growing critical mass, high-tech firms such as Intel, IBM and SAP have announced significant investments in the technology (Stroh and Ringbeck, 2004).

Despite that enthusiasm and the perceived strategic importance of the technology a recent survey suggests that fewer than 20 percent of the respondents were willing to spend more than $600,000 for RFID initiatives (Aberdeen Group, 2005). When RFID is used internally there is visible payback and benefit. Deploying the technology systemwide raises the costs of the program. Another major obstacle is the historic inability to ensure compatibility over hardware, software, and data management tools.

However, these setbacks have not diminished the level of optimism. If the goal is to achieve high levels of mass customization at lowest costs to the entire supply chain, there is a need for data at a very precise level regarding such things as shipments, inventory levels, and manufacturing schedules. It is clear that success is a function of the degree to which information flows freely and accurately among supply-chain partners. RFID does enable greater and more accurate information sharing. At the same time, the flows of data, inventory, and cash are not guaranteed. Problems that affect supply-chain integration can arise from two primary sources: physical barriers/obstacles as a result of RFID deployment and interpersonal/institutional impediments that destroy trust and collaborative behavior. This is similar to

constraints faced by similar revolutionary technologies such as the bar code when initially introduced.

RFID deployment Among the problems facing the implementation of RFID, we have alluded to costs, failure rates, interference, security, and privacy issues (Smith, 2005). For those early adopters, their initial costs will be much higher than those who have taken a wait and see approach. Yet, those who wait run the risk of being pre-empted and losing market share. The security issues often converge on the integrity of the data and the bleeding of information from personal area networks.

In addition, we believe that the issues surrounding deployment are typically a function of naivete´ and a lack of experience and expertise related to the physics of RFID, and the current complexity of reader infrastructure. A number of the pitfalls can also be managed through a process that combines all phases of RFID deployment, from radio frequency engineering to middleware integration to Electronic Product Code standards knowledge. The technology has been around in different forms for more than two generations, and the behavior of radio frequency physics follows well-known laws of science that are predictable and repeatable. Therefore, a key critical aspect of the deployment is to test, test, and test again using scientific method, not trial and error. For example, it makes perfect sense to: .

Conduct side-by-side comparisons among reader and tag vendors. Due diligence should reveal whether potential vendors are state-of-the-art, have deep enough pockets to avoid obsolescence, and/or have a migration path to new emerging technology or standards. .

Test all representative stock-keeping units prior to deployment since “a box is not a box.� The density, material, shape, and number of items in the box can distort the RFID field. Radio frequencies are sensitive to liquids, metals, and other environmental disturbances that absorb and alter the wave propagation.

Similarly, one successful reading of a pallet of product does not guarantee successful installation of readers, antennas, and other parts of the system. .

First, understand the physics of the environment in which you will deploy the RF system and the influence your products have on an RF field, and then decide on which hardware is best for your RFID network. Using specialized and accurate testing tools such as spectrum analyzers and signal generators is a must to getting accurate results at the macro level of the facility and the micro level where readers will be set-up, also called interrogation zones. When you have selected the infrastructure design, selecting a solution partner to create an installation and network architecture or procuring a software tool to allow an internal IT team to manage the installation and configuration will ensure a successful infrastructure set-up and avoid the many pitfalls associated with poor systems such as ghost reads, phantom tags, reader cross-talk and nulls or dead spots within the interrogation zone. .

Select a middleware platform that fits with your chosen RFID network and infrastructure and integrates into your enterprise applications. It is critical to get the infrastructure right first and be sure of 100 percent read success, since many middleware vendors only function with one or two readers. Those readers may

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not be optimal for your environment and products. Middleware is fast becoming a commodity software product and there are specific packages which interoperate with such applications as SAP, Oracle, Manhattan and the like.

Focus on the real-world applications; do not think the lab mimics reality.

Wal-Mart has stipulated requirements that the testing environment show 100 percent reads on all sides at 600-feet-per-minute conveyor speed. The same concern holds for an analysis of the operational environment. Testing should start with a controlled lab environment to determine likely best-choice technology and then progress to simulating the dynamic environment of a distribution center where people, equipment, and goods ebb and flow over a 24-hour-period.

