Barcodes and scanners are great inventory tracking tools, but they have limits: A worker is required to actually scan the barcode and the information recorded is static, revealing only where an item was the last time it was scanned. The next level of technology, real-time location systems (RTLS), are fully automated and tell you where an asset is right now as well as providing other information about its status. If early successes are an accurate guide, RTLS promises to become a prime weapon in the supply-chain manager's cost-control arsenal.

The technology, which uses radio frequency identification devices (RFIDs), or tags, and a system of readers, or interrogators, is emerging in a variety of forms. These vary from small, inexpensive RFIDs attached to individual products on a store shelf and read by scanners from distances of 10 feet or less, to fairly expensive pager-like tags that communicate their location and status via wireless technology and/or local area networks over a much wider area. Regardless of the form, these real-time location systems raise asset location capability to a dramatically higher level.

"Barcodes are very simple: They basically are numbers in fat lines and thin lines in a particular code, and you have to touch or scan the barcode with a laser optical reader to translate that code into a machine-readable form in order to make sense of the data," explains Vic Verma, president and CEO of Savi Technology Inc., San Jose, Calif.

"Fundamentally, it is a way to automate data-gathering, but it still requires a human in the loop.

"On the other hand, RFID and real-time location systems - and real-time location systems are just a subset of radio frequency identification technology - eliminate the need for a human." The data is gathered automatically, and the data can be about the location, the status, or the identification of the asset, says the Savi (pronounced "savvy") chief. "But it's gathered using a radio frequency receiver/transmitter combination, and it doesn't need a human to be around when the data is gathered. That's the fundamental difference: Barcode is short-range and requires a human in the loop because somebody is needed to point the RF gun. RFID and real-time locating systems are automatic systems put in place so the asset can tell you its identification, its location and its status without having any human beings in the loop."

Thomas E. Turner, senior vice president of WhereNet Corp., Santa Clara, Calif., explains the difference between conventional barcode technology and real-time location systems this way. "If you examine how barcodes are used today, their primary purpose has to do with the capture of information at the point of a transaction - a purchase transaction, receipt of material, put-away - where the barcode is actually scanned," he says. "One of the challenges that organizations face is to really understand exactly where their assets are, and whether those are fixed assets like a tractor-trailer sitting in a distribution center or a container of material sitting in a factory."

Simply knowing that a container of material came in an hour ago may be sufficient in terms of paying the supplier's bill, but it may not be sufficient in terms of finding that container of material when the company really needs it, says Turner. "What real-time location systems do is provide connectivity on a real-time basis between the information system and the actual location of the asset."

This helps facilitate a reduction in cycle times and essentially eliminates a huge challenge that many companies face in terms of search times and non-value-added work involved in managing those assets, says Turner. "Probably the simplest way to say it is that this technology answers, on a real-time basis, the question 'where are my assets right now,' as opposed to where they were the last time I happened to have a person in contact with them."

Turner cites two specific applications of real-time location systems to illustrate the capabilities of the technology: Coca-Cola Corp. and Ford Motor Co.

Coca-Cola's challenge was how to manage trailers at the soft drink manufacturer's distribution center in Atlanta, a facility associated with one of the five sites in the U.S. that produces the syrup for Coke. More specifically, says Turner: "How do you keep track of several hundred trailers on that site, when those trailers either contain packaging or raw material going into the plant, or contain finished product that has a spoilage factor, or are empty and available for shipping finished product?"

What Coca-Cola needed, he explains, was a way to provide real-time visibility along with certain alert capabilities across a 30- to 40-acre site. "With WhereNet's real-time location system, they now tag all of the trailers as well as the tractors and yard hostlers in order to provide real-time visibility of each trailer as well as the status of that trailer," says Turner. In the case of a trailer that contains the finished syrup product, Coca-Cola now has the ability to set a timer within the system. If that specific trailer is still on the site 48 hours later, an alert is issued that triggers either a phone call, an e-mail message or a page to a specific individual and then displays the exact spot on a map where the unit is located so it can be moved within 24 hours, thus avoiding the risk of having to scrap the product.

