Forthcoming study:
RFID adoption and implications
This study by the Sectoral e-Business Watch is expected for June 2008.
Rationale
The development of RFID technology promises to be one of the most interesting innovations for the improvement of efficiency and effectiveness of business processes across the manufacturing, transportation & logistics, wholesale distribution and retail trade sectors. RFID is essentially a new data acquisition platform for enterprises, and as such it needs to be integrated within evolving IT infrastructures and allow exchange of information between dissimilar platforms of value chain partners.
In the manufacturing and retail industries, RFID technology is positioned as a key enabler of supply chain productivity enhancements and end-to-end visibility, thus also allowing for product tracking and tracing applications. Asset management applications and returnable assets tagging is gaining increasing favour in addition to pallet tagging for supply chain benefits. The availability of product information can ensure product authenticity throughout the value chain, reduce the risk of counterfeiting – a critical issue for pharmaceutical as an example - diversion and theft, while the combination of RFID with sensor technologies forms the foundation of a sense-and-respond network deployed to improve control of globally connected supply chains. Beyond supply chain efficiencies, innovative applications are also emerging in the areas of mobile payments and ticketing, location based and context-sensitive mobile services, by providing access to digital content in the physical world.
Sensor observations at the physical network level are incapable of providing a complete and integrated view of the supply chain at the semantic and business level. RFID reads are discrete and disconnected events and do not capture the state history and the temporal semantics of the dynamic business processes that the collection of tagged objects represents. A semantic model and a process flow must be constructed to transform individual read events into a business logic representation that can be integrated into business applications.
Research objectives
RFID is expected to represent a sizeable market during the next few years. The technology in itself was proven and tested in the past 3 years under a huge variety of operational conditions, environments and applications. However, enterprises that commit to the RFID journey are and will still be facing some challenges that need to be overcome as to lower implementation risks and consequently maximize investment returns. As an example, while the European Commission, ETSI, industry associations and commercial entities such as EPCglobal and GS1, together with local governments, large enterprises and technology vendors, continue to drive progresses towards the attainment of a global standard, work still need to be done to achieve this end-goal.
Across the consumer product goods value chain, achieving operational excellence, pricing & promotion optimisation, advanced revenue and business performance management, while improving consumer response efficiencies and pursuing international expansion programs, will further increase logistics complexity and requirements for synchronised, real-time flow of information.
An RFID-enabled application must be able to track objects and monitor their movement and state changes in any location and at any time and to explicitly represent the chronology and causality of events and state changes and map them into the business logic represented by the data model. This process needs to go beyond the "four-walls" of an enterprise, applying RFID to achieve collaborative excellence for profitable growth. There are therefore important organisational, process and business model transformations affecting the successful introduction of RFID technology. It is also important to analyse and understand the effective potential benefits for the user businesses and the case of successful implementation.
Based on these assumptions, and on findings in earlier studies conducted on RFID across the manufacturing, transportation and retail industries, the following research questions will guide the work on this study in 2007:
- RFID adoption patterns in Europe. Which sectors are driving RFID adoption? What are the key business reasons to invest? The market scenario will be developed analysing RFID adoption dynamics in the past two years and assessing expected changes in the short-term.
- Responsive supply chains. What are the key supply chain benefits deriving from RFID implementations?
- RFID adoption in the healthcare industry. This technology is finding new innovative applications in this industry and is part of the overall evolution of the industry towards e-health. A qualitative overview of the main areas of implementation will be carried out, using case studies.
- Benefits and opportunities for SMEs. The RFID technology is mature enough for medium and smaller enterprises? Or is it an innovation typically reserved to larger companies? Could it be an opportunity for smaller companies to provide value added to their business and leap-frog international competitors? A scenario looking at the pros and cons of RFID for SMEs will be developed.
- RFID ROI – Creating the business case. IDC has developed a specific know how on this matter, having conducted RFID-focused research during the past two years. In spite of falling technology costs, manufacturers will still struggle with developing a business case for open supply chain RFID initiatives. Effect is continued minimal investment for new players participating in mandated programs. Closed loop RFID programs will begin to gain momentum, including retail store operations scenarios, but will remain controlled pilot projects. Business cases will emerge for higher valued products in closed loop implementation scenarios such as WIP tracking, product authentication and product warranty/service management.
