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Supply chain management — UPS looks at radio frequency ID package

G. Ananthakrishnan

GLOBAL PACKAGE delivery giant UPS is working to standardise Radio Frequency Identification (RFID) technologies to come up with new supply chain management (SCM) solutions for its customers at the global level.

RFID in SCM has gained greater visibility after the US retail major, Wal-Mart, became 100 per cent compliant for the technology, and setipulated deadlines for its suppliers to induct the identifier tags on pallets. The US Department of Defence has also adopted RFID and approved hardware specifications to assist vendors and to manage its assets and supplies better. An upcoming area of RFID deployment is the pharmaceutical industry; American regulators, who estimate that 10 per cent of drugs worldwide are counterfeit, hope to ensure quality of medicines in the entire supply chain by insisting on tagging.

Antenna-equipped readers pull information from data-embedded RFID tags and feed it into host computers that update the supply chain information. `Passive' tags are relatively cheaper, from 20 cents to $1 each while battery-powered `active' tags are more expensive, at $5-50 apiece.

Issues in hardware standards and architectures, antennae and data acquisition apart from the cost of tagging are engaging the SCM sector, and a core group of industries, including UPS, is working to come up with standards. EPC Global, an agency evolving electronic product codes, is working with the industry to set the standards, said Mr Bob Nonneman, Industrial Engineering Manager of UPS' Corporate Engineering Group.

Describing RFID as a disruptive technology that is only the tip of the iceberg, Mr Nonneman told an invited group of international journalists at the UPS Technology Summit in Hong Kong, that it would have a major impact on data exchange networks, global network visibility, ERP systems, data synchronisation and collaborative forecasting.

UPS was running pilots in the US incorporating RFID in its operations, starting with dynamically printed package labels that automatically encode a tag. This was as part of its transition from package delivery solutions to SCM for a variety of customers. On the visibility side, it was testing RFID-enabled software in its shipping tools, such as Worldship Domestic and ConnectShip.

Considering the long-term impact that RFID would have on commerce, it is imperative that businesses everywhere participate in global efforts at standardisation, Mr Nonneman said, suggesting national pilot projects that use passive, active, high frequency and ultra high frequency technologies to evolve optimal solutions.

A re-engineering of processes to leverage RFID that goes beyond replacement of barcodes is also required.

Explaining the rationale behind the heavy investments made by UPS on its IT infrastructure — $1 billion annually — the company chairman, Mr Mike Eskew, told the summit participants that the current global business climate required new approaches to SCM. UPS was adopting a one-to-one business model, offering customised end-to-end solutions and access to markets and suppliers that many companies seek but could not have because of complex logistics and taxation requirements and procedural difficulties such as Customs clearance.

Asia was a major area of expansion for UPS, and the company was readying to open an international air hub in Shanghai in 2007, said Mr John Beystehner, Chief Operations Officer, UPS. Major service augmentation was on the cards for China through new services: A `next day' service would be available in 23 Chinese cities, on a par with United States standards; the total number of flights would be increased from 18 to 21 in 2006, and capacity would effectively be doubled in 2009 when three Airbus A380 aircraft were inducted.

For India, UPS had adopted the strategy of operating through a joint venture, UPS Jetair Express, and had achieved significant overall volumes. The market for express deliveries was growing by over 20 per cent annually, Mr Beystehner said, expressing optimism that more access points could be opened in cities attracting higher Foreign Direct Investment.

On the impact of the rising fuel cost on global parcel delivery operations, Mr Beystehner said the increase was being recovered through a fuel surcharge. Fuel costs represent only 3-4 per cent of the overall expenses. But the more important concern was the potential impact of oil prices on some countries that could witness an economic slowdown.

The UPS Chief Information Officer, Mr Dave Barnes, said the company was keen on working closely with governments to achieve standardisation and synchronisation in procedures, IT architectures and a system of harmonised coding.

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