Exploring the Potential Benefits of RFID: A LiteratureBased Study

ABSTRACT
RFID (Radio Frequency Identification) has been touted as a major breakthrough in the supply
chain operations. At this stage, there are still a limited number of academic studies assessing the
potential of RFID for organizations. Based on a literature analysis, this paper summarizes the
business drivers which are triggering the RFID adoption. Although, RFID has many benefits in the
shape of reduced labor costs, improved inventory management, and more supply chain visibility,
yet, at the same time, RFID presents itself as a costly successor to bar codes. The paper
concludes that how companies respond over the next two to three years will determine eventual
success or failure of RFID.
Keywords
RFID, RFID Network, EPC, EPCIS, RFID Benefits

INTRODUCTION
Supply Chain Management (SCM) is a set of approaches to efficiently integrate suppliers,
manufactures, warehouses, and stores, so that merchandise is produced and distributed at the
right quantities, to the right locations, and at the right time, in order to minimize system wide costs
while satisfying service level requirements [1]. Many companies are becoming aware of the
importance of SCM for their companys future success and survival [2].
Radio-Frequency Identification (RFID) has opened the door to a new era in SCM. RFID is a
data collection technology that allows remote interrogation of objects using radio waves to read
data contained in RFID tags which are at some distance from an RFID reader [3]. RFID is hailed
as the next generation of Auto-ID as it surpasses bar code technology. With RFID, tagged items
could be simultaneously identified in an automated manner very quickly and without the need for
line-of-sight. This technological breakthrough paves way for improved inventory management,
reduced labor costs and more supply chain visibility.
Based on the potential of RFID, major retailers like Wal-Mart, Tesco and the Food and Drug
Administration (FDA) have quickly mandated their trading partners to use RFID to track assets,
products, and materials. Over the last couple of years, there has been an increasing interest in
RFID technology as many companies have jumped on to the bandwagon and are exploring the
possible benefits of deploying this cutting edge technology in their supply chain by running pilot
tests. In spite of all that frenzy, there is a lot of skepticism playing in the minds of business
community as to how the future of RFID will unfold. There is reluctance to invest large amounts of
capital in a new technology that has yet to prove itself. Compounding this reluctance is the fact
that many businesses have heavily invested in barcode technology.
Since there is limited knowledge about the future potential of RFID in supply chain
management, particularly within the academic literature, the paper aims to critically examine the
business drivers propelling RFID adoption and the long-term benefits promised with
implementation of the technology. For the purpose of this study, various literature was reviewed
and analyzed. Given that RFID is an emerging technology, reliance on literature was mainly
based on a wide range of online industry sources, such as RFID vendor web sites, standard
organizations, and press releases. The online sources were complemented by white papers from
Auto-ID Center, the pioneer of RFID technology. Based on the analysis of the existing literature,
a detailed description of what RFID technology entails and a number of potential benefits of RFID
which drive organizations to adopt are identified and discussed systematically. These potential
benefits result in significant cost savings and increased revenue for organizations, which will
positively affect the profitability in a long run. Such understanding is valuable for both academic
and practitioners who are involved and have interest in the adoption and use of RFID technology.
In the next section, an overview of existing RFID applications is presented, followed by a
description of the RFID network. Then various benefits of the RFID technology, which are