- Potential Impacts on work organisation and employment. Since the introduction of RFID is almost always accompanied by a reorganisation of the supply chain, this creates consequences for organisation and employment, especially concerning changes in the skills requested and personnel roles. It will not be possible within the framework of this study to provide quantitative estimates of employment impacts in terms of jobs created or cancelled, especially because RFID is likely to be a contributing factor of employment variations in a complex context. However, the study will provide a qualitative overview of main potential impacts and the likely consequences for work organisation in the examined sectors, based on the evidence from the case studies.
- What are the main barriers and how they can be resolved? Key barriers to RFID adoption and lessons learned. End-user organisations are facing multiple challenges related to RFID implementations. First of all, small pilots, generally followed by controlled field trials, shall always be included in any RFID program. In parallel, enterprises need to apply options principles to their investment strategy, by identifying the 5-10 key business processes that will benefit from RFID. As a result, a priority plan aligned with strategic business and operational goals will emerge. Notably, business process re-engineering efforts must also be taken into account from the very initial stages. This chapter will highlight the main barriers to RFID, for example global RFID standards and interoperability, RFID cost structure and ROI, privacy and security concerns, ICT and program governance requirements, health risks concerns, and deployment complexity. In addition, this chapter will provide insights and general recommendations on how to approach RFID implementations and solve the most critical issues that companies will face, also leveraging from recent best practices.
Sectors covered – scope of the study
The study will provide a top-down view of RFID adoption roadmap and challenges, starting from the overall picture at European level. An analysis by macro-industry will then be conducted, focusing on comparing RFID adoption patterns and drivers across the manufacturing, retail and transportation sectors.
In addition, overviews of specific industry segments will be provided, leveraging from case studies centred on the consumer product goods value chain, defined as follows according to the General Industrial Classification of Economic Activities within the European Union Divisions, i.e., NACE Rev. 1:
- Discrete and Process Manufacturing — DG 24.5 - Manufacture of soap and detergents cleaning and polishing preparations, perfumes and toilet preparations; 15.1-15.8 - Manufacture of Food products; 15.9 - Manufacture of beverages; 18 Manufacture of wearing apparel; 19 Manufacture of leather and leather products (e.g. footwear); 24.4 Manufacture of pharmaceuticals; 34 Manufacture of computer, electronic and optical products.
- Retail Distribution — Retail trade, except of motor vehicles and motorcycles; repair of personal and household goods (NACE 52)
- Transportation, including: Railways (NACE 60.1), other land transport (e.g., urban transport and land transport including freight transport by road – NACE 60.2), and Air transport (NACE 62.1 and 62.2).
- Hospital activities (NACE Rev 1.1, 85.1).
This combined sector covers quite diverse business activities. The respective NACE Rev. 2 Groups and their correspondence in NACE Rev. 1 is shown in the table below. The names of business activities refer to NACE Rev. 1.
Business activities covered by the topic study
NACE
Rev. 2 |
NACE
Rev. 1.1 (Proxy) |
Business activity: |
| |
|
Discrete process manufacturing activities |
| 10 |
15 |
Manufacture of food and beverages |
14
15 |
18
19 |
Manufacture of wearing apparel
Manufacture of leather and leather products (e.g. footwear) |
| 21.1-21.2 |
24.4 |
Manufacture of pharmaceuticals |
| 26-27 |
30/31/32/33 |
Manufacture of computer, electronic and optical products |
| 29 (excluding 29.31 ) |
34 |
Manufacture of motor vehicles, trailers and semi-trailers |
| |
|
Retail distribution |
| 47 (excluding 47.3) |
52 |
Retail trade, except of motor vehicles and motorcycles |
| |
|
Transportation |
| 49.10-49.20 |
60.1 |
Passenger and Freight Rail transport |
| 49.3-49.4 |
60.2 |
Other land transport |
| 51.10-51.21 |
62.1-62.2 |
Air transport |
| 86.1 |
85.11 |
Hospital activities |
There have been only minor changes in the NACE classifications from Rev. 1.1 to Rev. 2 (in some of the Groups), which are hardly relevant for the study of RFID.
Specific topics to be studied
The following research topics are derived from earlier findings on the RFID adoption roadmap, as well as industry research in the covered sectors.
