Enhancing product recovery value in closed-loop supply chains with RFID.

Direct reuse items are also known as reusable assets. They are capital assets owned by the company and must be tracked throughout the supply chain, recovered when emptied, checked for damage, and repaired and/or cleaned if necessary. Totes, dollies, and containers are used to hold finished goods, components, and raw materials. They are used to facilitate transportation and handling along the supply chain. Reusable assets also include refillable containers, such as beer kegs, glass soda bottles, and drink syrup containers. Often these assets are returned to the manufacturer to be refilled and redistributed. Direct resale items are often products that have been returned to the point of sale by consumers. However, they can also include overstock and end-of-season products returned by retailers to distributors. Direct resale items need to be inspected for damage, and cleaned and repackaged if necessary. Consumer returns can be returned to either the inventory at the location they are returned to or sent back to the warehouse for redistribution.

Products returned for repair, refurbishment or re-manufacturing undergo a disassembly and reassembly process to fix or upgrade the product. Products returned for repair are brought to working order by fixing or replacing broken parts, and the output is an original product. A product that is returned for refurbishment is in working order at the time it is returned. It is inspected and critical modules are fixed or replaced, while outdated parts and modules may be upgraded. The output is an updated version of the original product. Products that are re-manufactured have all critical components and modules replaced with current technology, and the output is a new product that meets or exceeds the original quality standards. A re-manufactured machine costs significantly less than a new machine. Repair, refurbishment, and re-manufacturing all create a waste stream of removed parts that can be directed to a closed-loop supply chain for further value recovery.

Cannibalization is a disassembly process that focuses on the select retrieval of potentially reusable parts for repair or refurbishment and raw materials for recycling. A high-volume, efficiently run cannibalization operation has the potential to create a reliable internal parts supplier. Products that are recycled are reduced to the material level and cleaned if necessary. High-quality materials can be used to make original parts, while lower grades are used to make items that do not need to meet a high standard. Non-recoverable items from the value recovery processes are incinerated or land-filled. In Figure 1 we show incineration and landfill as reverse supply chain destination options. We do not consider incineration and land-filling to be value recovery options because the end result is that the item is removed from the supply chain.

RADIO FREQUENCY IDENTIFICATION

The origins of RFID technology can be traced to laboratory research in the 1940s that focused on reflected power communication. Its commercial use began in the 1980s, primarily in railroad and trucking industries (Landt, 2001). These applications used battery powered active RFID tags and proprietary systems to track and manage capital assets, such as rail cars and cargo ship containers (Dinning and Schuster, 2003).

The expansion of RFID into the supply chain has been due to the reduction in the cost of RFID technology through the use of non-battery powered passive tags. These passive tags can be used to replace bar codes as a means of gathering information within the supply chain. Radio frequency identification can be used to identify products at item level, can be read with no requirement for line of sight and can operate in harsh environments, where dirt, dust and moisture conditions can affect other types of Automatic Data Capture Systems, such as bar codes and light-emitting devices. Moreover, multiple tags can be read simultaneously, and tags can also be programmed easily. In addition, tags are capable of carrying more information than bar code technology, thus enabling RFID to store additional information such as location, move history, destination, expiration date and environmental conditions (temperature, moisture, etc.) (Wilding and Delgado, 2004a, 2004c).

According to Tersine intensive competitive pressures force firms to eliminate wasteful and time-consuming activities that do not add value to the product (Tersine, 2004). Radio frequency identification has the potential to increase the level of visibility and communication in the supply chain. This information can be used in decision making to eliminate non-value-adding activities, strengthening the competitiveness of the supply chain.

The RFID System

All RFID systems are comprised of three main components: (1) the RFID tag, or transponder, which is located on the object to be identified and is the data carrier in the RFID system, (2) the RFID reader, or transceiver, which may be able to both read data from and write data to a transponder, and (3) the back-end database which associates records with data collected by readers (Jones et al., 2004). Figure 2, adapted from Dinning and Schuster (2003), shows how an RFID system works.

[FIGURE 2 OMITTED]

First, a unique identifier, such as an Electronic Product Code (EPC), is embedded into the microchip in a tag. The microchip can also incorporate functionality beyond simple identification and include integrated sensors, read/write storage, encryption and access control. The tag is then attached to an item, case or pallet. As the item/case/pallet moves into the scanning range of the reader, the reader sends out electromagnetic waves that form a magnetic field when they "couple" with antenna on the RFID tag. The tag draws power from the magnetic field and uses it to power the microchips' circuits. The microchip then modulates the signal received in accordance with its identification or programmed code and transmits or reflects a radio frequency signal. The modulation is in turn picked up by the reader, which decodes the information contained in the transponder and, depending upon the reader configuration, either stores the information, acts upon it, or transmits the information to the host computer via the communications port (Jones et al., 2004).

The decoding process in an RFID system is carried out by Savant, a lower-level software application developed by the MIT Auto-ID Center to handle data. When the reader picks up a signal, Savant uses the EPC on the tag to contact the Object Naming Service (ONS). The ONS can be on a local network or on the Internet, and it is similar to the domain name service that associates an Internet provider address with a domain name. The ONS serves as a directory that locates the server containing the information for the item being scanned. That information is collected by Savant, and then communicated to the databases and supply chain applications requiring the information. The communication format for the data is physical markup language (PML). Physical markup language is based on the extensible markup language (XML, popular in e-commerce transactions), which has the ability to describe physical objects, processes and environments in a standardized way (Angeles, 2005; Dinning and Shuster, 2003).

Closing the Loop with RFID

In an effective and efficient closed-loop supply chain, all processes (forward and reverse) need to be coordinated, which requires accurate and timely information. Guide et al. state "Managers must take actions to reduce uncertainty in the timing and quantity of returns, balance return rates with demand rates, and make material recovery more predictable. Managers must also plan for the collection of products from end users. The use of information systems with new production-planning and control techniques makes management of those activities more predictable" (2000: 125).

Several authors have mentioned the use or potential use of RFID and related technology in the closed-loop supply chain. Fleischmann et al. believe that "information management is the key to creating an efficient closed-loop supply chain" (2003: 55) and that RFID can be used to actively manage product returns. Krikke et al. (2004) mention using RFID to improve the quality of data and reduce the amount of manual data transfer of information in the supply chain in order to enable a Product Data Management system. Van Nunen and Zuidwijk (2004) feel that future improvements in closed-loop supply chains will be driven by technological developments such as RFID that will allow low-cost remote monitoring of information for a wide range of products and their processes. These processes include source, make, delivery, use, return, and recovery.

THE IMPACT OF RFID IN THE CLOSED-LOOP SUPPLY CHAIN