supported by some real cases whenever available from the literature, are discussed. Finally,
conclusions are drawn and some future studies are outlined.
OVERVIEW OF RFID APPLICATIONS
RFID is a mature technology and has been around for quite some time. The earliest use of
RFID technology dates back to World War II for identifying friend or foe onboard military aircrafts
[4]. Over the years, there have been many notable applications of the RFID technology. For
example highway authorities in many metropolitan areas let travelers pay tolls using RFID tags
linked to debit accounts. In addition, RFID tags are also being used as credit-card-like payment
tokens. A reader sends the serial number, associated with a tag, over a network and a remote
computer debits value from the consumers account. Moreover, RFID technology is also being
used as a means for remote keyless entry for automobiles. In these systems, the car key
incorporates an RFID tag that the steering column authenticates, thereby enabling vehicle
operation. Another noticeable example of RFID usage is animal tracking. Organizations and
individuals are now equipping pets, livestock, and endangered species with RFID tags to enable
tracking, recovery and management [4].
The RFID technology has also been embraced by the business community to improve
operational efficiency and inventory management [3]. TrenStar tags beer kegs, as they move
through the supply chain, to identify black market sales and eliminate misdirected shipments.
Likewise, Harley Davidson tags bins, carrying parts of custom motorcycles, during assembly, to
automatically display manufacturing instructions for employees at each stage of the assembly
process. Furthermore, Las Vegas airport uses RFID technology in automatically rerouting
baggage to ensure that each piece of luggage is sent back to the right airline. International Paper
tags rolls of large paper to reduce lost and misdirected rolls. This ability of RFID to track and trace
goods has provided the impetus for it to be extended in the supply chain management across
different trading partners.
Many retailers have started implementing RFID within their supply chain. Wal-Mart, for
example, announced in 2003 that its top 100 suppliers must put RFID tags carrying EPC on
pallets by January 2005. All Wal-Mart suppliers would fall under this directive by the end of 2006
[5]. Reinforcing this supply chain revolution were other major retailers including Target,
Albertsons, Best Buy and Home Dept of the U.S.; Marks & Spencer, Tesco and Woolworths of the
U.K; the Metro Group of Germany; and Carrefour of France. In addition, U.S. Food and Drug
Administration is pushing the pharmaceutical industry to tag medicines by 2007 [6].
RFID should not be viewed as a replacement to bar code or as a data collection method, but
more as an enabler to automation. The driving force behind this change is the patronage of
strong industry leaders (Wal-Mart, Marks & Spencer, and Department of Defense), major
technology partners and vendors, and a business-led industry standard structure, EPCglobal.
This alliance has really spurred the momentum of RFID uptake. The manifestation can be seen in
recent AMR Research survey, which revealed that 69% of respondents surveyed are planning to
evaluate, pilot, or implement RFID in 2005 with average budget more than $548K and increasing
to $771K by 2007 [20]. The survey results are summarized in Figure 1.

Figure 1 - AMR RFID Adoption Survey Results

However, at the stage, it is still challenging for the RFID technology to be implemented
beyond companys boundary due to the non-existence of widely adopted data standard, to track
and trace products as they pass between partners in the supply chain. As a result, RFID

technology was confined within companys boundaries and not widely used across trading
partners. To exacerbate the situation further, RFID solutions at different companies were mutually
incompatible operating at different frequencies and using different protocols, which acted as a
stumbling block towards widespread RFID deployment [4]. As a remedy to this situation, the
Electronic Product Code (EPC) network has been established.
THE ELECTRONIC PRODUCT CODE (EPC) NETWORK
To allow the RFID technology to be used more widely within supply chains, a single
comprehensive standard, which tracks and traces products as they pass between partners in the
supply chain was required. This was accomplished with the creation the EPC network to connect
a product tagged with RFID to a network. The EPC network consists of six fundamental
technology components, which are described below.
Electronic Product Code (EPC)

The aim of EPC is to provide a unique identifier for each object. It permits mass serialization
as unique serial numbers can be assigned to identify discrete manufactured objects and object
aggregates. An example of the structure of 96-bit EPC is shown in Fig 2. It also serves as a
lookup key in databases to access information about the tagged object. EPCglobal a subsidiary
of the Uniform Code Council and EAN international is responsible for the size and content of
EPC tags, which typically use a 96-bit numbering scheme to identify objects.

Figure 2 - Sample 96-Bit EPC

Tags and Readers

RFID tags come in two types Active and Passive. Active tags contain their own battery and
are always on. On the other hand, Passive tags derive energy from the radio frequencies
transmitted by readers. They cost less compared to active tags because they do not require
batteries. The reader emits radio waves of a particular frequency. When passive tags enter the
range of a reader, their antennas absorb energy from the radio field, powering the microchip
which stores the unique EPC identity code, and returning this information back to the reader via a
modulation of the radio waves. Figure 3 depicts the different parts of RFID tag which include a
chip, an antenna, and a packaging.

