GTSI Corp. has strong financial incentive to comply with the U.S. military's directive to use radio frequency identification (RFID) tags for tracking product shipments.
The Chantilly, Va.-based company, with 850 full-time employees, provides IT products to federal, state and local governments. Sales to defense agencies alone account for about 35% of its annual revenue, which topped $1 billion for the first time in 2004. Another 20% comes from equipping systems integrators that serve defense agencies.
Last January, the U.S. Department of Defense (DoD) began requiring its 43,000 vendors -- most of which are small and medium-sized businesses that serve specialty niches -- to place RFID tags on pallets and
cases of certain products that are shipped to defense supply centers in San Joaquin, Calif., and Susquehanna, Pa. The DoD plans to phase in additional product categories and other RFID-ready supply centers through 2007.
RFID is a method of using radio waves to transmit the identity of objects. Semiconductor chips embedded in RFID tags contain unique identifying information about each object. RFID tags are affixed to items and are read by special scanners, which capture the information and transmit it digitally to large computer servers, where the data is stored for access and retrieval.
With the imminent Jan. 1, 2005, compliance deadline, GTSI assembled a multidisciplinary team to assess RFID technologies and devise a compliance strategy. GTSI began planning in 2004 and spent several months getting the system up and running.
"We formulated a team of our IT personnel and several levels of management within the company. We approached RFID the same way we would approach any business decision," said Tom Busby, who manages GTSI's integration and distribution center.
Specifically, Busby said GTSI centered its analysis on how to integrate RFID technologies across its supply chain without disrupting other business processes. Long range, the company plans to use RFID systems to streamline product inventories and winnow inefficient processes.
To help with the implementation, GTSI hired ODIN Technologies, in Reston, Va., to develop an RFID infrastructure and oversee performance testing. RFID middleware by Sun Microsystems serves as the communications bridge between RFID applications and GTSI's order-entry system. Once the technology was gathered, rigorous testing began.
"One of the most challenging pieces was learning how RFID technology works and selecting the appropriate equipment. Then we did physics studies to ensure that the placement of the equipment worked with our existing systems," said Busby. "We had to make sure that we had a very high level of success in our tag reads" when RFID-tagged products were being scanned.
Budget line
Busby said GTSI plans to parlay its RFID system into other benefits, although that depends largely on how quickly the technology matures.
"As more companies adopt RFID technologies, and as material costs come down, we expect to see more opportunities to use RFID for automation and cost savings," Busby said.
Busby declined to specify how much money GTSI spent getting RFID-compliant, but the cost probably was considerable. In addition to hiring outside consultants, companies have to budget money for RFID-enabled printers, RFID readers and other hardware, plus additional money for software and services.
"At the absolute minimum you're going to spend about $100,000 for outside [consultants]," said Marc Linster, chief technology officer for Avicon, a Waltham, Mass.-based company that helps develop supply-chain strategies.
GTSI illustrates the hurdles facing the vast number of DoD product vendors. Usually companies must retrofit existing systems on the fly by incorporating unfamiliar RFID infrastructure. DoD's mandate on RFID is designed to aid soldiers on the ground by making it easier to track and locate key supplies.
In fact, experts say the goal of RFID is to enable organizations to track products more quickly, while decreasing human error. They caution that achieving those results is hardly easy, especially for companies with little RFID experience and limited IT resources.
"The major issue for SMBs is coming up to speed on how RFID technologies work. Secondly, they have to think about how an RFID implementation could affect their product costs," said Sanjeev Aggarwal, an analyst at Boston-based Yankee Group.
Companies also will have to pay for RFID knowledge, which comes at premium. Although RFID has been around for decades, its applications have been limited mostly to the airline industry.
"As an IT manager, you'll have to decide how much [RFID expertise] you want to pull in-house," Linster said. "If you believe this is something that will become ubiquitous, you're probably well-advised to get at least one knowledgeable person on the inside so you can understand the proposals, understand the requirements, and understand the quality control."
