Food Engineering

What if RFID succeeds?

April 4, 2006




If RFID succeeds at the case level, what can you expect? A lot of data. Besides the IT bandwidth, data storage, data aggregation and processing issues, does this matter? If RFID succeeds, all this data means adequate information management has kicked in. Unfortunately, this will be a problem for manufacturing or processing operations, not just distribution centers. When the data and analysis tools are in place for retailers, there will be a gradual trend toward smaller, more frequent orders. This allows a more precise stream of goods to meet consumer demand and ensures higher sales by reducing stock outs and overstocks. With RFID's added visibility and control, retailers can manage more shipments, bypass their own distribution centers and go directly to their stores. Thus, retailers get supply chain responsiveness with added control at a lower cost than they experience today.

This is not a pretty picture for most processors. All the savings go to retailers and all the costs go to food and beverage processors. Can you change your processing operations to smaller production runs, lower inventory quantities and radically altered distribution operations? What is the manufacturing impact of shorter production runs? The most common effects are higher changeover costs due to frequent changeovers and reduced production time because of the downtime needed to execute the changeovers. Changing your processing and packaging operations may involve significant re-engineering and capital investment. This is not something you can do quickly. The alternative is to suffer added costs for inventory; continue today's production runs; stockpile the difference between demand and inventory; and expect that it balances over time. Neither approach is attractive. The change in distribution operations may be equally disruptive. A warehouse tuned to picking and shipping single SKU pallets in truckload quantities is not the same warehouse that picks cases, builds mixed SKU pallets, and ships in less than truckload quantities. What if the retailer wants the cases to be smaller, e.g. 30 count instead of 100 count? Now, everything must change.

The good news is that you have the time to plan and execute the changes you'll need. The bad news is that an inexpensive solution is not obvious. You might consider a third party logistic provider (3PL) as a solution, in which case you'd continue your operations as you do today. Instead of shipping to the retailer's distribution center, you ship to the 3PL, which translates single SKU pallets into mixed SKU pallets and full truckloads into less than truckload shipments. It may solve your compliance problem but it adds costs that most processors can't afford.

One answer: 3PLs and processors form their own consortium where the 3PL gets goods from multiple processors with the same or overlapping customer base. The 3PL transforms each processor's transportation paradigm from a series of less than truckload shipments into full truckloads direct to stores with multiple SKUs from multiple food processors. This has been tried with limited success, usually in industries besides cold storage. It's usually been pushed by a forward thinking 3PL and resisted by defensive-minded manufacturers. ("I don't want my product on the same truck with their product.") The big manufacturers may be able to do this with their own resources or through a dedicated 3PL. The mid-tier food and beverage processors should look to this "consortium concept" as a means to challenge the big players and win against them (or at least get to cost parity) rather than as a means to win against other mid-tier competitors. Plan now or starve later.