Behind the Product Recall Process

SAP's Dr. Krish Mantripragada and Jim Crawford explain the benefits and challenges of implementing RFID in a supply chain to make the unfortunate process of initiating and executing a product recall more targeted and less costly.

Q: How can RFID improve the recall process?

A: Mantripragada: Authentication, track-and-trace, and conditions monitoring of product in a supply chain make up the total product integrity. Passive RFID helps us with the first two problems: authentication and track-and-trace. RFID uniquely identifies every unit of product that is sold and ties it to the appropriate business process that is involved in the packaging, distribution, and logistics processes. In doing so, you carry enough information to establish the authenticity and legitimacy of the product. This includes a unique serial number like an EPC code; a combination of the hierarchy of how it's packaged; what transactions are involved in packaging and shipping/receiving it; and invoicing it to various members in the supply chain (as well as any of these different combinations of information). For the third problem, conditions monitoring, you need a sensor or a more active tag.

In the event of a recall, or the process of initiating a recall, RFID can help make the recall process less costly because it uniquely identifies the product in question. With that information on hand, you know exactly when and where specific products have violated the handling conditions and have either been contaminated or need to be recalled. So you can focus and contain the problem to only the subset of the product that is actually contaminated, so you do not need to pull back that entire product in circulation.

Why are product recalls a greater concern today than in the past?

Crawford: There are several factors making this more of a concern today from the point of view of companies that would need to be investing in this type of technology. There have been a number of high profile recalls lately – certainly in the toy community from China, but a number in the food space as well – where the biggest challenge in terms of the food safety and regulatory environment is that it's usually individual states that uncover the contamination, but they don't have any regulatory authority to force a recall. This past fall, the Department of Agriculture waited 18 days after being alerted of an outbreak of an E. coli contamination in ground beef before they actually forced the recall. So you have this problem where you have national or international distribution of a product, but it's being identified at the state level. These recalls are astronomically expensive for the manufacturers who are being forced, kicking and screaming, to do the recall. Using RFID can completely change the dynamic of how manufacturers are able to respond to product recalls, allowing them to have a greater degree of responsiveness to the consumer and minimize the financial damage to the shareholders by focusing only where the problem occurred because oftentimes, when a product is contaminated, a company has to over-recall the product because they could not identify the specific products that were contaminated.

That dynamic changes the cost factors in the entire equation. You may have four to 17 entities that are touching the product from the moment it leaves the factory to the time that it is picked up off the shelf by the consumer. By having the ability to track when the conditions are broken, you not only can be more precise in terms of which goods are specifically contaminated or damaged, but also where that happened from an ownership accountability standpoint, and this again will encourage the players in the supply chain to be more responsive.

In today's world, we're starting to see a lot more consumer awareness of product recalls. Manufacturers know that their stock price can be very quickly impacted with a heavy degree of public scrutiny. Whether they're right or wrong doesn't really matter so much, but the public impression is that they're not responding accurately, quickly, or with appropriate enthusiasm. Then the share price drops. We see that happen frequently enough that it's a major concern.

Mantripragada: This is particularly relevant in the cold chain product because often the bigger problem is that the product is not being handled and transported in the strict conditions that they might require. So a lot of the reasons of the recall occur during the distribution and handling storage versus some of the other products such as toys with design flaws or other flaws that happen during the manufacturing process, like a particular ingredient being a problem. In those cases, the recall focuses on pulling out an entire batch of product. Here, in the cold chain, it becomes a lot more important to not recall the entire line of the product and instead zeroing in only on the ones that are damaged.

What are some of the major challenges when deploying RFID against a business process like a product recall?

Crawford: The big challenge in deploying RFID against a business process like a product recall is that you've got such a diffuse set of cost centers that need to play for it. You have to have the reader infrastructure in a bunch of different places, you need the tags affixed properly, and all these different things, and any time you have that kind of diffused cost responsibility, there needs to be the critical mass of business applications for one player to really just jump into that and put their systems in, and I think we as an industry suffered a bit from a lot of the hype. I think we're coming out of the bottom of the hype cycle where companies are looking at this first inside their four walls and saying: "Okay, how can we make money deploying RFID right now?" And the list of those applications is smaller than everybody thought. It's not a simple business problem. It's actually getting us into an environment where you've deployed it and you're making money through that deployment. So, I think that when we're looking at it from a business applications software perspective, certainly RFID changes a lot of things, but at the same time, it's going to be deployed as a part of change in business process, change in business relationship with vendors and other suppliers. It's an interesting challenge because you've got the business benefits from product recalls, outside tracking, and reduced shrinkage, but maybe running on the same infrastructure. A big part of what we're doing form the software side of it is looking at how this visibility changes the software; how it changes the business process; how it changes the financial ROI picture; and really trying to bring that knowledge that we have from working with so many different companies to the companies that are considering major RFID deployment – not just for recall but for everything.

Is SAP working with any companies trying to implement RFID for cold supply chains and potential recall situations?

Mantripragada: Yes, in the sense that we have companies that are more in the mode of preparing to avoid a recall including pharmaceutical companies; we haven't yet faced a situation where someone is recalling products. In the automotive industry, we have an auto supplier who is using RFID as a competitive venture so that they provide a lot more traceability information on the product they deliver to their customer, so if they ever had to do a product recall, they would know exactly what components went into which subassemblies, the performance parameters, because the RFID tags recall not only the serial numbers in every product in the subassembly, but they also record some key performance information so that they know what quality information was associated with a given subassembly or part that in the event they have to do a recall they are in a much better position to consult.

Dr. Krish Mantripragada is SAP's Head, Solution Management, RFID and Supply Chain Management. Jim Crawford is SAP's Director, Indusry Solution Marketing – Retail. Visit SAP at www.sap.com.