Checking up on RFID

Over the past few years, Radio frequency identification (RFID) technology generated a lot of excitement and press as a way to track products and radically change the entire supply chain. At a trade association meeting in 2005, I heard a speaker even claim that wholesaler-distributors had no choice but to embrace RFID.

However, the early projections have turned out be overblown. As I cautioned in The Road to Opportunity, the 2004 edition of Facing the Forces of Change: “Wholesale distribution executives should consider RFID when planning future technology investments, yet be wary of inflated claims, overblown projections and unrealistic expectations.”

The new Facing the Forces of Change: Lead the Way in the Supply Chain finds that one in ten wholesaler-distributors is using RFID in some way. RFID is improving internal processes at a distributor, such as eliminating the need to scan shipments in the warehouse receiving area and enabling more effective inventory management at a customer’s location.

As I discuss in Chapter Five of the new Facing the Forces of Change, the most effective applications to date have been inside individual companies on specific projects. For example, professors at the University of Arkansas found that RFID reduces stock-outs by 30% in Wal-Mart stores by improving shelf replenishment from the backroom.

Here are two good assessments that expand on the technology topics in the new report.

A SOBER LOOK

The RFID Revolution Starts... Soon? is a nice overview article from Industry Week with a sober look at the real-world benefits from RFID. Key quotes:

• “RFID remains a niche technology, whose broader deployment has been stymied by the usual suspects: high equipment costs, low return-on-investment and a workforce skills shortage.”
• “RFID remains a finicky technology that can behave differently based on any number of factors, such as the orientation of the RFID tag on the box, carton or pallet; the type of products being tagged; and the environment in which the tagged product is stored.”
• “The bottom line for RFID is that it's all about process change and the business case. In the end, business owners, and not the IT department, will be the decision-makers when it comes to adopting RFID.”

WHAT ABOUT DRUGS?

Many people point to the pharmaceutical industry to make the case for RFID as a supply chain security solution, especially in light of wholesaler announcements from that industry.

Unfortunately, there is a lot of misinformation out there. A good antidote is RFID as an Answer to Pharmaceutical Drug Counterfeiting. Sarah Scalet, a senior editor at CSO, took the time to analyze how RFID technology might actually be used in the pharmaceutical industry. Here is a quick summary of the five myths she exposes about RFID in the pharma industry along with some of my own editorial commentary.

Myth 1: RFID tags are anti-counterfeiting devices. Nope, they are inventory control devices. There is no supply chain security benefit unless everyone adopts and uses the tags, which is not happening.

Myth 2: RFID technology is necessary to track the movement of drugs. Not true. The key to supply chain is authentication at the point of dispensing, which can be done using older technology such as 2D bar codes.

Myth 3: RFID technology can be used to mark pills, tablets, and elixirs themselves. Again, not true. I recently learned how nanotechnology can be used to encrypt individual pills and tablets. Very cool! Of course, this technology still has the exact same authentication challenges facing every labeling/packaging/tagging solution, including RFID.

Myth 4: RFID technology will let consumers verify that they have purchased legitimate products. Not even close to reality for many, many years, if ever. Besides, 1 out of 9 U.S. adults has ordered drugs from another country to save money despite the known risk of counterfeit drugs, so at least some consumers do not actually care about validation.

Myth 5: The pharmaceutical industry is this close to widespread adoption. Alas, this is also not really true, despite the fervent hopes and occasional misrepresentations of RFID technology vendors. The Prescription Drug Marketing Act, which is the Federal law governing drug distribution, is completely technology agnostic -- both paper and electronic documents and signatures can be used to meet FDA requirements. RFID is also not required or mandatory to comply with California’s drug tracking law, which is due to be implemented in 2009. California will only require electronic track-and-trace using a “standardized nonproprietary data format and architecture.

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Bottom line: RFID technology is an incredibly powerful tool. RFID enables cost-reductions or improvements to existing ways of doing business, but it does not fundamentally change the basic structure, functioning, or purpose of a supply chain.

P.S. I've written about RFID in the pharmaceutical industry on my Drug Channels blog.