There are several benefits to all of this, says Turner. On a very basic level, it eliminates the need to perform very non-value-added tasks, such as having people walking the acreage doing yard inventory on a clipboard, when in reality, three or four hours later, 20 percent of the trailers have been moved. On a higher level, the technology not only provides the better visibility that enables Coca-Cola to avoid losses through product spoilage, but it also helps in managing the overall assets.

"Companies generally pay demurrage fees for trailers on the lot," he points out. "If there's an excess of empties on the property, the system helps Coca-Cola identify the location of those empties and get the extras back to the appropriate contractors and eliminate unnecessary demurrage fees. With this kind of system, there's a huge opportunity to do a much better job in this area, and Coke certainly proved that they could do a much better job in managing this expense."

Ford Motor takes the technology application a step further by using real-time location systems for vehicle inventory management, for tracking containers and, using a more sophisticated tag, for triggering replenishment on the production lines. Ford actually clips real-time location system tags to the rear-view mirror of every vehicle that moves down the production line. Consequently, managers know where each and every vehicle is as it completes the manufacturing and subsequent testing process, together with knowing exactly where those individual vehicles are when they exit the factory and are stored in the parking lots surrounding the factory.

The value is obvious "if you think about the challenge in many high-volume car factories," says Turner. They are producing a new vehicle as rapidly as every 55 seconds, and each one is relatively unique not only in terms of configuration but in terms of destination as well."

In addition to simply knowing where each vehicle is - knowledge that improves and accelerates customer service and, hopefully, customer satisfaction - the technology gives Ford a considerable advantage in the quality-control arena. "With the focus on speeding cycle times through the supply-chain and manufacturing processes, there occasionally are situations where a set of parts may come into the factory, start getting integrated into vehicles, and for whatever reason a problem surfaces in the quality review process that necessitates locating the affected vehicles before they ship," Turner explains. It's a big advantage for Ford to fix the problem at the factory where the corrective action can be done for tens of dollars as opposed to taking care of the problem at the dealership, where the costs of corrective action can skyrocket to hundreds or thousands of dollars.

But the process of locating several dozen affected units amid acres upon acres of holding lots packed with thousands of similar vehicles can be a nightmare. "With the real-time location system's vehicle inventory management tool, operators can simply enter into the system the vehicle identification numbers for the affected cars, and the system will produce the exact locations on a map of the yard where those particular vehicles can be found, all in a matter of seconds." Contrasted to a process that in the past has taken hours and sometimes days to identify and segregate all those cars, it's easy to see why Ford over the course of the last 18 months has expanded use of the technology to more than 40 installations at major facilities - automotive assembly factories and component factories that produce engines and power trains - and not just in the U.S., but in Canada, Brazil and several countries in Europe.

Both Savi and WhereNet have close ties with the U.S. military and point to the advantages real-time location systems technology brings to military functions such as the rapid deployment of forces.

The military needs to use lean logistics, a need that has intensified with the terrorist attacks on our nation, says Savi's Verma. "If you're going to have the Army Rangers or 18th Airborne Corps parachute down to some location, they're not going to be able to carry or even predict all the logistics support they will need. They need a logistics pipeline that enables them to use a web-based system or even a cell phone or handheld device to place an order for extra food or ammunition. To facilitate that kind of operation, they need to have a very agile supply chain where they know exactly what is in each container and exactly where each container is located." Then, they have to have the capability to divert on a dime each container in transit as troops change locations in order to meet developing threats or to capitalize on emerging opportunities.

Going back to Desert Storm, the military employed a slow build-up strategy, shipping 40,000 containers to the Gulf to support U.S. troops. "They had no idea what was inside 28,000 of them; they called it 'just-in-case' logistics," Verma recalls. "What they want the ability to do is for ground control troops to request 500 M-16s or a thousand rounds of tank ammunition and know exactly when they are going to get it, and then be able to change the destination location because the threat has shifted.