Figure 3 - Structure of RFID tag

One of the primary advantages of RFID is that it does not require a direct line of sight
between the reader and the tag. This is in contrast to barcodes that require unobstructed
alignment with the reader. Tagged items can also be read simultaneously. Moreover, RFID tags
offer the benefit of programmability as RFID tags are read/write capable, rather than read only.
This means that information can be written to the tag, perhaps to show that the item being tagged
has gone through a particular process, or that its condition has changed somehow [7].
Furthermore, RFID tags are not only virtually impossible to copy, making them suitable for
security applications, but also are extremely durable in harsh conditions. Since RFID tags do not
need to be visible, they can be encased within rugged materials such as harsh fluids and
chemicals [8].
Filtering, Collection and Reporting (Savant)

A wide-scale deployment of RFID tags and readers would result in massive raw data and
could potentially lead to overloading of bandwidth and database storage capacity. The role of
filtering, collection and reporting software applications, which is commonly known as savant, is
to isolate the physical reader infrastructure from the higher-level applications and information
systems so that only significant events and summary data packets are propagated upstream,
rather than every individual tag read.
Savants use a distributed architecture, meaning the software runs on different computers
distributed through an organization, rather than from one central computer. Savants are
organized in a hierarchy and act as the nervous system of the new EPC network, managing the
flow of information. At the edge of the network, Savants gather data from readers. They pass on
only relevant information to existing business applications, such as which products are about to
expire. A Savant running at a distribution center might determine when product needs to be
reordered from manufacturers, and so on.
EPCglobal is phasing out the name "Savants" and introducing the name Application Level
Events (ALE) as the new name for this filtering middleware. Some of the tasks handled by this
filtering layer are listed below [9]:
Data smoothing: Software at the edge of the network will smooth data. Not every tag is read
every time, and sometimes a tag is read incorrectly. By using algorithms, middleware is able
to correct these errors.
Reader coordination: If the signals from two readers overlap, they may read the same tag,
producing duplicate EPCs. Software must be used to analyze reads and delete duplicate
codes.
Data forwarding: At each level, middleware has to be set up to filter information and pass on
only necessary information to an enterprise application. For instance, middleware in a cold
storage facility might forward only changes in the temperature of stored items that exceed
certain thresholds.

Data storage: Existing databases can not handle more than a few hundred transactions a
second, so another job of the middleware is to maintain a real-time in-memory event
database (RIED). In essence, the system will take the EPC data that is generated in real time
and store it intelligently, so that other enterprise applications have access to the information,
but databases are not overloaded.
Task management: Essentially, middleware is customized to manage data and execute
commands. For instance, middleware running in a warehouse might be programmed to alert
the manager when the number of pallets of a particular product drops below a certain level.
The Object Name Service (ONS)

The Object Name Service (ONS) is used to convert an EPC into a number of internet
addresses where further information about a given object may be found. Every company, which
uses RFID Network, will run an ONS Server hosting the details of its products. The root ONS
directory will be hosted by VeriSign. ONS helps in finding the server on which information about a
particular product resides. ONS specification is based on the Domain Name System (DNS) which
provides IP address lookup for the internet. When an interrogator reads an RFID tag, the EPC is
passed to savant, which, in turn, goes to an ONS on a local network or the Internet to find where
information on the product is stored. ONS points the savant to a server where a file about that
product is stored. The savant retrieves the file (after proper authentication), and the information
about the product in the file can be forwarded to a company's inventory or supply chain
applications [9].
Physical Markup Language (PML)

The Electronic Product Code identifies individual products, but all the useful information
about the product would be written in a new, standard computer language called the Physical
Markup Language (PML). PML is based on the widely accepted eXtensible Markup Language
(XML). Because it is meant to be a universal standard for describing all physical objects,
processes and environments, PML will be broad and will cover all industries. It will provide a
common method for describing physical objects and will be broadly hierarchical. For instance, a
can of Coke might be described as a carbonated beverage, which would fall under the
subcategory soft drink, which would fall under the broader category food [9].
All of the data regarding the product composition such as size, shape, quantity, category,
expiry date, manufacture date, etc. will be all reside in a PML file along with dynamic data and
temporal data. Dynamic data in a PML file might include the temperature of a shipment of fruit.
Temporal data changes discretely and intermittently throughout an object's life such as object's
location.
The EPC Information Service (EPCIS)

