RFID: A challenge and an opportunity for logistics providers

Related tags Supply chain management

Third-party logistics (3PL) providers must adopt innovative and
leading solutions such as radio frequency identification (RFID) if
they are to continue achieving supply chain efficiencies, according
to a new report.

The 9th annual Capgemini report on third-party logistics trends and issues, published at this month's Council of Logistics Management's annual conference, analysed more than 650 logistics and supply chain executives in over 40 countries.

It found that over three-quarters of respondents, many from the food and beverage industry, currently use 3PL services and more than eight in ten feel their 3PL relationships are successful.

However, customer demands for 3PL performance and sophistication are also on the rise, making improvements and investment in those areas imperative. And the overwhelming number one IT-based 3PL service needed in the future by all regions is RFID (radio frequency identification).

With many RFID supplier mandates scheduled to be launched in 2005 - Wal-Mart being the most obvious example - users clearly see a big challenge and opportunity for 3PL providers to assist them with the implementation of this capability.

"This year's study suggests 3PL customers throughout the world seek competency in areas such as operating efficiency and effectiveness, cost management, service delivery, IT and globalisation,"​ said C. John Langley Jr., professor of supply chain management and 3PL study leader at Georgia Tech.

"However, the findings once again show that 3PLs cannot rest on their laurels and need to implement capable IT, institute effective management and relationship processes, integrate services and technologies globally and deliver comprehensive solutions that create value for 3PL users and their supply chains."

Erik van Dort, global distribution sector and 3PL leader for Capgemini, agrees with Langley's assessment.

" While 3PL's clearly provide good service to their clients today, they have considerable challenges ahead when it comes to IT,"​ he said. "The global players need to free up considerable resources to standardize and modernize their IT systems and processes in their expanding global footprint."

The 2004 study also revealed a number of interesting trends. For example, Western European respondents continue to spend a larger portion of their logistics budget (61 per cent) on 3PL services than do those in North America (44 per cent) and Asia-Pacific (49 per cent).

But Latin American respondents spend more of their logistics budget (65 per cent) on 3PL services.

Security issues are most prominent among 3PL users in North America and Latin America, 69 per cent and 78 per cent respectively.

Globally, the five most frequently outsourced activities to 3PL providers are outbound transportation (80 per cent), warehousing (70 per cent), inbound transportation (67 per cent), customs clearance (56 per cent), and customs brokerage (53 per cent). The use of freight bill auditing/payment services is far more prevalent in North America (53 per cent) than in Western Europe (19 per cent), while cross-docking/shipment consolidation is more prevalent in North America and Western Europe than Asia Pacific or Latin America.

Ultimately, the study underlines the fact that suppliers and manufacturers are increasingly outsourcing supply chain tasks to third parties in order to achieve efficiencies. But to remain competitive, these 3PL providers must address pressing IT issues.

"This study documents the increased interest and sustainability of truly collaborative relationships between 3PL providers and their customers,"​ said Greg Cudahy, global supply chain leader for Capgemini. "While the study certainly identifies ways in which all parties can improve these relationships, long-term success in the marketplace requires that more effective logistics and supply chain solutions be developed, including the next generation of RFID pilot programmes."

RFID tags are tiny computer chips connected to miniature antennae that can be affixed to physical objects. The most common application of RFID contains an Electronic Product Code (EPC) with sufficient capacity to provide unique identifiers for all items produced worldwide.

When an RFID reader emits a radio signal, tags in the vicinity respond by transmitting their stored data to the reader. Passive (battery-less) RFID tags, read-range can vary from less than an inch to 20-30 feet, while active (self-powered) tags can have a much longer read range. The data is then sent to a distributed computing system involved in supply chain management or inventory control.

Capgemini​ employs 55,000 people worldwide and reported 2003 global revenues of €5.754 billion.

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