"This requires very agile, very flexible logistics capabilities fueled by knowing exactly what is going on at all times - a situational awareness of logistics. And this form of real-time location systems is very critical for the military to be able to meet that need."

When you think about it, the global supply chains are moving in that same direction, he adds. Companies like Wal-Mart, Nike or Cisco all ship product inbound from China. "But once those shipments leave the factory, they often lose sight of them, so they need a non-trivial amount of safety stock."

Real-time location systems can bring enormous flexibility to logistics operations, Verma says. "With real-time location systems, I can tell you the location, the identity of and the items inside a container. On top of that, I can tell you the status of the container, whether it's hot or cold, or if it's been opened or otherwise tampered with. Do you think that's going to be relevant in light of new security concerns we face as a nation, particularly in the air freight market?"

Real-time location systems also can be used at the retail store level as inventory-control systems alone or as part of a much broader collaborative planning effort between trading partners seeking to eliminate excess inventory, explains Adrian Gonzalez, senior analyst-supply-chain logistics, for ARC Advisory Group. For example, a consumer picks up a tube of toothpaste from the shelf at CVS. A small, inexpensive tag affixed to the toothpaste carton triggers a "reader" mounted on the end of the shelf, which immediately notifies the store's IT system that the item has been picked, which in turn triggers a replenishment message that is passed virtually instantaneously up the line of trading partners, all of which receive the same information at virtually the same instant.

Compare this process, suggests Gonzalez, with the more traditional replenishment process where the retailer places replenishment orders on a weekly basis for an individual product - in this case, the 6.4 oz. tube of Crest. "That order is placed with a distributor, which places replenishment orders to a wholesaler, which places orders with the manufacturer," he points out. "What happens is that the manufacturer has very poor visibility to what's really going on at the store level. You end up with variability in orders as you move down the supply chain, and each of those groups really orders more product than they need just to have safety stock available. By the time the manufacturer gets the order, the manufacturer produces way more product than is needed."

Poor visibility and inaccurate information leads to build-up of unnecessary safety stock, which dilutes available capital while creating considerable opportunities for waste, particularly when conditions call for a rapid shutdown of the supply pipeline, he adds. Supporting this point, Verma points to the inventory glut that befell Cisco earlier this year. "Cisco demonstrated what can happen when you have an economy that goes from 100 mph to zero in a week flat. They couldn't respond fast enough on their logistics to shut off the pipeline, and they ended up writing off a lot of inventory."

The timeline for the more collaborative applications remains a few years off, Gonzalez says. "If we're talking about programs where each individual product has a low-cost tag that replaces a barcode, then I think we're maybe three to five years away. But when you talk about projects like those under way at Ford, we're there."

According to WhereNet's Turner, the costs for projects such as those under way at Ford and Coca-Cola can range from $100,000 to $1m, with implementations taking from 90 to120 days. The tags alone cost approximately $50 for the pager-like units; considerably more for the two-way interactive units used in the Ford replenishment operation. The return on investment, however, can be measured in months, not years. Savi, WhereNet and other vendors in this growing theater continue to add to their respective customer bases, and as the applications increase in numbers, the vendors expect the costs of tags, networks and implementations to steadily move downward. This in turn should place the technology within easier reach of companies that don't fall within the prime Fortune 500/Global 2000 target market.

Proponents of RFID and real-time location systems envision a future in which RFID and RTLS infrastructure is installed in new distribution centers and manufacturing facilities as routinely as is plumbing and heating systems. Once that local infrastructure is in place, operators can use the antennas and location processors for multiple applications, similar to the way Ford uses its plant and yard infrastructure to perform vehicle inventory management and parts replenishment activity, thereby spreading the technology costs across a wider range of functions and hastening return on investment.