Conduct careful due diligence on all software/hardware combinations. Be aware that these RFID applications are relatively new and inoperability among parts of the system as well as the connection to the firm’s enterprise software is quite possible.

Understand both the law as it pertains to FCC regulation and the protocols surrounding the use and interoperability of equipment. Protocols range from EPC architecture dealing with serializing tags to middleware for most effectively working with supply-chain-wide systems like ERP. Plan for maintenance of the system. As RFID becomes more mission-critical and deeper embedded in manufacturing, failure of system components becomes less and less tenable. RFID in a warehouse environment becomes more challenging because of typical lack of trained technical resources in remote locations.

Creating a support and maintenance contract with definitive service level agreements, as well as training on-site personnel to replace faulty readers with “hot swappable spares� becomes essential for sustaining significant RFID network uptime.

To a certain extent, this discussion extends the traditional linear flow of information and materials from raw material to end-users. That is, our level of analysis has shifted to the flows across boundaries of supply-chain members. Yet, the basic premise remains. The seamless flow of information is fundamental to this process working smoothly, but those results are not guaranteed. Managers must attend to issues such as ensuring a collaborative mind-set among supply-chain members and developing performance metrics that reflect the interdependence of among all levels of the supply chain.

Breaking interpersonal and organizational barriers Having managers think in a collaborative manner after years of treating suppliers as adversaries is a nontrivial task, and that must be acknowledged at the outset. Such a transition is not easily made as the incentive systems utilized to measure supply-chain performance have been singularly company-focused, short-term, and have not acknowledged the win-win philosophy of a truly integrated supply chain. So, the change process must begin with the senior managers of each supply-chain member firm, which must demonstrate in words and actions that it is committed to the tenets of cooperation and collaboration throughout the supply chain. One report cited in

Basu (2001) suggests that most performance management systems are inward-focused and do very little to support the changes that must accompany any collaborative culture in the supply chain. Although the gains are many and those who are slow to adopt RFID will be left behind in the competitive global environment, there remains pockets of resistance. For example, Boeing has identified three specific RFID applications (i.e. logistics and transportation, smart labels for parts, and location devices for tools, assemblies and the like) but resistance remains and it often converges on the costs (financial and psychological) of overhauling business processes to accommodate RFID. If there were an accepted standard some of the resistance would diminish. Yet, it is interesting to note that both Boeing and Airbus lack the industry specific clout attributed to Wal-Mart.

Thinking about new metrics Key to these metrics is achieving alignment with corporate strategy and each firm’s objectives: think supply chain and act locally. Among the criteria for evaluating success is the importance of focusing on CRM and recognizing that end-use customer as the raison d’eˆtre; managing for the longer-term and fostering enterprise wide perspective; establishing the importance of learning supply-chain-wide; and creating meaningful network performance metrics that reflect each of those criteria. To think of the supply chain as a vehicle for spreading knowledge to each supply-chain member runs counter to an adversarial mind-set. To share knowledge could be seen as jeopardizing a firm’s position, for it could create a competitor. Yet there is no choice.

Change necessitates such radical thinking. The best supply-chain solutions are built around tying all members of the supply chain to a common base of information metrics such that each member understands its role in bringing value to the marketplace. RFID might provide the platform, but it is only an enabler. Brown and Hagel (2006) discuss creation nets that exist at the boundaries of firms where innovative ideas are brought to the firm. Through these networks RFID adoption would be enhanced since contributors to the nets would share ideas, discuss managing obstacles, and discovering new applications for RFID deployment.

Making collaboration a reality When speaking about supply-chain management it is safe to say that the track record to date has not been very good. A recent study by Deloitte suggests that of all the firms that have embraced supply-chain management, only 2 percent have seen an appreciable difference (Moberg et al., 2003). The problems are well-known and encompass a lack of trust; a lack of commitment to the principles of supply-chain management; a fear of becoming dependent on suppliers and thus reluctance to relinquish control; and a divergence in goals, objectives, and expectations across the supply chain. The problems are well-known, but the solution is not immediately apparent, although the path has been cleared and the steps identified. The primary obstacle is mind-set and the reluctance to alter behaviors that have been well established (and reinforced) for years. Traditional procurement managers (or materials and logistics managers, for that matter) cannot easily envision themselves working collaboratively with suppliers. Not only does the vision and direction need to start at the top, but the corporate culture also must support those new roles and expectations, and incentives must be aligned. This transformation requires a fundamental change in

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how business is done and established practices, attitudes, and values are typically no longer valid.

