The results of recent research by IBM shows that organisations are increasingly moving away from ‘static’ supply chains to dynamic and responsive, ‘on demand’ ones. The key theme of “Follow the Leaders – Scoring high on the supply chain maturity model”, a global study recently undertaken by IBM, IndustryWeek and Reed Publishing, was the increasing use of real time information visibility to create responsive and customer-driven processes as a component of an ondemand supply chain.

An on-demand supply chain moves beyond a company’s four walls to the extended enterprise. It integrates all parts of the company with itself as well as with partners, suppliers and customers. Such an approach generates a much greater level of real-time visibility of supply chain activity. A key enabler of this on-demand supply chain is the development of a sense-and-respond capability. Radio Frequency Identification (RFID) is now very much implanted in the minds of Supply Chain Managers as the primary technology which can enable such capability.

So what’s driving ‘On-Demand’ business? The demand for dynamic on-demand supply chain management is driven by several strong trends:

• Customers becoming ever more demanding
• Product lifecycles shrinking dramatically
• Supply chains becoming increasingly more global and complex
• Companies dramatically increasing their use of global sourcing partners
• Product quality is a given - not a source of competitive advantage.

RFID has a key role to play in enabling delivery on most of the above and, judging by its uptake, it is already taking centre stage as companies seek to get closer to their customers’ actual demands while reducing inventory levels, operating costs, order-to-delivery cycle times and waste.

RFID can enable such outcomes as it allows clear visibility of what’s happening in the supply chain in real time. This can give supply chain managers the information they need to reply dynamically to business needs.

In the retail example (see Figure 1 below), consumer demand signals drive production and supply chain. Every step is synchronised. This in turns drives more efficient replenishment, and ultimately, the retail panacea of a major step change in brand loyalty through driving down out-of-stock levels.

August 2006

Using RFID in this way can unlock a competitive advantage as you have accurate and real time visibility of supply chain events covering manufacturing runs, product movement and inventory management.

However, this does not mean that other methods of driving value in the supply chain are now redundant. Functional supply chain integration, supplier and customer collaboration initiatives, outsourcing and developing variable supply chain cost structures, and identifying and eliminating waste in the supply chain remain areas that all supply chain executives must focus on. However, these offer only incremental change, RFID’s promise is to deliver a step-change in supply chain performance.

RFID is a rapidly maturing technology. Many companies are working with it and getting results. In New Zealand, the majority of interest is being shown by export led, agriculture or primary processor organisations. However, in line with overseas trends, there is real scope for retailers and CPG/FMCG organisations to reap the benefits implementation can offer.

International use of RFID among CPG/FMCG organisations has received a major boost from Wal Mart. That company’s mandated use of the technology at a pallet level has triggered significant uptake. In turn, IBM’s analysis shows that those working with Wal Mart have introduced the technology more widely across their own supply chains.

In Europe, Tesco and Metro are leading the RFID charge. Other retailers, such as Marks and Spencer (M&S), are also ramping up their RFID activities. Indeed, M&S is tagging much of its apparel lines from men’s suits to lingerie.

In Australia and New Zealand, retail interest in RFID is beginning to gain ground. The Warehouse is actively trialling RFID to drive reductions in lost sales due to items being out of stock. As the technology matures further and global standards are developed, the tagging and tracking through the supply chain of product sourced from, say, China, and imported by New Zealand retailers should become a cost effective reality.

But it must be remembered that RFID is an enabling technology. It has to be supported by business process change linked to other IT infrastructure – from tag readers, through aggregating middleware into ERP systems. There are signs that RFID has ubiquitous applications across sectors and supply chains generally. As such, the early adapters stand to gain the most significant competitive advantage.

Meeting the challenge of today’s tough market conditions requires companies to treat their supply chains as a competitive weapon. In doing so, breakthrough technologies should be deployed and business models designed and implemented. Supply chains must become connected and integrated end-to-end with suppliers, partners and customers – real time in constant collaboration.

RFID has a key role to play in driving visibility of real time supply chain information. This transformation has already begun in several distinct process areas (e.g. warehousing and logistics, manufacturing, and global distribution), and for the early adopters, the benefits are already starting to be realised.

Whether your business driver is to get goods to market faster, to enable dynamic routing of goods already in the supply chain, to reduce out of stocks or to reduce wastage for perishable good or theft, many organisations are deriving tangible business benefits by integrating RFID into their supply chains.