- RFID adoption patterns in Europe. The market scenario will be developed analysing RFID adoption dynamics in the past two years and assessing expected changes in the short-term. Data and analysis will be conducted on the overall scenario, and on specific macro-industry sectors, such as retail and wholesale, transportation and logistics, discrete manufacturing and process manufacturing.
- Responsive supply chains. Analysis of the main factors impacting the ability of enterprises to develop responsive supply chains that can dynamically adapt to changing conditions. The analysis will include an evaluation of the key benefits deriving from RFID implementations.
- Benefits and opportunities for SMEs. A scenario looking at the applicability of RFID for SMEs will be developed, based upon a Opportunities & Challenges analysis.
- RFID ROI – Creating the business case. In general, no universal ROI-calculator can be derived, while capital investment models such as the Net Present Value can be applied to specific use case scenarios. As a result, an RFID business case framework will be provided along with real life examples. In more detail, we will provide a set of indications and recommendations on the key parameters to consider in the business calculations, along with average investment levels in a particular industry. For the purpose of this study, the case of a $5billion Consumer Packaged Goods company will be considered to exemplify required investments and strategic alternatives.
Datasources
The following sources will be used for collecting data and evidence on RFID adoption:
- SeBW reports, including but not limited to:
- ICT and e-Business in the Food and Beverages Industry. ICT adoption and e-business activity in 2006. Sector Report No. 1/2006
- ICT and e-Business in the Footwear Industry. ICT adoption and e-business activity in 2006. Sector Report No. 2/2006
- ICT and e-Business in the Pulp, Paper and Paper Products Industry. ICT adoption and e-business activity in 2006. Sector Report No. 3/2006
- SeBW survey(s). We recommend, if possible, to include at least the following questions in the planned surveys, categorising results by business activity:
- Are you piloting/implementing RFID or have plans to do it in the next twelve months? In the next 24 months?
- Which are current key areas of focus in the implementation of your RFID project? (pallet, case, item, returnable assets)
- Which are the key expected benefits of your RFID pilot or implementation? (The list of options or multiple choices may vary by industry, e.g. for retail inventory management, merchandise management, inbound logistics efficiency, loss prevention, time to market, supply chain visibility.)
- For your particular RFID Implementation, do you expect to achieve ROI in less than 12 months or between 12 to 24 months or between 24 to 36 months or in more than 36 months? What is the biggest challenge or uncertainty in creating a business case for RFID within your organisations?
- What is the single most important barrier to implement RFID? (E.g., overall costs, tag and readers cost, implementation complexity, difficult to find a financial justification or ROI, data rights, interoperability, Lack of technical expertise/skilled personnel in house, Not enough scale to justify project, Not gaining executive management support or organisation buy-in, market too immature, security concerns, other reasons.)
- IDC European Vertical Markets 2006 survey, reporting RFID adoption patterns and key decision criteria and implementation strategies, out of a total of 819 respondents across the discrete and process manufacturing, transportation & logistics, retail and wholesale sectors in the top-5 Western European countries (representing approximately 75% of IT spending in the European economy).
- RFID Public Consultation Website. The RFID Public Consultation website lists a large number of public reports that will constitute an additional set of resources for the present study. A list of reference material can be found at the following links:
- EPCglobal/GS1 reports and position papers of business actions group, such as FMCG (fast moving consumer goods). EPCglobal is leading the development of industry-driven standards for the Electronic Product Code (EPC) to support the use of RFID. GS1 is a global organisation dedicated to the design and implementation of global standards and solutions to improve the efficiency and visibility of supply and demand chains globally and across sectors.
- Ten new case studies: Another important source will be case studies. Based on IDC research covering all the 25 EU countries plus the other eight considered in this new call, it will be possible to select up to ten case studies representative of the different sub segments of the covered sectors. If so desired, IDC can ask its global network to provide one or two case studies from other world areas, particularly Asia and North America. Overall, about ten case studies will be conducted, focusing on the consumer packaged goods as defined above. Therefore, three case studies per industry will be conducted with retail organisations, consumer product goods manufacturers, freight transportation and logistics companies; one case study will be conducted in the health sector.
- Expert interviews: In addition to the company case studies, interviews with industry representatives and experts on specific topics to be studied will be conducted.