Conclusion RFID is a logical evolution for a successfully integrated supply chain. However, old habits die hard, many firms are still taking a wait-and-see approach, and others are stimulated to action only after being prodded by firms like Wal-Mart. The reality is that the price of inaction is too high, and most firms recognize that inaction will lead to competitive failure in the marketplace. Gillette, P&G and others have already demonstrated a competitive advantage; however, it has taken a Herculean effort to arrive at the point where they have a significant head start on their competitors. The early adopters will reap a strategic benefit from deploying RFID, the fast followers will keep up with market movement, and the ones who wait too long will become victims of another disruptive technology that may cause irreparable harm to their competitive stature. That pattern can be witnessed in similar disruptive technologies in retailing over the past 50 years, from centralized distribution centers to customer relationship management software. The questions become how companies can change business practices that have worked for so long, and how they can adopt new approaches and technologies that require thinking on an extended enterprise level, where previous attention and energy focused on the firm, its success, and its ability to serve its own needs at the expense of its supply chain.

The decision to adopt RFID could be a relatively simple one given its advantages and benefits. As we have indicated, the problems here are mostly technical in nature and are relatively easy to grasp given a certain level of expertise. In fact, this expertise could easily lend itself to outsourcing the entire RFID network in much the same way many retailers outsource their data hosting or EDI networks. Cultural and behavioral issues enter the equation once RFID technology crosses the boundary of one firm and is “attached� to another supply-chain partner. Then, the equation becomes more complex, and unfortunately many managers are relationship-impaired; that is, they do not feel comfortable dealing with issues such as trust, commitment, and information transparency, and focusing on the overall supply chain represents a special challenge. In addition, for most managers, working within a silo is the default option; working across functions and organizational boundaries is often viewed as an impossible task.

Our path to successful RFID deployment consists of separate but related trails. The path begins with the decision to deploy RFID technology and to gain all the benefits it can provide. Yet there are three parallel sets of decisions that contribute to effective RFID implementation. There are intra-company decisions and action items; relationship decisions that link the firm to its supply-chain partners; and supply-chain-level decisions that transcend the firm and address RFID considerations at the enterprise (supply-chain) level. The level of coordination required goes beyond more traditional modes of supply-chain synchronization (Khouja, 2003). The typical thrust for synchronization considers inventory flows and attempts to minimize delays in the flows of materials. Yet as managers think more about the entire supply chain as the unit of analysis, effort expands to include minimizing total supply-chain transportation, holding, and setup costs. Now

RFID: from concept to implementation

Intra-company Issues

Decide to deploy RFID

Begin due diligence technology + vendors

Test, test and test again in firm

Build/ renew trust, commitment, etc.

Build governance structure

Measure outcomes against plan

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Relationship Issues Determine quality of supply chain partners

Nurture and strengthen relationship

Interorganizational–supply chain wide Issues Work with supply chain to deploy

Establish shared goals, objectives expectations

Begin due diligence technology + vendors

Test, test and test again across firms

Measure system wide outcomes against plan

coordination is needed at the buyer/supplier, production/distribution, and inventory/distribution levels (Figure 1).

Linking the intra-company decisions to the inter-company (or supply-chain) level decisions is what governs the nature of the relationships between function units and departments and among the different levels of the supply chain. Integrated supply-chain decisions are oriented toward achieving synthesized effectiveness based on notions of core competencies and sustainable competitive advantage. Those concepts must be linked to economic valuation and entail both short-term and long-term process and results measures. With regard to technology, effective/efficient internal activities are essential because firms cannot link externally if they are unable to use the technology internally to connect all parts of the firm, in today’s nascent RFID market relying on highly specialized vendors who posses the limited resources around RFID expertise becomes essential. The use of technology extends to enterprise software, demand forecasting and planning, e-hubs, and other tools to tie all the members of the supply chain. Information-sharing and visibility are essential for RFID implementation to succeed. Customer-centric supply chains address core competencies and skills across the enterprise as a part of the strategy for bundled products and services to meet the needs of end-use customers.

