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April 19 , 2007 - Supply Chain Digest Newsletter
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First Thoughts by Dan Gilmore, Editor

Using RFID in Distribution and WMS

The preparation for our upcoming Supply Chain Videocast™ on “The RFID-Enabled WMS” has me thinking about what the future for using RFID in distribution holds.

Without giving away too much before the event, which features a couple of world class experts on this topic, including our own Mark Fralick, these discussions led me to the following logic path.

  • There is obviously no real opportunity for savings in the warehouse from slap and ship, only cost. Whether slap and ship provides ROI downstream by increasing sales through reduced stock outs is still some matter of debate, but whatever opportunity exists it is there, not back in the DC.
  • The game changes when we reach the magic “tipping point,” meaning when a supplier to Wal-Mart and other retailers reaches an RFID volume level at which it can economically begin tagging products in manufacturing or other sourcing points. It’s actually interesting that 2-3 years ago, there was a ton of discussion of this and several other related “tipping points” (to excess, really), but lately we haven’t heard much about this concept even as Wal-Mart vows to keep rapidly expanding the program.
  • The game really does change when source tagging occurs at any meaningful level. Why? Because now, regardless of the cost of the tags and tagging itself (the latter of which will go down significantly with source tagging), there is now finally a chance to use RFID in a meaningful way in the DC. This would no longer be RFID as just a shipping appendage (slap and ship) but with potential use and benefit for the full lifecycle of the product in distribution.
  • (And this is the key point.) Almost no one has a WMS really equipped to take advantage of this looming opportunity .

There may be a handful of exceptions, but I am aware of only one significant distribution center running largely on RFID. That is the much publicized International Paper warehouse in Texas.

That system was installed in 2002. It really involves two parallel systems – a middle of the road, home-grown warehouse system, and then an RFID tracking system bolted on top.

There were two good reasons for IP to develop this system. First, handling floor-stacked rolls of paper, which are then frequently taken to converting equipment and then returned to storage, makes the use of bar codes very difficult. They are taped and retaped onto the rolls, they fall off, they are on the opposite side of where the clamp truck driver could scan them, etc. An RFID tag on the paper core makes perfect sense and solves these problems.

Second, IP has several RFID business interests, and this was a great way to test and build systems and capabilities.

So, the rub of the situation is this: I don’t believe many current WMS systems being shipped/installed even today have welll-developed RFID capabilities, for any number of reasons, in part a lack of customer demand, and also due to some important core technology issues.

But that’s just a small fraction of the total warehouse systems out there. Warehouse Management Systems are often hard and expensive to upgrade. Many companies have had their current systems for years, sometimes more than 10 years. I shouldn’t be, but I am consistently surprised when I find major companies still running a WMS that was installed in say 1994 or something. “Green screens” are a lot more common than many might realize.

So it seems to me the real elephant in the room is: How are these companies going to take advantage of RFID for their own benefit in the DC when tagged product finally starts showing up in receiving? You have a few choices:

1. Make modifications to the system you have: That will be expensive, and depending on what you are starting with, unlikely to really leverage RFID capabilities. The foundation is just not right to do so.

2. Build a parallel RFID infrastructure of some kind. It’s possible, and some vendors are pushing this, but I believe it has a lot of integration and functionality challenges.Replace the system you have with a new WMS from your current vendor, if they can deliver true RFID-based functionality, or find a new vendor who can.

3. Replace the system you have with a new WMS from your current vendor, if they can deliver true RFID-based functionality, or find a new vendor who can.

4. Don’t use RFID in the warehouse, or do so in a very limited way.

What’s the right choice will depend on many factors, but I don’t believe enough companies are really thinking this through, even some fairly prominent consumer goods companies. I say this because I recently saw a WMS RFP from one of them, and there were about three lines devoted to RFID, which basically amounted to asking the vendors to indicate they supported RFID, which I have no doubt all of them said they did. But will any of those solutions really support what that company will need for RFID in say 2010? And what are companies that have older and even fairly recently installed systems to do?

These are important questions, and the key to consumer goods manufacturers really driving ROI from RFID on the supply chain and distribution side, not just improving shelf availability at Wal-Mart.

What do you think the current situation is in terms of support for RFID in the DC? What do you think companies with older systems should do? Is this going to be a large and not much discussed barrier to gaining ROI at some point? Are companies investing in new WMS technology now thinking far enough ahead about RFID?

Let us know your thoughts.


Dan Gilmore


This Week’s Supply Chain News Bites – Only from SCDigest

April 19, 2007
Supply Chain Software: Will a "Mashup" Enable Collaborative Transportation Management?

April 19, 2007
Green Supply Chain: Wal-Mart, Home Depot, to Provide Consumers with more Information on Eco-Friendly Products

April 17, 2007
Logistics Management Cited as One of Nation's Hottest Jobs

April 17, 2007
While US Auto Companies Retrench, Japanese OEMs are Building New Factories at Home


SCDigest's supply chain and logistics stock index continued to move upward along with the broader market, with just a few losers among our 22 companies in the index.

The rail group was especially hot after word that legendary investor Warren Buffet had made investments in three rail carriers.

See stock report.


Retail Supply Chain: Is the Best Path to Reduced Out-of-Stocks a Little More Training for Store Employees

New Study from Wharton Finds Better Store Execution May be Easier Place to Start than Sophisticated Planning, RFID

New Supply Chain Digest Report Identifies the 10 Keys to Global Logistics Excellence

Most companies must make major strides to realize the full potential of globalization, research finds; the report's valuable Diagnostic Tool helps companies assess where they stand versus the potential in technology and process

Supply Chain InView

by Ann Drake

Logistics Manager's Nightmares Can Be Cured

Collaboration is the answer to solving problems in distribution channels


by Dr. Edward J. Marien and John Kenny

Improve Product Lifecycle Profitability with End-of-Life Progressive Inventory Disposition (Part I)

Focusing on the end of a product's lifecycle can have a dramatic impact on the bottom line, especially for high tech manufacturers


Have a supply chain or logistics related questions you need answered?

