This report explores Radio Frequency Identification (RFID) in the healthcare, manufacturing, transportation and retail industries. It analyses how companies from these industries use RFID for managing their business processes, both internally and in exchange with suppliers and customers. A special focus is on opportunities, possible barriers for RFID adoption and digital integration. Furthermore, an assessment of the impact of RFID integration for firms and for the industries covered is carried out.
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Oct. 2008 , pdf, 2.0 MB
This document is the Sectoral e-Business Watch study on Radio Frequency Identification (RFID) activities in the manufacturing, transportation, healthcare and retail industries. Its objective is to describe how companies in these industries use RFID for conducting business, to assess impacts of this development for firms and for the industries as a whole, and to indicate possible implications for policy. Findings presented in this report are based on literature, expert interviews, case studies and the results of an international survey of enterprises on their RFID usage conducted by the Sectoral e-Business Watch (SeBW) in August and September 2007 in seven European countries.
The manufacturing, transportation, healthcare and retail industries as defined for the study purpose cover the business activities defined in section 2.1.2.
RFID is mostly used for identifying people, objects, transactions or events through a wireless communication connection. It is an automatic identification and data capture method (AIDC), which not only helps to identify, but also to collect data attributes about a certain object or person, including localisation and environmental measurements when integrated with sensor networks. The development of RFID technology emerges to be one of the most interesting innovations for the improvement of business process efficiency across the manufacturing, transportation & logistics, wholesale distribution and retail trade sectors.
This is due to the fact that RFID systems offer enterprises an advanced way of gathering and processing business data. RFID is becoming a real opportunity to drive business process re-engineering and business models re-thinking through a systematic usage of RFID-collected data in specific-use case scenarios.
Compared to the estimated RFID adoption rate of 18% of enterprises in 2006 and 25% in 2007 – resulting from a significant adoption uptake in retail, transportation and logistics - adoption of RFID is expected to grow in the EU-7 at a fast pace over the next 5 years (see sections 3.1 and 3.5):
On average, an annual growth of approximately 27% in the number of enterprises adopting RFID is estimated during the period 2007-2009.
By 2011, approximately 44% of enterprises are estimated to have implemented RFID.
Potentially, by 2012 half of EU-7 enterprises may have implemented RFID.
The leading sectors in the usage of RFID are the transport sector (27% of respondents) and the retail sector (26%). The highest percentage of pilots and ongoing implementations was reported in the manufacturing sectors, due to the increased pressure from their retail customers and with the objective of improving production efficiency while safeguarding product safety and authenticity. In the hospital activities sector, only 18% of respondents indicated that they have adopted RFID with 10% that are already using RFID in their regular business.
RFID adoption is positively correlated with company size: diffusion rates vary from 31% for large enterprises (over 1000 employees) to approximately 12-15% for the other enterprise classes.
Projected growth rates in RFID adoption will be driven by key business motivations including the opportunity to achieve cost reductions and productivity improvements along the supply chain, achieving regulatory compliance, increasing quality of service provided to customers and improve enterprise assets management efficiencies (see sections 3.2, 3.3, and 4.1).
The increasing momentum for investment in 2008 is also a consequence of the fact that RFID usage may be driven not only by the opportunity to optimise business process efficiency but also to enable informed decisions across the enterprise effectively. Thus, the focus of RFID implementations is expected to move gradually from operational execution activities to the optimisation of business planning and intelligence capabilities.
Among the key lesson learned from RFID case studies and best practices is that the required process re-engineering effort always turns out to be more than companies would initially expect. However, this shall not cause enterprises to stop innovation, as RFID is a tangible opportunity to drive new value creation and improve enterprise competitiveness.
As illustrated in more detail in sections 3.2 and 3.3, key drivers to RFID adoptions in the short-term include:
Improving product and service safety or authenticity.
Improving the efficiency of production processes.
Improving product track-and-trace capabilities and increasing supply chain efficiencies and visibility. Warehouse and logistics productivity improvements emerge as the major supply chain goal in the short-term. Global traceability represents a major medium to long-term objective for the industry, with RFID holding the potential to increase consumers' safety.
Achieve regulatory compliance in a more efficient way.
