Despite extensive media coverage of RFID, there seems to have been more noise than actual implementation. But recently we"ve seen a solid case study here in Hong Kong.

Royal Philips Electronics last month unveiled its RFID implementation, known as the STAR Project. Using RFID, Philips is able to tag and track goods between its manufacturing facility in Kaoshiung, Taiwan and its Asia-Pacific distribution center in Hong Kong.

The project started in June 2003 as a Philips initiative to convince its client the value of RFID. Since Philips is a component supplier of RFID, the firm decided to apply the technology itself, said Mathieu Clerkx, CIO and senior vice president, supply chain management, Philips Semiconductor.

The company started in Asia because the region holds a large number of semiconductor manufacturers. "We decided to start the project between our Kaoshiung assembly plant and Hong Kong distribution center, because it is a very significant route," he said.

The project was supported by IBM on the overall system integration, as well as by Smartag and Tasys in delivering the labels and readers, and Zebra in providing the printers. Although Philips did not reveal the project investment, Clerkx said the ROI was promising.

"The major benefit with RFID is to match the information flow with the physical flow [of the goods]," he said. "We can now simplify the [distribution] process tremendously in the receiving warehouse."

Within the project, RFID tags are being placed in three levels of packages, ranging from the palette, carton boxes to the individual packing quantity (PQ). Using these tags, when a palette of goods arrived at the distribution center in Hong Kong, the employees no longer have to unwrap them to count and verify the actual shipment, said Clerkx.

He said that previously, a proper receipt process required the employees to unwrap the palette and the carton boxes to tally the PQ. With RFID, as the palettes pass through the reader gate, the total number of carton boxes and PQs will be tallied electronically.

As workers no longer have to unwrap the palette, the technology has tremendously shortened the receipt process by 400 percent and the redistribution cycle time by 50 percent, from two days to within a day, asserted Clerkx.

"This is a very significant cost saving for us," he said. "Especially when both labor and rental costs in Hong Kong is so high, RFID has helped to reduce the operational cost at the distribution center."

In addition, the technology has also increased the utilization of storage space, said Clerkx.

Tag it right

For Philips the STAR project was a learning experience as the firm had a dearth of successful RFID precedent cases. Clerkx noted the project was more than merely bringing in some new chips, but also involved a lot of process re-engineering.

Within a supply chain environment, the ability of the RFID system to match the actual physical shipment with the information within the system is critical.

"As long as there"s a single doubt about the RFID reading, the technology investment is wasted," he said. "Therefore, quite a lot of effort within the project goes to ensure a 100 percent readability of the tags."

Achieving 100 percent readability was particularly challenging since the product and packing involves a lot of aluminum, which interferes with radio frequency readings, noted Brian Eccles, managing consultant, RFID at IBM Global Services.

He explained that placement of tags is critical in the process. When the tags are placed on the box, it is important to ensure that when the boxes piled up together, these tags are not too close to each other and are not blocked as they pass though the reading gate.

"It is a very challenging product and environment," said Eccles. "But with proper design of the process and placement of the tags, we can achieve a successful operation."

Clerkx added the process design involved not only the study of tag placement, but also ensuring the tagged items are piled in a precise direction on the palette.

Integrating hardware and software

Besides process re-engineering, the project also required adjustments within the IT systems. The major adjustment was the warehouse management system, noted Eccles. Besides tag placement, the system has also added measures to ensure no double-counts as the palette goes through the reader gate twice.

Although there were no major changes within the ERP system, there were adjustments in the middleware and database to handle the additional information captured from the RFID system. He added the development time was about three months, much shorter then the time spent in developing the business case and re-designing the supply chain process.

Philips began the project by spending two months to develop a business case with IBM. "The business case looked very promising on paper," said Clerkx. "Based on that, we decided to start making the engagement for the project."

Following that, he noted almost 10 weeks was spent on process design and vendor selection before the actual development work began.

Copying the concept

Building on the success of its first RFID implementation, Clerkx noted Philips plans to expand the technology in other areas.

"It is very easy to expand the same operational process to other locations," he noted. "This is like a "cut-and-paste" of the operation." The company is planning to expand the RFID technology to its five other chipset assembly plants in Asia and other regions.

The global expansion of RFID usage not only allows other warehouses to enjoy the same efficiency as Hong Kong, Clerkx noted it is also an important initiative to standardize processes among its global operations.

"Although Philips is a global company, the process to handle goods varies between each location," he said. "The RFID technology will standardize the operation, bringing much easier management of the supply chain management."

Apart from internal operations, Clerkx noted the next step is to make use of RFID to better serve its customers. The company has begun the process by using RFID to track its green products--semiconductors produced under an environmental-friendly process.

He explained that green products are often indicated with a green label. Using RFID, the warehouse can easily track the number of green products being delivered, without counting the green labels.

"This is just the beginning of our expanded use of RFID," Clerkx noted. "As the system allows the company to capture and share a lot more information, there"s still much that can be done to make full use of the technology."