PML files will be stored in online databases that will be part of Electronic Product Code
Information Service (EPCIS). Build around Web Services model with emphasis on direct
programmatic access to the precise item of data of interest, EPCIS is a set of software standards
that will allow companies to more easily exchange, find and record EPC data as it moves through
the supply chain. Since, an Electronic Product Code (EPC) gives each object a unique serial
number, each individual object can be tracked independently and fine-grained real-time
information about each individual object can be collected, stored and acted upon.
EPC Information Services are a way for supply chain partners to share and exchange
information efficiently, because a standard interface allows trading partners to use the same
functions or methods for querying data across the supply chain. EPCIS allows trading partners to
access and exchange live-real time data with full web service security access controls and
authentication, while interfacing the back-end to diverse databases and information systems from
multiple vendors, without their partner needing to know the details or have direct access to
underlying systems [10].

Furthermore, EPCIS is the first layer where business logic can be mixed with read events
coming from RFID readers. All the layers underneath EPCIS (e.g. Filtering & Collection [ALE],
Reader Protocol etc.) are primarily concerned with simple triples of data (Reader, Tag EPC,
timestamp). EPCIS allows for higher-level meanings to be stored or accessed, involving business
processes and business transactions i.e. Shipment #XXX corresponding to P.O. # YYY arrived at
time #ZZZ rather than just (EPCs 123, 456, 789 seen at Reader 842 at time #ZZZ) [11].
In terms of implementing an EPCIS, a company can choose to either host its own EPCIS
interface coupled to its existing databases or subscribe to a technology solution provider hosting
a managed EPCIS service. Supply chain partners can then query the EPCIS repository using
EPCIS query interface to look up for information regarding a particular EPC. Similarly, supply
chain partners can insert data into EPCIS repository through EPCIS capture interface.

ONS guides supply chain partners in finding EPCIS of another trading partner.
All the six aforementioned elements together form the core infrastructure of the EPC
Network and provide the potential for automatic and unique identification of any tagged product
(See Figure 4).

Figure 4 RFID Network

All of the elements are required to work collaboratively to push towards ubiquitous RFID. To
illustrate, how this works suppose there is manufacturer called ABC, which produces soft drinks.
Every bottle produced by the manufacture will have a PML file, which will be stored in the EPCIS
repository. A PML file will contain the product composition such as size, shape, quantity, category,
expiry date, manufacture date, etc. All of these product descriptors will be pulled from enterprise
databases, which are connected to the EPCIS repository. In addition, each bottle will have a
unique EPC number. If XYZ, a trading partner of ABC (retailer), wants to look up for product
description of any bottle, the retailer will enter the unique EPC number of the bottle through an

ONS interface and, in return, be provided with the URL address of the online database or the
EPCIS repository of the ABC manufacturer. ONS Server will facilitate this transaction as for each
EPC, there will exist a unique URL address. Once provided with the URL address of the EPCIS
repository of ABC manufacturer, XYZ can easily query the status of any soft drink bottle via
EPCIS query interface. Moreover, when the soft drink bottles are shipped from the manufacturer
to the retailer, the retailer can also send up-to-date information to the manufacturer via EPCIS
capture interface, which will be inserted and updated in the respective PML files of the each
product item. For each read to happen, RFID readers will emit electromagnetic waves of
particular frequency, powering the RFID tag, when RFID tags enter the range of the reader. Once
in the range, tags will then send EPC identity code back to the reader via a modulation waves.
This information is then filtered by Savants or the ALE layer before being sent to the EPCIS
repository.
Business Drivers for RFID adoption
Despite the emerging nature of the EPC network, many organizations have been actively
adopting the RFID technology because there are many potential benefits that can be gained.
These benefits can be categorized into three major classes: operation cost reduction, working
capital reduction and sales volume increase, as summarized in Figure 5. They will lead to
increased cost savings or increase revenue, which in turn, lead to increased profit and
shareholder value. Each benefit is discussed below.

