Making RFID Work

Without cost sharing, rewards from RFID remain limited.

Michelin North America has been a leader in establishing uniform RFID codes for the tire industry. Most of these efforts have been focused on making compliance easier for tire manufacturers. The company's hope is that eventually RFID will provide operational benefits, but certain factors must fall into place before that's possible, says Patrick King, global electronics strategist for the Greenville, S.C.-based company.

The most obvious hurdle for strategic RFID use is cost. Until everyone within the supply chain is willing to share the costs of the technology, it's unlikely that RFID will provide any benefit to the manufacturer, King notes. Currently, most manufacturers are not passing RFID costs on to their customers.

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This lack of cost sharing was noted as a major concern of consumer-products manufacturers in an AMR Research study published in October 2005. "There isn't a business case to make the RFID investment positive without cost sharing from the retailer," one manufacturer said in the report. Another manufacturer in the study said to justify implementing RFID 95% of his retailers would need to adopt RFID over four years and tag prices must drop to less than 5 cents.

Some manufacturers surveyed by AMR said RFID could be a worthwhile investment if retailers were willing to change business practices and accept the technology as electronic proof of delivery. This would reduce manufacturers' proof-of-delivery costs, decrease paperwork and result in quicker payments. But these same manufacturers say retailers have been reluctant to implement RFID for ePOD purposes.

Other manufacturers, such as Michelin, are evaluating RFID's potential benefits on the plant floor. Michelin is testing RFID for automated data transfer purposes on large metal pallets that carry parts between its factories. "We're mostly doing evaluation stuff," King explains. "It's something we have not published, and part of [the reason for] that is the fact that the technology is still emerging."

These types of internal RFID applications seem to offer the most promise from an investment perspective. "The internal closed loop [has been more successful] because there are internal controls. You can use RFID the way you want to," says Kara Romanow, author of the October AMR report. "The issue when a manufacturer tags something that goes to a retailer is that you don't know what that retail environment is going to be, so there are issues around tag readability. You have to follow standards because someone else is going to be reading your product, whereas in your four walls you can do what you want and set your tags up the way you want."

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