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Saturday, November 13, 2004

The Race to RFID -CEO's Adoption Perspective -Part II

Chief Executive magazine has published an article titled, " How CEOs are grappling with the breakthrough tracking technology ".Typically, CEOs don’t want to get into the nitty-gritty of technology like this, but the problem with something as radical as RFID, CEO’s need to understand the technology and strategise to derive differentiated competitive advantages to their business. In Part 1, we covered key benefits of RFID technology, a few successful initiatives and a few key issues in implementing RFID technolgy. In this second part, we shall look at a few strategic initiatives that are being currently implemented in a few enteprises around the world. Excerpts:

Penske Logistics is following the course of many companies so far, hedging its bets. The company handles shipments of a variety of goods from hundreds of manufacturers to thousands of retailers and other end customers. So far, nobody has required Penske to assemble an RFID network, but CEO Vince Hartnett is preparing his company for a dramatic change of tableau in the months ahead. “Customers are saying, ‘We expect you guys to really know what can and can’t be done and help us evaluate and be at the bleeding edge of this thing, so that when we’re driven to deploy RFID, you won’t be found wanting,’” says Hartnett. Some important customers, including automakers and the appliance maker Whirlpool, he explains, “would very much like us to come to them with ideas about where we could get trials done and not have them have to knock on our door.”
So Hartnett has created a five-person RFID task force that is evaluating tags, readers and other equipment and searching for a suitable spot within Penske to run a pilot. He wants to test RFID in a cross-dock center where the structural elements would put readers to the test and within a “closed-loop process” in which the company could retain and reuse the tags. He has concerns about whether RFID readings can be accurate, and how RFID will fit with existing bar-code systems and other tools that are meant to improve the order-to-delivery cycle. “We have to develop demonstrable confidence in the field,” Hartnett says. “Then we can bring people in and show them, in a real production environment, that we can attach tags and make them work, that we can leverage this technology for them.”He still wonders what the payoff will be for Penske besides satisfying customer demands and acceding to the realities of the marketplace—a burden that some have taken to calling the “Wal-Mart tax” on RFID. “What is the ROI for this?” Hartnett asks. “What kind of information is this going to provide? Can I use it for other tasks besides simply knowing where something is sitting on a shelf? Where are the productivity advantages? That’s what CEOs are supposed to be thinking about 24 hours a day. This will be a tool, but I don’t think it’ll be a disruptive tool.”

Following Wal-Mart’s Lead, Bill Zollars made his decision about RFID four years ago, when Yellow Roadway participated along with Wal-Mart, Gillette and other prime movers in an early RFID consortium at the Massachusetts Institute of Technology. “There was a lot of excitement about the potential of this technology, and it was consistent with all the other wireless technologies that were becoming pervasive in our business and personal lives,” says Zollars, who is chairman and CEO of Yellow Roadway, one of the nation’s largest shippers in the US.“Besides, early on we realized that we were much better off if we were on top of what Wal-Mart was doing and prepared to support them.” Zollars believes his company will gain from the more accurate readings of shipment contents and status that RFID will yield compared with bar codes. He’s also pleasantly surprised to be learning that RFID could bring a palpable “security impact” for Yellow and its partners in this terrorism-conscious era. “We could have sensors that would determine whether there was an explosive or biological or radiological kind of threat within a shipment,” he says. “What will happen when Wal-Mart finally throws the switch is that some companies will be unwilling or unable to make the investment, and we’ll have a competitive differentiator.”

Goal: Faster Turnover
Pacific Cycle’s CEO Hornung believes he already has a leg up on major competitors—including Trek, just a half-hour east of Madison—with RFID. He says that bikes are “a natural” for early implementation of RFID because there’s only one product to a container, making tracking simple. At the same time, bicycles come in a variety of colors, styles and option levels, imparting the tag with details that are crucial to proper inventory management. The company, with sales of several hundred million dollars a year, also was an industry pioneer in using bar codes. “RFID was a very natural decision for us because we could see the opportunity to increase our number of turns,” says Hornung, whose goal is to increase inventory turnover from six times a year to seven. “Inventory management, particularly when dealing with large customers, is absolutely critical.” In the case of RFID, Pacific Cycle has installed tag readers on a couple of its dock openings and in September, began shipping some bikes to Wal-Mart that bore RFID tags. By December, the company will broaden its usage of RFID to include all products shipped to Wal-Mart’s Texas operations, where the retailer is implementing RFID first. Assuming the success rates Hornung is projecting, he expects to pay for Pacific’s $3 million investment in RFID fairly quickly. After that, he says, he’s been asked to spearhead RFID implementations for other divisions of Dorel Industries, which now owns Pacific Cycle.
Indeed, with an investment this significant, smaller companies can’t afford to adopt something that will be made obsolete in a year by the later, greater version. Which is what makes RFID a particularly steep challenge for small and midsized company CEOs, who don’t quite know how to get their arms around the scope or the cost of implementation, but know they’ll have to comply at some point with the companies they supply.
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