Innovation & Technology
• 9 minute read
A Transparent Chain
Supply chain visibility is the next big trend in logistics. With the help of cutting-edge technology, promising smart solutions are on the rise
By Louisa Wah Hansen
Supply chain visibility is the next big trend in logistics. The goal is to bring supply chain integration and product traceability to the highest level of efficiency and transparency. It is a formidable challenge but with the help of cutting-edge Radio Frequency Identification, or RFID, technology, promising smart solutions are on the rise.Ever imagined the technology used in Octopus card — an ubiquitous touch-based smart card for transportation and small payments in Hong Kong—can help manufacturers manage their production process and streamline their supply chain management? The same technology can also help retailers instantly collect consumer data such as what styles, colors and sizes of a product is sold more frequently, or help consumers discern whether a certain product is genuine or a counterfeit.
The technology, RFID, has been around for many years, but sophisticated applications that can tackle today’s complicated supply chain challenges are either just popping up or in the commercialization pipeline.
At CUHK Business School, cutting-edge solutions are being developed within the Asian Institute of Supply Chains and Logistics, led by its Director, Prof. Waiman Cheung, who is also chair of the Department of Decision Sciences & Managerial Economics at the school, as well as director of the Center of Cyber Logistics in Hong Kong.
Matching Supply with Demand — Exactly
Prof. Cheung points out that one of the biggest challenges for manufacturers is to know exactly the amount of products that end customers want in the downstream of the supply chain. “Not having enough inventories to fulfil the demand is any salesman’s nightmare,” he explains. “That’s why they always exaggerate the demand.” This often leads to a ‘bull whip’ effect, which means the manufacturers would produce too many products in the upstream, causing excess inventory.
One proposed solution is for all parties along the supply chain to share information such as demand forecasts and production schedules. “With more transparency, there will be less exaggeration,” Prof. Cheung says. “This is what we’re calling for—supply chain visibility.”
Of course, different players along the supply chain should not enjoy the same amount of transparency, he explains. Suppliers with whom a manufacturer has a closer relationship would be given a higher level of access to the shared information than those who are not long-term suppliers. A sophisticated system of data sharing on the “cloud” with accessibility control would be very useful to this end.
But before data can be shared, they must be gathered. One technology that greatly streamlines the process of real-time data collection along the supply chain is RFID. As opposed to barcodes, RFID tags assign a unique identification to each physical item, so that even products of identical size or type would have different IDs. This allows the highest level of product tracking down to the individual item level. And because RFID tags can be detected by using readers that send out radio frequency waves, human intervention is not necessarily, therefore reducing the need for relying on human intervention. Readers installed in a warehouse, for example, can scan items located as far as 10 meters away all at once and find out what exactly are in each box without the boxes being physically opened.
Building More Accurate Schedules
At the Asian Institute of Supply Chains & Logistics, Prof. Cheung has led a project in which RFID technology was used to track the entire manufacturing process of garment products along the supply chain—from raw material procurement to assembly to distribution and retailing.
First, all the raw material components imported from Italy to Hong Kong were tagged with RFID tags. Upon inspection, the materials were shipped to a factory in Shenzhen, and cut and converted into individual parts such as sleeves and front pieces. These parts were also tagged and then shipped to another factory in Hong Kong, where they were assembled into finished products. But that’s not the end. The next step was to ship the products back to Shenzhen for quality inspection, ironing and packaging, followed by yet another shipment to a distribution center in Hong Kong before the products hit the retail stores.
As each piece of component was tagged with an RFID tag, the entire manufacturing flow could be monitored in great detail. Prof. Cheung recalls how this “track-and-trace” process helped the brand owner of the product realize that the lead time for manufacturing was actually longer than originally planned, and that if certain components were missing, the whole production schedule would be delayed substantially.
“Thanks to the ‘track-and-trace’ capability of RFID, a company can more accurately time the start of a production schedule until all the components are in place,” says Prof. Cheung. “This saves time in the long run.”