Figure 5 Business Drivers for RFID Adoption

Reduced Labor Costs

Labor costs are involved in gathering data using bar code because someone has to
physically touch and scan each product. RFID technology automates data capture, leading to
further labor reduction. The major cost component for typical distribution centers is labor,
accounting for around 50-80% of their total distribution costs. Keith et al. (2002), predict that
receiving check-in time could be reduced by 60-93% with RFID technology [12]. It is also
predicted that RFID could yield labor savings of up to 36% in order picking and a 90% reduction
in the verification costs for shipping process.
Improved Warehouse and Yard Management

Applying an RFID tag to trailer will yield improvements in yard and dock activities as the
manager can know the contents of that trailer as soon as it enters the yard. If the contents are
important, the trailer can be unloaded right away. On the outbound side, RFID can provide proofs
of delivery when good are received, allowing shippers to close out transactions more quickly and
accelerate the cash-to-cash cycle [13]. RFID can also reduce invoice reductions and chargebacks from some retailers who claim that product did not get shipped when it may have been
actually just lost in the warehouse. Furthermore, RFID promises less need for all parties in the
supply chain to (re)check, (re)audit, and (re)verify their order accuracy.
Improved Inventory Management

With improved information accuracy and real-time visibility through RFID deployment,
companies can effectively deal with commonly experienced bullwhip effect [14]. Bullwhip effect
refers to an increase in order variability within the supply chain due to a lack of information
visibility across the chain. This results in high inventory levels and poor customer service levels
within the supply chain [1]. Information sharing across the supply chain is a proven strategy to
combat the bullwhip effect. The real-time information sharing made possible by the RFID
technology across the supply chain will provide unprecedented visibility into unanticipated
customer demand variability. It is estimated that improved inventory tracking with RFID will lower
out-of-stock shelf fulfillment and facilitate in improved promotional planning, which translates into
potential 7% boost in sales [15]. Gap employed the RFID technology to reduce obsolete inventory
while enabling staff to locate specific articles. The result was an almost 100% on shelf availability
of the RFID tagged merchandise and 12% increase in store sales compared to stores that were
not using RFID system.
Efficient Product Recalls

Product recalls can be attributed as a costly source of loss in the supply chain. This is due to
the fact that in the absence of a unique product identifier, organizations find it difficult to exactly
pinpoint the faulty products. This risk can be effectively mitigated with the EPC as it uniquely
identifies each product produced, thus allowing manufactures to issue targeted recalls of only
affected products.
Reduced Inventory

Gillette has ventured into testing Smart shelf, where an RFID reader is incorporated into the
shelf and stocked with tagged product. The Smart Shelf monitors its rate of depletion, provides an
alert when stock runs low and automates reordering to minimize out of stocks [16]. The example
illustrates that through effective and novel use of RFID not only inventory levels can be reduced
but also out-of-stock situation can be eliminated.
Reduced Unsaleables

Since RFID tags can store manufacture and expiry dates, goods with close expiration dates
can be better managed, reducing the need to write-offs due to spoilage. This is particularly
important to perishable goods and date-specific goods. Gap employed RFID technology to
reduce obsolete inventory while enabling staff to locate specific articles. The result was an almost
100% on shelf availability of the RFID tagged merchandise and 12% increase in store sales
compared to stores that were not using RFID system.

Reduced out-of-stocks

Tagging pallets and cases will allow for better tracking of goods within stores, thus reducing
out of stock situations. With better inventory tracking, inventory level can be potentially reduced
by eliminating erroneous replenishment orders for products that are available but cannot be
found. U.S. retail industry is losing about $70 billion annually due to its inefficient supply chain
practices and about 42% of this comes from product unavailable on the retail shelf for consumer
[17].
With RFID technology, Wal-Mart now can know what is in the back room and what is on the
retail shelf. During the busiest shopping times, Wal-Mart employees at times can only fill one out
of every twelve out-of-stock situations on the store floor [16]. By harnessing the power of RFID,
Wal-Mart can locate merchandise in the back room quickly and prioritize the replenishment
process according to the highest-priority merchandise.
Reduced Counterfeit Products