Improving asset management efficiencies.
Market-driven mandates issued by large retail companies (for example WalMart and the METRO Group) are expected to further stimulate RFID adoption among consumer product goods manufacturers.
RFID-enabled companies can achieve on average a 12 to 18 months competitive advantage depending on the implementation scale, as demonstrated, for example, with the RFID projects conducted by the METRO Group, Royal Ahold and NYK Logistics.
Empirical evidence indicates the implementation of RFID can enable labour and total factor productivity growth as well as innovation in the way enterprises conduct business. RFID-enabled innovative activity on products, services and within collaborative value networks, positively affects the likelihood of a firm reporting a turnover increase. As a result, the average payback period for RFID investments is estimated between 2 to 3 years, based on an average lifetime of 10 years for RFID implementations.
About 30% of companies already using RFID have experienced some workforce reductions. Companies piloting or planning to use RFID expect even slightly higher reductions. In turn, workforce reductions in RFID-enabled departments are often compensated for by a reallocation of the workforce to other business functions. A minority of enterprises created new technical (22%) or business process oriented (18%) jobs.Although it is difficult to assess whether an increasing use of RFID creates or destroys jobs, it may be deduced from empirical evidence that high and medium-skilled labour is required to maximise the impact of RFID implementations on productivity, both on the demand-side (e.g. within end-user organisations) and the output-side (e.g. within technology vendor organisations).
Understanding whether a company can achieve concrete competitive advantage from RFID and whether RFID is the right solution to implement requires detailed assessments. The implementation of RFID is a business journey, and as such, enterprises should not position RFID as a new and complex technology project to run, because business performance improvements may result.
What drives companies' performance after the implementation of RFID data collection is the automated use of accurate information that is available in real-time, not the availability of the data in itself.
The following emerge as key trends:
Actual productivity improvements that are obtainable by enterprises depend upon a number of variables that are specific to the actual use case scenario. A phased implementation approach seems the most viable solution to enable quick ROI opportunities (e.g. between 12 to 36 months) while ensuring the attainment of long-term strategic goals.
The major cost component of the total value of an RFID project seems to be the cost of project implementation, system integration and business process re-engineering. Cost for RFID tags and readers is the second major component of the total investment while software costs come third.
RFID-enabled innovations are correlated with company size. As opposed to large-scale enterprise implementation scenarios, RFID applications by SMEs tend to focus on enabling productivity improvements that have a positive business impact in the short-term.
RFID will run parallel to barcodes for many years.
RFID is not the sole technology choice available to enterprises. Therefore, enterprises are recommended to assess RFID ROI following the guideline provided in the study (see section 4.3), whilst assessing the impact of selected technology options on the specific use case and their eventual synergies. The development of multigenerational RFID programs to accommodate new technologies when they become available is highly advisable.
Extending supply chain visibility and performance objectives to the edges, in other words beyond the "4-walls" of an enterprise, will be instrumental to maximise RFID ROI. Therefore, the recommendation is to move gradually from a closed-loop implementation scenario to include the extended boundaries.
Technological innovation will lead to greater integration of RFID with other technologies such as sensor network technologies, real-time locating systems (RTLS), and business intelligence platforms. This may enable innovations such as the self-service totally automated store. Trends towards embedding RFID in products -such as contact-less cards- and incorporation of RFID into product packaging, to enable recycling can also be envisaged.
In the light of the current policy context for RFID, considering the key barriers to RFID, as well as the expected impact on employment and workforce composition, the following political activities are suggested to the European Commission, national and regional governments as well as European and national industry associations:
Supporting RFID skills development to improve European Industry Competitive Performance (section 6.2.1)
Developing a regulatory framework promoting radio standards for the medium to long term (present standards are too fragmented and valid only up to 10 years horizon) (section 6.2.2).
Analyse potential environmental impacts resulting from the diffusion of billions of RFID devices and provide recycling guidelines for consumer products (section 6.2.3).
Invest in EU level R&D cooperative research for medium-long term RFID applications and innovations (section 6.2.4). In sight of the emerging wireless and universal communication scenario, a possible need may arise for interoperability guidelines and a new wireless communication protocol standard based on mesh-networks.