In the Frontline
On the retail level, stores can easily manage inventory through scanning the boxes in their backrooms with RFID readers for the exact product sizes, colors and styles for replenishing the stock on the shelves. In the past, it was a tedious, messy and labor-intensive process.
Inside the stores, if each product is tagged, retailers could find out how customers interact with the products and gather information about their preferences and purchasing behavior. As such, RFID technology can help shops manage their inventory much more efficiently and gather “big data” from their customers in a way that no one has ever dreamt of before.
Prof. Cheung gives an example of a clothing store: “With all the products tagged, you can do an experiment to see which ones will be picked up and tried on more frequently depending on where they are placed in the shop. If you put a reader in the fitting room, you would know which products get tried on and go back to the shelf and which ones go to the cash register. This way, you can collect information about what sizes and colors of a particular product are sold more often and use this data for your planning.”
Prof. Cheung’s team has been working on this pilot project for two years and is constantly making improvements on the technology. An exciting possibility is to develop mobile phone applications that allow consumers to check on a product’s information simply by touching the product with their mobile devices. These apps would also allow consumers to share the product with their friends in social media instantaneously, so people could see how many have liked it and which celebrity is wearing it, for example. This would facilitate word-of-mouth marketing through social media and connect that with the supply chain directly as all data are gathered by the store.
In the Cloud
According to Prof. Cheung, the use of RFID technology is gradually moving to mainland China. Initially, it faced a bumpy start when Walmart gave a big push to its mainland suppliers to use this technology several years ago. What made the technology fail to stick was that the suppliers had to bear the burden of paying for the infrastructure (i.e. tags, readers, software and hardware) while not getting any returns on their investments.
Things do not have to be this way, Prof. Cheung says. His suggestion: “Instead of making the supply chain players invest in the technology, we can turn this into a utility service like water supply or electricity supply.”
How can this be done? By placing the hardware and software in the cloud. This means that users pay a subscription fee only when they use the service. “We’re trying to turn supply chain visibility into a service. If you need to use it, you just plug in and get the data,” says Prof. Cheung. The fee, he explains, would be on a sliding scale based on how much data a user needs.
In this scenario, says Prof. Cheung, the host—whoever puts and runs the technology on the cloud—has to be a third party who is impartial to either the buyers’ or sellers’ interests, so that it can be relied on to resolve conflicts. The beauty of this system is that the physical location of the software does not matter.
Using the same technology, societies can ideally tag every possible thing in existence and run in a much more efficient way.For example, companies would never run out of stock, less waste would be generated, problems along the supply chain can be easily traced, even the flow of population and traffic can be more easily controlled. This is the concept of “Internet of Things,” which China is currently pushing for, says Prof. Cheung. One evidence is that under the Five Year Plan, the government wants to promote smarter cities where every vehicle and every product is tracked and traced to streamline city planning through better control over the inflow and outflow of goods, population and traffic.
Authenticity and Safety
Of course, when everything is traceable, security and privacy are important concerns. On the other side of the coin, the ability to track and trace individual items would help consumers identify safe and genuine products in a market of lemons.
According to Prof. Cheung, the potential use of RFID technology in this area includes the authentication of pharmaceutical and healthcare products as well as products that are prone to be counterfeited, like infant formula. For example, near-field communication devices can be installed in mobile devices so that consumers will be able to read the products’ RFID tags. The signals will then be checked against databases that contain all the IDs and information concerning authentic products.
Another important contribution that the technology can make is to improve the state of food safety along the supply chain. “Imagine if we’ve found a virus in one chicken and you can identify that particular chicken as well as all the other chickens in the same cage and where they have been transported,” says Prof. Cheung. “This would help control the spread of avian flu much more easily.”
Many of the concepts and technology mentioned above are being developed by Prof. Cheung’s team at CUHK Business School, which hopefully will obtain funding so they can be tested on the field and eventually be commercialized.
Associate Dean (Graduate Studies)
Co-Executive Director, The Asia-Pacific Institute of Business
Director, Asian Institute of Supply Chains and Logistics
Director, Centre of Cyber Logistics
Director of Studies in Graduate Studies in Business
Head, Graduate Division of Business Administration
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