Wednesday, October 04, 2006

RFID Get Well Programs

RFID Law Journal
Newsletter No. 23
October 4, 2006

No more dragging your feet, DoD contractors…no more procrastinating… The verdict of one very important end-customer, the Department of Defense, is now “in.” Earlier today, RFID Update advised industry watchers of an imminent announcement by ODIN Technologies of its completion of the RFID wiring of 19 CONUS (Continental United States) depots (including 69 facilities in total).[1] What does that mean for the average DoD contractor? In all likelihood, it means that now is the time to “get well” and jump onto the RFID bandwagon.

Indeed, as a result of a 5-step “exemption/waiver” process, the DoD’s contracting officers are no longer able to merely grant a non-compliant party (even a sole source contract) an exemption from the DoD’s passive RFID tagging requirement. In most cases (other than for certain excepted classes of goods), DoD contracting officers must notify suppliers that the use of passive RFID tagging in connection with the delivery of goods into (most U.S.) depots is a contractual condition. If your organization is unprepared to do so (and as such, requires an exemption or waiver), your DoD contracting officer will be obligated to screen your contract (i.e., using the 5-step process described in our newsletter “DoD Contractors Beware of RFID Cramdown”) and require your organization to “get well” as a contractual condition. Pursuant to this requirement, suppliers must prepare a RFID-compliance plan specifying the steps to be taken to ensure RFID compliance. A Defense Department supplier’s failure to prepare and follow through on a RFID Get Well Plan may constitute a breach of contract, which could negatively impact its vendor scorecard and could result in serious fines.

In lieu of dwelling on the DoD’s requirement (and thinking about it as yet another cost of doing business), your organization should think about developing a RFID Get Well Plan as the initial step in the process of identifying the key benefits of RFID deployment. If the contractual relationship (with the DoD, Wal-Mart, etc.) accounts for a meaningful percentage of your company’s overall sales, chances are that RFID compliance may represent a significant intrinsic benefit. Quick attainment of RFID compliance could competitively position your company’s sales force vis-à-vis your competition.[2] There will certainly be “winners” and “losers” in this compliance game. Whereas a successful RFID Get Well Plan will doubtlessly position some organizations for improved relationships with the DoD (and others), some organization will undoubtedly fail to create and implement a RFID Get Well Plan, resulting in a competitive disadvantage.[3]

As an organization considers ROI benefits, many will identify other potential gains, including stock-out reduction, labor cost reduction, supply chain optimization, anti-counterfeiting, shrinkage reduction, spoilage reduction, payment optimization, etc. What can be gained will depend upon a number of characteristics, including your company’s existing infrastructure. In terms of benefits, don’t forget the obvious one – compliance. Compliance = better business relationships with key customers (i.e., the DoD, Wal-Mart, etc.)!

Be wary of cutting corners, especially if the DoD (or Wal-Mart, Target, etc.) is a significant portion of your organization’s business. While it’s tempting to defer making an investment in RFID through deployment of partial solutions (i.e., to save money short-term by deferring the cost of deploying a RFID system),[4] the RFID requirements are not going away (and if anything, the requirements will be expanding to all DoD operations as the DoD enters the third year of its rollout of the passive RFID requirement) and exemptions / waivers are not an effective mechanism for deferring deployment costs.

If doing business with the DoD (or other organizations with similar requirements) is important to your organization’s success, it would behoove your organization to assemble the right players within and outside of your organization (e.g., government sales, IT, RFID experts, etc.) to consider your organization’s RFID options carefully. Outside experts can be indispensable in helping you put together your company’s RFID Get Well Plan. Get going…and good luck!

© 2006 – RFID Law Journal, LLC. All rights reserved.

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[1] For more details about RFID Update’s breaking story “RFID Deployment at DoD Complete First Phase,” click through to the following link:
[2] Don’t under-estimate the time required to deploy a RFID system.
[3] For example, Lockheed Martin and Boeing are among the earliest adopters and most aggressive deployers of RFID technology. Clearly, the DoD is a vital aspect of their future businesses, and they are certainly using their RFID expertise as a competitive advantage over their competition.
[4] For example, some suppliers are purchasing pre-printed tags and a RFID reader (used to verify the tags at the point of shipment) to enable sending a shipment to a depot or distribution center. However, as suppliers are quickly finding out, it’s extremely difficult to rely solely upon this solution for volume shipments. Not only does such solutions fail to yield many of the ROI benefits typically identified as evolving out of the deployment of an automated RFID system, but also require extensive labor because it requires manual entry of the ASN into a WAWF system (i.e., clerical time for each shipment).


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