The Ripple Effect

The Ripple Effect

Copyright 2004, Traffic World, Inc.

Shippers scrambling to meet deadlines imposed by Wal-Mart and the Department of Defense are turning to third-party logistics providers for help with radio frequency identification. As RFID deadlines draw closer, 3PLs may hold the key to compliance for shippers struggling with the technology.

Logistics operators are testing the technology and rolling out RFID programs to help shippers meet tagging demands.

The 3PLs say they can spread the expense of RFID across several customers, thereby lowering costs and improving value for shippers. Their RFID offerings are one more sign that shippers increasingly are outsourcing complicated and costly technology problems to logistics providers.

Of course, 3PLs can''t afford to ignore RFID either. "Meeting business partner needs is the foundation of the 3PL industry and RFID is well on its way to becoming a major requirement," logistics technology provider Delfour pointed out in a recent white paper. The technology mandates of major retailers and government agencies are having a ripple effect that is moving down the supply chain. "3PL facilities will be second in line after manufacturers to have to move to RFID technology," Delfour said.

Multinational logistics giant Exel is opening an RFID test laboratory in Pennsylvania while Nashville, Tenn.-based Ozburn-Hessey Logistics launched an RFID center in Dallas to help shippers comply with Wal-Mart''s tagging mandates.

Bob Spieth, OHL''s CIO, said the 3PL was "approached by several customers to help them address Wal-Mart''s directive, both in the near and long-term." Wal-Mart will require its top 100 suppliers to tag products at the case and pallet level by January. All of Wal-Mart''s suppliers - roughly 10,000 companies - are expected to be RFID-ready at the case and pallet level by January 2006.

Currently, OHL is working with three customers, two of whom are "at a more initial phase," Spieth said.

"I see us as being able to help our customers have a low-cost way of applying the directives of retailers without having large, fixed costs themselves. We are important in the transitional phase. Once RFID is established both the customer and we will be using RFID inside the warehouse to improve productivity and inventory accuracy. That is probably a ways away."

It is cheaper for a shipper to access the technology through a 3PL because logistics providers can spread the cost of tags and equipment across multiple customers, said Spieth. "We''ve bought the equipment, the middleware once," he said. "Otherwise it''s not any cheaper for us than anyone else."

Exel plans to have an RFID testing infrastructure up and running in the next 8 to 10 weeks. The $8.3-billion British 3PL opened an RFID laboratory in Harrisburg, Pa., and plans for it to be fully operational later this year.

Tony Hollis, Exel''s manager of RFID strategy and execution, said the company began pilot testing RFID with customers before Wal-Mart issued its mandates. Today the company has centers testing the technology in the United States and Europe with plans for another center in Asia.

In the United States, "our initial mission is retail compliance. We are looking at readability (of tags) and scanability of cases or pallets of goods in support of the Wal-Mart mandate," he said. The 110,000-square-foot distribution center will be used to test chip positioning, pallet configuration, material handling and distribution center layout for RFID. It will aid in determining the accuracy, reliability and security of RFID as well.

Exel''s main activities will continue around the Wal-Mart mandate for "a while," said Hollis. Its RFID infrastructure will be solely for testing the technology with full-scale deployment occurring at other distribution centers closer to Wal-Mart''s test areas.

OHL''s RFID center in Dallas will combine testing and deployment of the technology. The network will serve three of Wal-Mart''s distribution centers within 60 miles of OHL''s site. "Our Dallas Compliance Center was part of our plan to be RFID-compliant by 2005," Spieth said.

The RFID technology is linked to OHL''s warehouse management system, allowing the 3PL to offer an integrated solution to its customers. OHL is testing virtual and actual orders in Dallas and plans to ship product into Wal-Mart by September.

Order information received from OHL''s warehouse management system will be loaded into the RFID system, where it will be processed and cases and pallets destined for Wal-Mart''s distribution centers will be tagged. It''s the final step in the shipping process, said Spieth. "If they are coming in from another facility it will be cross-docked and sent on," he said. Ozburn-Hessey initially will tag and ship 2,000 cases per week.

Spieth said the infrastructure developed for the Dallas center can be expanded to the company''s 16 other regional distribution campuses across the country as business requires.

Exel will begin tagging and shipping cases to Wal-Mart this fall from distribution centers closer to Wal-Mart''s test areas, said Hollis. Exel''s customers testing the technology under the Wal-Mart mandate include Unilever, Procter & Gamble and Kimberly-Clark. Many of Wal-Mart''s top 100 suppliers are Exel customers, he said.

"Almost on a daily basis we get a phone call seeking assistance," he said. "But our strategic view is to look beyond retail compliance and see where (the technology) makes sense in the supply chain."

Asset management, security, counterfeiting and warehouse productivity are concerns shippers have brought to Exel that potentially could be alleviated by RFID, he said.

Exel has received calls from customers interested in the technology from a range of markets, including automotive, chemical, technology and industrial areas. "We are seeing a full spectrum of interest while the spotlight is on consumer packaged goods and retail," he said.