Ask our panel of experts.

See our growing list of questions and answers - share your insight.

Featured Question and Answer: Are there any rules of thumb about when you should use floor storage versus rack storage? Is there usually a "right" answer for a given operation?


Q. What is the JI Case company's claim to supply chain fame?

A. Click to find the answer below

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Feedback is coming in at a rate greater than we can publish it - thanks for your response.

We're now reallyl behind - be patient if your letter has not yet been published

Lots of feedback continues to roll in. Our favorite this week, and hence Feedback of the week, is a leeter from John White on a piece we did a number of weeks ago about the concept of Logistics Flow Modeling. He agrees more companies could benefit from similar techniques, but offers reasons why they often don't.

We also print an excellent letter arguing against the changes underway that will finally let Mexican truckers operate in the U.S., and one who has some thoughts to add about one of our reader questions about how to best guide and incent managers in Lean Initiatives, based on our Lean Expert Mike Loughrin's answer.

Keep the dialog going! Give us your thoughts on this week's Supply Chain topics. As always, we’ll keep your name anonymous if required.

Feedback of the Week – Logistics Flow Modeling

My experience is that few firms understand physical flows and an even lesser number conduct modeling.

If one maps out flows for a organization using a multi-tier DC network, the flows among DC’s are complex.  Within a given large automated DC, there can be multiple flows:  conveyable flow ( receiving dock to outbound dock), conveyable short-term stock (e.g. 24 hours), conveyable stock, non-con flow, non-con stock and repack.  The constraints are many, such as the sortation capacity (cartons/hour) and storage capacity (pallets/rack opening capacity).  The overall mix of flow types plus service requirements and constraints determines the overall DC capacity utilization—answering a potential question of is there enough DC capacity as well as where it is placed (aka strategic network modeling).

In a similar manner, there are transportation constraints—which are complex, but easier to manage by contracting capacity as needed.

If one understands the physical requirements and constraints, knowing the associated variable costs is the logical next step.  Using activity-based costing (ABC) remains a foundational element.  One can then make informed tactical decisions, changing flows from one type to another to improve service, reduce inventory, lower variable costs or a combination of these three.

But before one can make these tactical flow decisions, there are external factors to consider.  For example, what is the impact of package quantity or buying in full truckload for stock in terms of supplier costs or discounts?

 I suggest that contribution to overhead and income with consideration for inventory carrying costs is the correct metric.  The contribution metric is essentially using cash—what profit remains after relevant costs are considered.

To your question, adding "dialogs" and "capabilities" to traditional physical flow modeling is very useful for assessing alternative flows as well as  managing the quantities moving in different flow paths. Many firms would gain significant income benefit from an improved understanding of current flows, constraints and costs—often without capital investment.

Again, I enjoy your insights.

John White
White Supply Chain and Operations

On Mexican Truckers in U.S.:

I have many problems with this whole thing, and have had for a long time. I have investigated this story since the inception of NAFTA and have gathered volumes of information based on my own research.  

The Teamsters are using the wrong argument. Safety is a huge concern and will become a larger argument the first time a Mexican truck has an accident in our country. (There have been many accidents already involving Mexican trucks in the United States, but the American press has chosen not to give much coverage of them.) Overall though, the argument is overblown.  

Those taking the air quality standards as a basis for their arguments have a point. While our government has spent billions to make our trucks for environmentally friendly, allowing thousands of Mexican trucks into the country defeats all of that. Consider that these trucks were not manufactured to meet the stringent standards required here. Add in the fact that they will all top off with much cheaper high sulfur diesel before crossing the border and all standards are gone.  

Mexico has never wanted American carriers in their country. A little research proves this point. I have no confidence in their claims that American trucks will be headed into Mexico in six months,or six years for that matter. But consider this. Now that American trucks will not be allowed into Mexico even for the first six months, the market for American carriers is significantly diminished. As the Mexican carriers will not have to stop at the border, and American trucks can't cross it, American shippers will have no choice but to use Mexican trucks to ship their products into Mexico.

With freight already quite slow, we will see many small carriers and independent owner operators go out of business as a result.   And what of the border warehouses? How many will have to shut down? How many jobs, both Mexican and American, will be lost? What about the local economies of the border towns who host those warehouses?

Not one study has been done as far as I can discover, but my own research shows there will be several business closures, and thousands of lost jobs. This will result in a serious problem for the border towns who rely on the income from those businesses.   What about produce and other food stuffs that are currently inspected at the border during the cross docking process?

Considering the many salmonella outbreaks we have had, will this cause an increase when inspections are reduced as the USDA claims?   I believe this is a serious mistake.

Richard Murray

On Lean Strategies:

I agree with Mike Loughrin's points.  I’d would add:

  • There’s an implicit statement about senior management leadership and support for creating a lean supply chain in your article.  I would explicitly state it.  Those senior managers need to walk the talk with allocated resources and be actively involved in progress and break down barriers.
  • In effectiveness, it’s implied (as near as I can tell) that the measurements are internal to the company to gauge the degree of improvements made form lean.  I would explicitly state that the measurements can and should include some benchmarking against specific competitors and best-in-class, whether competitors or not.

Alan Campbell


Q.  What is the JI Case company's claim to supply chain fame?

A. The tractor and farm machine manufacturer, which merged in 1999 with New Holland to form CNH Global, is said to have installed the first MRP system, in the late 1950's.

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