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

Assuming that at the point of return the correct disposition has been made, the product will undergo a value recovery process that maximizes both the financial benefit to the firm and the economic benefit to society. As previously discussed, value recovery options include direct reuse, direct resale, repair, refurbish, remanufacture, cannibalize, and recycle. Since repair, refurbishing, remanufacturing and cannibalization all require some degree of disassembly, we group these options under the section of disassembly. We now discuss the use of RFID to enhance the value recovery process.

Direct Reuse. RFID tags are used to track and control company-owned reusable assets (totes, dollies) similar to the way pallets and cases are tracked in the forward supply chain. A September 2003 survey by Forrester Research on physical assets found that only 52% of the 172 responding firms saw a business case for collecting asset data. And, only 35% of the firms collected in-depth data on the identity of their physical assets (Radjou, 2004). However, there are several examples in the literature that describe the implementation benefits of using RFID to track and control reusable assets.

Scottish Courage, one of the largest brewers in the UK, tagged 1.9 million kegs with low frequency, read/ write tags. Some of the reported benefits were a reduction in keg losses from 4% to 2%, the identification and elimination of "unofficial supply chains," and a reduction in distribution overheads due to fewer distribution errors (Wilding and Delgado, 2004b).

The food division of London-based retailer Marks & Spencer deployed RFID tags to track reusable plastic trays contained in plastic dollies. Annual throughput of plastic trays is approximately 85 million and 70% of the product line is perishable. Marks & Spencer implemented a pilot study that replaced bar codes with RFID tags on 3.5 million trays that could be stacked and read through a doorway reader. The reported benefits include an 83% reduction in read time for each tagged dolly, a 15% reduction in shrinkage, a reduction in lead time which allowed for improved postponement, and improved product management due to near real time tracking (Wilding and Delgado, 2004b).

A 2002 pilot study by retailer Woolworth's in the UK to track 16,000 dollies resulted in the identification of supply chain inefficiencies, a reduction in shrinkage that was equal to 1.8% of sales, reductions in receiving and claims processing labor, improved utilization of totes and dollies, and a reduction in inventory levels with an improvement of product availability and customer service (Wilding and Delgado, 2004b).

Direct Resale. Direct resale is typically an option for commercial returns that are linked to the sales process at a retail location. Once the product has been correctly identified from the EPC and inspected for damage, the value recovery option is fairly straightforward. If the product is not damaged it can be returned to the retail store or to the warehouse for distribution to another retail location. If the packaging is damaged it can be returned upstream to the warehouse or the manufacturer for repackaging and tracked with RFID in the same manner as items are tracked in the forward supply chain. We are unaware of any direct resale applications of RFID.

Disassembly. Returns that are dispositioned for repair, refurbish, remanufacture and cannibalize will require some degree of disassembly during the value recovery process. As mentioned in our discussion on product disposition, an Electric Data Log (EDL) can be used to collect information on the recovery value of parts, components and materials that make up the return. For repair, refurbish and re-manufacture this information can be used to determine which parts or components need to be replaced. Replacement can be based on the known failure or on the expected failure of a part. Product information that can improve the efficiency of the disassembly can be stored on a product "passport."

Spengler and Schroter (2003) described a recycling passport developed by electrical and electronic equipment maker Agfa-Gevaert, based in Munich, Germany. The passport contains comprehensive information on Agfa-Gevaert's products that recyclers can access via the Internet to assist them in their recycling operations. The passport contains color-coded schematic drawings of the product, material weights, and advice on disassembly and hazardous substances (Spengler and Schroter, 2003). Radio frequency identification can be used to enhance the disassembly process by automatically accessing the passport through the EPC as the unit enters the workstation. The specific disassembly procedure and information on part recovery options (salvage for reuse, recycle or dispose) can be displayed on a monitor. When the product moves to the next disassembly station, inventory records for salvaged parts and recyclable materials can be updated for planning purposes.

We are unaware of any applications of RFID which are currently being used to improve the efficiency of a disassembly process. And, we know of only one example in the literature describing the use of RFID in a re-manufacturing process. Airgate Technologies, based in Allen, Texas, discussed a pilot study using passive RFID tags at a Dallas-based automotive-component re-manufacturer of alternators and power-steering pumps. Bar codes could not be used to identify products prior to painting; production workers had to visually identify the painted units before applying a bar code that was read at downstream assembly stations. Identification errors were usually discovered when the customer opened the box, resulting in customer dissatisfaction and return costs. Since the painting process does not affect an RFID tag, the tag can be attached to the component before painting, thereby ensuring accurate product identification (Collins, 2004b).

Recycling. It is unclear how RFID can be used to improve the collection and sorting efficiency of a recycling operation. Community recycling programs, such as in the state of Delaware, use color-coded bins so residents can easily sort their recyclable materials at collection centers. Plastic bottles have a material identification number on the bottom which aids the sorting process. Aluminum, copper and other metals that are collected by scrap yards are graded and separated before they are weighed, and industrial byproducts that can be recycled are often routed to a container for safe storage or to a designated area in the warehouse. And, large retail and grocery stores often have a corrugated box compactor in the shipping/receiving area.

To our knowledge there are no published examples of RFID implementations in recycling operations. However, RFID systems can be used to track and control the trucks and containers used to transport the reverse flow of recyclable materials. The security features of RFID can be used to protect against theft, and movement information can be used by production planners to allocate resources and schedule conversion processes.

Implementing an RFID Enabled Closed-loop System

There is a significant potential for the use of RFID systems in product recovery. Its use to track and control reusable assets can be expected to expand as more stringent environmental legislation is passed. Moreover, RFID can be used in the disassembly process much the same way it is currently used for new product manufacturing. Mabee et al. (1999) provided an extensive list of design attributes for re-manufacturing assessment. Radio frequency identification can be used to enable and increase the efficiency of several of these attributes, including: accurate identification; disassembly time, steps and layout; analysis of part or component quality (through the EDL); cleaning or repair procedures; and accurate identification after reassembly.

Currently, the use of RFID in closed-loop supply chains is dominated by item tagging for reusable assets that will have a unique EPC code over their lifetime. This dominance is due to control issues, low return volatility and low product complexity. The company owns the assets and obviously has a vested interest in minimizing the costs associated with these assets. Though the implementing company bears the financial burden of the RFID system, they control the assets and the data associated with the asset. Since the information is internal it is easier to use the data to improve operations and the cost of integration with external entities can be avoided. In addition, product disposition is known. Accurate tracking of the assets as they move along the supply chain helps to reduce the level of return volatility. Lead times can be stratified for different process steps and a higher level of measurement accuracy can be attained. Product complexity is low for reusable assets because they are designed for utility, which facilitates product identification. Due to the low levels of return volatility and production complexity, we postulate that RFID deployment for reusable assets will yield significant short-term benefits.