Mining The Benefits of EPC

Navigating through the smoke and mirrors that typically personifies "the next big thing" in the consumer goods industry usually ends up being an expensive and disruptive exercise in futility. But every now and then, buzz transcends itself and morphs into a tangible enabler that re-defines the way business is conducted. Radio Frequency Identification (RFID) is one such enabler that -- while expensive and disruptive -- will become as ubiquitous and reliable as the bar-code coupled with a bird's-eye view of retail activity.

Before we proceed, let's get the RFID bashing out of the way, shall we? Yes, RFID technology has been around longer than The Rolling Stones. Yes, retailers' RFID "mandates" are as firm as a bowl of Jello. Yes, tags are slightly cheaper than a Picasso masterpiece. And let's not forget about foil packaging, liquids, sub-zero temperatures, interference, privacy concerns and runaway forklifts.

Addressing Myths & Challenges

Beyond question, RFID is an expensive and bitter pill to swallow for many consumer goods firms, but the ones smart enough to look past the aforementioned myths and challenges are the ones that will prevail over competitors. Take Johnson & Johnson (J&J), for instance. Back in 1999, when RFID was beginning to emerge as a viable bar code contender, the company decided it was high time to become a card-carrying member of the MIT Auto-ID Lab.

How would they adopt RFID? What types of features would be incorporated into it? What would the company need to incorporate into it from the consumer supply chain? "There was a lot of dialogue between us and other thought leaders at the time like Wal-Mart, Gillette, Procter & Gamble and CVS," says Mike Rose, vice president, RFID/EPC Global Value Chain, J&J. "Around 2002-2003, we thought about wrapping a business case around the technology. We went through the supply chain and tried to anticipate where we would see the benefit. This was before we tagged any product or made any type of real investment. It was all preparation."

Trials & Tribulations

In 2003, when Wal-Mart announced that its Top 100 suppliers would be required to ship tagged cases and pallets, J&J kicked its RFID strategy into high-gear. The company soon realized the technology was still new and that a smorgasbord of tag, reader and middleware vendors existed. "We needed to understand how this technology was going to be adopted and how to best select some of the technology," says Rose.

In response, J&J created a lab at the company's Networking & Computing Services (NCS) division, a central organization that helps leverage information technology across J&J. "The company has a decentralized business model so we wanted to have a center of excellence where we can obtain great technical resources," says Rose. "Not just an R&D lab, but a place where intelligence can be shared amongst other companies and their RFID business initiatives. It really helps set the tone for the way we approach RFID."

Even now, Rose says J&J is very much in R&D mode, when it comes to RFID as the company is still deciding what its future standard readers, tags and printers will be.

J&J is currently assessing a myriad of RFID tech vendors, including Alien, OATSystems, Symbol and T3Ci, to name a few. "We've brought them all into our lab, we've looked at them all and we will continue to do so at this period in time," says Rose. "We have SAP as our ERP backbone so it will be important for us moving forward to see how easily some of these technologies meld with SAP."

And now that Gen 2 technology has become a welcomed guest to the RFID party, Rose says he will lean even harder on NCS for insight. "We can't predict who is going to make the best Gen 2 tag. This group can recommend tags that we've used in the past."

Heather Snyder, RFID project manager, Supply Chain Logistics Operations for J&J, says different business cases require different types of readability. "We'll run a series of trials against criteria that we've put together, collect the data and analyze the results."

Expectations & Requirements

The state of the RFID technology is early, so for J&J there are a specific set of expectations and requirements from the business case that need to be met, according to Jim Milkowich, IM manager, RFID Research & Development, NCS. "We always take the approach of trying to optimize performance by trying to find the tags that read the best, the portal setup that works the best, or the reader that has the highest performance," says Milkowich. "A lot of people are chasing down inexpensive tags which is the right thing to do but if you can't read that inexpensive tag what value is it?" Currently, Milkowich says J&J is on a mission to optimize RFID performance, which can be a series of experiments, utilizing process excellence, or even drawing out a simple diagram as to why a tag cannot be read. "The protocol you choose often depends on the specific RFID environment," says Milkowich. "J&J is a global organization so the frequencies we use here in the United States can be different than in Europe. Because of that difference you may choose a different tag. A broadband tag might read everywhere but it might not maximize performance. You have to start thinking about those issues."

The Value of Collaboration

In 2004, J&J implemented a governing structure around RFID across the entire organization. This RFID Steering Committee, comprised of executive leadership across the company's business groups, gives J&J a vehicle to track RFID pilots, customer RFID initiatives and strategies while gaining insight from the committee. "Strategically it enables us to identify where there might be business opportunities," says Rose. "It helps us foster collaboration and leverage our learnings across the organization."

J&J also collaborates with retail and hospital partners, like the Hospital Corp. of America, to take a much broader look at how the company might adopt RFID. Workshops in Canada and Europe allow J&J to see how other regions of the world are getting interested in RFID technology. A workgroup meets on a quarterly basis when managers and directors from J&J companies convene to closely examine RFID issues. "We put this structure in place to help coordinate our company-wide RFID activities, across the globe around RFID," says Rose. "It allows us to share learnings from prior investments." An RFID pilot that took place in Europe, for instance, might not be needed in Canada if the proper info is passed along.

Making Sense of EPC

J&J is beginning to make sense of data extracted from the Electronic Product Code (EPC), a shift from the company's initial RFID focus that was more technology-centric. "It's more about how you can gain insight from the data to enable a better process, or influence a process downstream," says Snyder. "EPC provides visibility at retail and that's an area in the supply chain that manufacturers typically don't have visibility to." Snyder says POS data helps gain some visibility, but in terms of how long inventory is sitting in the back room, or passing to the sales floor, EPC will further streamline the process.

Snyder says the passive nature of RFID technology is a major coup. Collecting data from retailers is valuable, but it becomes labor-intensive to hire brokers at the retail store or to ask associates to scan items. Thanks to the passive nature of the RFID tag, data collection becomes much easier and can be leveraged in distribution centers. "We're looking at various supply chain applications, starting in manufacturing, all the way though to the retail store," says Snyder. "We are at the point where we are actively investigating the data. We see things in the data that call up questions. We are pursuing those questionable items and understanding why they are happening."

If EPC data reveals inventory dwelling in the supply chain, an expert is consulted to see how long they think it should be sitting. After EPC data is shown to the expert, the reaction is usually a pleasant surprise. "Were going to start with an investigative approach, and understand if it's an outlying problem or of it's common," says Snyder. "We need to dig a little bit deeper to understand it."

According to Rose, there was a period when people were simply testing technology. "Now we're testing the data. It brings us back to -- are we able to create business value?" Rose is also quick to point out that J&J made a conscious decision not to simply tag a bunch of products. The company has mapped out critical points in its supply chain where they would like to get reads, a process that would require the company to be a bit more rigid when it comes to tag placement. "That's the whole idea behind our program right now, trying to figure out what the right designs of experiments are," says Rose. "When we get involved with retailers we want to understand what we are both going to get out of it."

Overcoming the Hurdles

Rose admits the cost of RFID tags is still high, but it might be unfair to compare those costs to barcodes that cost next to nothing. The reliability and robustness of the tags are still an issue. "The ability to get good read rates consistently is obviously very important," says Rose. "The data exchange between trading partners is duly important." A discussion with EPCglobal about EPCIS, which is a common method to exchange information across trading partners, is the next big hurdle for the industry to overcome, says Rose. "We need the EPCglobal Network to be deployed. It's very important for us so we're making investments to ensure that EPC data will align with our existing infrastructure."