World Health Organization (WHO) estimates that between five and eight percent of the
worldwide trade in pharmaceuticals is counterfeit [18]. RFID offers the capabilities of track and
trace, where product is assigned a unique identifier and its movement is constantly monitored
from the time it was created till the time it was consumed. Such rich information can act as
deterrent to counterfeit and illegal products. For example, when goods arrive in a particular
country for sale, they can be easily checked without having to remove the packaging, and then
sample audits can take place at retail points to check that genuine drugs are being sold, and also
the route taken to reach the shop. Sample store checks can also be used to make sure country
specific pricing is employed, and that retailers do not buy drugs cheaply in another country and
sell in a country where they are not supposed to.
Reduced Product Shrinkage

Theft or also known as product shrinkage is a serious problem for retailers and
manufactures. In US, 77% of the total shrinkage cost is due to theft, while in Europe, it is 61%
(Figure 6) [19]. RFID Network allows products to be tracked and traced with total real-time
visibility. This feature can alert SCM systems with specific details when products are missing,
allowing the organizations to take anti-theft measures.

Figure 6 Theft Losses

Quality Control and Product Differentiation

RFID empowers organizations to monitor the quality of products as they move along the
supply chain. Tags can monitor things like temperatures, bacteria levels and provide tamper
evidence, regardless of the product position in the supply chain. This information is highly
valuable in the food safety area due to concerns like mad cow disease and bird flu. If tainted
material is found in the food value chain, all companies can accurately and quickly locate,
quarantine, recall and destroy all affected materials.
Improved promotional planning

Gillette is using RFID to improve its inventory tracking so that during promotional campaigns,
there is a minimal chance of running out-of-stock. With RFID readers, Gillette can track when
products arrive at the retail store and when they are moved from retail stores back room to the
retail shelf [16]. Equipped with this information, Gillette ran promotional advertisements for
M3Power razor and then measured the preparedness of retail stores in regard to the promotion.
All the retail stores received the product before the promotion ran. However, average dollars per

point of sale was 48% higher for those stores that moved the products from the back room to the
store shelf before the promotion start date compared to those stores who moved the products
after the promotion start date.
DISCUSSION AND CONCLUSIONS
For companies to reap the many benefits of RFID, companies have to revamp their business
processes to take advantage of the process automation capabilities it offers. This means source
tagging, which involves placing the tags on finished goods at plant rather than slip and ship
approach - manually printing and applying - should be adopted; additional business intelligence
software should be leveraged; Warehouse Management Systems should be integrated across the
whole supply chain; more RFID readers should be planted in the supply chain network, and
tighter integration should be forced on to supply chain partners. Figure 7 shows RFID
Requirements/Benefits curve. As the RFID infrastructure requirements gets bigger and bigger so
does the benefits. Most companies are still in Phase 1, with limited participants and standalone
capability. This is partly due to current immature technology stalling the progress, but in the long
run, to reach the vision of total supply chain visibility, companies have to get more mature and
sophisticated in terms of collaboration and system integration. Once the technology matures, the
whole burden of RFID success hinges on how supply chain partners implement and use the
technology. Future benefits of RFID envisioned as error-free inventory counts, cashier-less
checkouts, instant container inspection, and production orders based on real-time consumer
usage are promising only when entities in the supply chain work in unison. Segregated
implementation of RFID with operations running at arms length will surely jeopardize the future of
RFID.

Figure 7 RFID Requirements/Benefits Curve

Despite the many potential benefits of RFID, however, RFID infrastructure is ill-equipped. At
the moment, technology prices act as the greatest inhibitor for large scale deployment coupled
with premature technology standards. Another obstacle standing in the way of RFID progress is
the back-end software infrastructure and systems integration, which is required to crunch RFID

data across different supply chain partners to produce supply chain visibility. There have also
been some issues regarding privacy concerns around the deployment of RFID.
Apart from overcoming some challenges in RFID adoption, all benefits of RFID can only be
realized with greater collaboration between all concerned partners. Successful RFID
implementation demands more synergism across the board. RFID has the potential in improving
manufacturing and retail business processes, yet at the same time supply chain partners run the
risk of sinking it under their own weight by not cooperating. How the companies respond over the
next two to three years will determine eventual success or failure of RFID.
This study has provided a better understanding of what organizations can expect from the
RFID technology. The findings of the study, however, have many limitations because they are
only based on secondary data. A further study to investigate the actual impact of RFID
implementation on a specific organization as well as challenges faced during the implementation
will therefore complement the findings of this study.
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