Cost Of Rfid Tags example essay topic

Over the last few years the cost declines of Radio Frequency Identification (RFID) technology, combined with improvements in sensitivity, range and durability, have enabled widespread RFID use in the logistical planning and operation segments of supply chain management processes. Specifically, areas such as security and access control, tracking, and monitoring / management will strategically be enhanced from the use of this technology. An RFID tag consists of a microchip and an antenna, often in the form of a tiny ribbon that can in turn be packaged into many forms, such as a label, or imbedded in between the cardboard layers in a carton. On the microchip is stored information about the product that the tag is affixed to, which can then be "read" when the tag passes within proximity of an RFID "reader". This information is almost instantly relayed back to a computer system that updates the location status of the associated product. This procedure enables great efficiencies and cost reductions with respect to inventory management and control in a physical product environment, and also enables innovative applications in locating and tracking people and assets in a services environment.

(Hagan's, Andy, RFID Magazine) This environment changed dramatically last June when Wal-Mart Stores announced that it would require its top 100 suppliers to put RFID tags on shipping crates and pallets by January 1st 2005. Earlier this month, Wal-Mart announced that it will expand its RFID efforts to its next 200 largest suppliers by January 1st, 2006. Each tag would store an Electronic Product Code (EPC) which is a bar code that would be used to track products as they enter Wal-Mart's distribution centers. In turn, these products are then shipped to individual stores. Being the world's largest company in terms of revenue, Wal-Mart changed the strategic foundation of many companies in one such decision.

There are four main aspects of strategic impact from this decision by Wal-Mart. They are, in no particular order: volume and cost, supply chain extensions (upstream), innovation and supply chain extensions (downstream). Looking from the volume and cost perspectives, the economies of scale of RFID manufacture will drastically change due to Wal-Mart's move. As of now, the annual volume of RFID tag shipments from top 100 suppliers is estimated at 1 billion tags.

With Wal-Mart being such a powerful company that sets standards for manufacturers, their entrance into this new market will result in other companies benchmarking their behavior, which in turn, will result in a significantly lower price per tag. Current average cost per tag ranges between 25 to 50 cents. With Wal-Mart's entrance, analysts are expecting the price per tag to drop towards the 5 cent range, which will consequently allow the expansion of RFID technology into new markets. In terms of upstream supply chain management extensions, by Wal-Mart requiring its suppliers to use RFID in its end product packaging, there will likely be an impact of accelerating the use of RFID into the supplier's own supply chain as well, and eventually in turn, the supplier's own vendor supply chains. This kind of "ripple" effect will greatly multiply the numbers of companies affected and the demand for RFID tags, further enabling lower costs per tag.

More so, the demand to track products prior to their arrival in Wal-Mart's distribution centers will grow. This includes tracking products once they leave a supplier's shipping dock to the time they arrive at Wal-Mart's distribution docks, which will even further "upstream" into the manufacturing and distribution processes of the supplier themselves. Tracking products in transit will involve the combination and coordination of RFID and GPS technologies. This will result in a potential boom for GIS providers if they are able to integrate manufacturing / distribution center mapping with broader geographic fleet management tracking and routing-type mapping. (Williams, Matt, RFID Mapping) Innovative ly speaking, as the cost per tag decreases, smaller and smaller companies will be able to afford incorporating RFID into their operations. This will enable new kinds of innovative applications and applicability to new markets.

When these new and expanded RFID applications are combined with GPS, the potential becomes even greater. There is also great potential in applying RFID to the individual product units purchased by Wal-Mart's customers for the purposes of managing inventory within the store shopping floor itself. As the cost of RFID tags drop, the temptation for Wal-Mart to apply the tags to individual items will grow. Knowing how, when and from what shelf goods were purchased relevant to other purchases, will drive demand for a new generation of merchandising strategies. This will also allow shoplifting and employee theft levels to be driven close to zero. However, standing in the way of this, as research as shown, is consumer fear of having their privacy violated.

So basically we have to wait and see what happens because "only time will tell.".