Given the parallel investment in people and the emergence of trust and commitment, risk-taking behavior is a bit more evident, as is a tendency to rely more on virtual integration rather than investing in vertical integration. We have demonstrated that RFID implementation is as effective as the level of collaboration achieved across the full supply chain. Technology can link the supply-chain members, but it merely enables the process. If trading parties do not trust each other, there will always be

Figure 1.

The path to RFID deployment

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shadows of doubt regarding motivations and purpose. That doubt will undermine the process and the sought-after gains will never be realized. In the best of all worlds, RFID technology is capable of providing real-time visibility throughout the supply chain.

Even so, we caution that the implementation problems are not technological only; you must also think about people and the need to build processes and mechanisms that foster collaboration.

752 Future research From an academic perspective there are a wealth of research opportunities since the majority of the literature to date is anecdotal ranging from the stories about the potential applications of RFID, to technical stories that describe the physics of the process and how to enhance read rates, minimize “noise” and static, to discussions of RFID deployment and the factors that enhance and inhibit the adoption and use of this technology. In addition, research in supply chain management, logistics and distribution, materials management, or the extended enterprise have all addressed the problems and processes associated with the deployment of enterprise level software, CRM systems, and a host of technology solutions intended to integrate the flows of goods and information across the complete supply chain. In this regard, the problems and issues confronting RFID deployment and implementation are not new. However, the more interesting opportunities, we believe, reside at the nexus of technology and people.

There is no question that technology issues are important; yet, the more perplexing problems relate to managing the interface between the technology and its users; effectively bridging the boundaries between suppliers and buyers; and, understanding the relationship variables that are critical in managing the flows of information between parts of the firm and the firm and the different members of the supply chain.

Organizational structure and processes will dictate the speed of RFID adoption and should be explored along with the governance structure that sets the manner in which firms will interact, what performance metrics must be addressed to understand the impact on the total supply chain and not just the more powerful member(s). At one level, one might question whether what is good for Wal-Mart is good for the total channel since the costs of RFID deployment are not shared equally. At a more fundamental level, research might address which set of performance metrics capture the goals and aspirations of the total supply chain and not just the dominant players (Davis and Spekman, 2004). Our point is that research that attempts to merge the enabling capabilities of RFID technology with the importance of understanding the drivers of organizational change and the complex interactions among the different actors who must collaborate over units, disciplines, and companies to ensure that the integrated supply chain delivers the sustained value and competitive advantage will stand the test of time.

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About the authors Robert E. Spekman, PhD is the Tayloe Murphy Professor of Business at the Darden Graduate School of Business, University of Virginia. He is a recognized authority on business-to-business marketing strategy, channels of distribution design, and the implementation go-to-market strategies. Robert is also well-known for his research and corporate consultancy work in strategic alliances, partnerships, and supply chain management. The author of more than 85 articles and papers, Robert has also written/edited eight books and monographs. His Alliance Competency book was published by John Wiley in 2000 and his most recent book, The Extended Enterprise was published by Prentice Hall/Financial Times in 2003. His academic research has been cited for its outstanding contribution to management thought on six separate occasions.

Robert E. Spekman is the corresponding author and can be contacted at: spekmanr@virginia.edu Patrick J. Sweeney, II is the President, CEO and founder of Odin Technologies. He is a proven entrepreneur and technology visionary He is the author of RFID for Dummies, published by John Wiley and Sons in 2005. He is the only North American member of Trinity College, Dublin’s Advisory Board, and is on the advisory group for RFID Business and a member of the AIM Global RFID Experts Group. Sweeney finished second in the 1996 Olympic trials in the sport of rowing. He graduated from the Colgate Darden School of Graduate Business at the University of Virginia. Odin Technologies is the industry’s No. 1 RFID services and infrastructure software provider based on end-user ratings. Since, 2002 Odin has been providing Fortune 500 companies, Government Agencies and other RFID early adopters with end-to-end design and consulting; hardware testing and selection; implementation and deployment services; and software tools for testing, deployment and management.

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