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How to get suppliers to embrace RFID

By James Cooke

If your electrical distributorship needs to know automatically the whereabouts of suppliers’ inventory in your distribution channel, then perhaps it’s time to take a look at using radio-frequency identification (RFID). That technology has long been touted for its ability to provide real-time location for items in inventory.

Unlike bar codes, which require a warehouse worker to scan a printed image to record the arrival of an item in a distribution center, RFID tags announce their presence with no human intervention. The tags contain an antenna that transmits the data stored on its chip wirelessly to a reader. There are two types of tags on the market today: passive and active. Passive tags must get pinged by an outside energy source to transmit information whereas active tags are equipped with a power source to emit a continuous signal.

Although RFID facilitates inventory visibility, even down to the level of a single item or unit, to date, it’s been hard to convince suppliers to bear the extra costs for deployment of that technology on shipments. Passive tags costs between $2 and $5 a unit and active tags range in price between $10 and $15 apiece. Most suppliers, except in the defense industry where the government reimburses the technology cost, have been unwilling to bear the increased expense for technology that benefits the receiver of the goods more than the shipper. On top of that, most suppliers view the technology as having more value to the receiver than to themselves.

But one company overcame supplier resistance by offering a financial incentive. Ingersoll Rand, in its business unit that makes air conditioners and heat pump condensers, convinced suppliers to deploy RFID with the promise of prompt payment.

The company set up an online portal to achieve a closer coordination with the suppliers feeding its manufacturing plants. As part of that portal initiative, Ingersoll Rand wanted key suppliers to place tags on shipments for enhanced visibility. Now when a trailer arrives at an Ingersoll Rand factory, that equipment passes by an antenna that reads the information on the tag. That information on the arrival of materials into the plant is then uploaded to the electronic portal available for immediate viewing.

Although the suppliers bear the expense of the tags, none of them have balked at the requirement, according to an Ingersoll Rand manager involved in the project. That’s because once the tag information gets sent to the portal and reconciled with the invoice, the supplier gets approved for payment. At the moment, Ingersoll Rand’s air conditioning unit is only reading the tags for trailer information, but the company hopes to move to unit-level reading of tags in the future.

In the case of Ingersoll Rand, the RFID deployment was a win-win for both the company and its suppliers. If having up-to-the-minute inventory status in your distributorship might prove crucial for improvement in sales or customer service, then the offer of a faster turnaround time on payments might just be the catalyst to persuade you suppliers to adopt RFID.

James Cooke is the editor of CSCMP’s Supply Chain Quarterly magazine, the premiere journal of global thought leadership for supply chain professionals. He has been writing and reporting on the best practices in supply chains for more than 30 years.

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