US DOD RFID INITIATIVE – DFARS DOCUMENT ADDS CLARITY TO MANDATE
31 October 2005 - Venture Development Corporation

With the recent release of the US DOD Defense Federal Acquisition Regulations Supplement document, we may, at last, have a realistic set of requirements, and allowances, that will offer near-term profitable, scalable revenue opportunities for RFID suppliers.

The US DOD RFID initiative is several years old. But only this year has it found its legs with the launch of a three-phase approach to rolling out RFID and the publication of the DFARS document outlining the regulations suppliers must follow with respect to shipping RFID-tagged goods.

On January 1, 2005, the DOD rolled out its RFID Phase I pilots. Highlights of this Phase included:

A limited number of items to be tagged;
Tagging to take place at the case, carton and pallet level; and
Only shipments destined for two locations (Susquehanna, PA and San Joaquin, CA) were tagged.

The results of these pilots are generally considered to be very successful, with a number of factors considered highlights:

Compliance achieved among all of the Top Tier suppliers participating in the program;
System performance meeting, or exceeding, all major metrics; and
Cost reduction and performance improvement road maps clearly defined and agreed upon by pilot participants.

Phase II, set to launch on January 1, 2006, will expand to nearly two dozen major depots. Phase III, set to launch one year later, proposes to tag all shipments to all locations, at the item level.

In March of 2005, the US Government Accounting Office issued a scathing report on the viability of widespread adoption of RFID in US Federal Government applications. (To read VDC's response to the GAO report, please click here). We believe that the GAO report was severely flawed and on many points related to the DOD's adoption of RFID technology.

In April of 2005, the DOD issued its first DFARS document. It is believed that the DFARS was produced, in part, as a response to the GAO report. However, it was largely a document whose planning predates the GAO report and whose goal is to provide additional detail on the US DOD RFID initiative. DFARS was to codify the US DOD RFID approach for DOD Program Managers, their suppliers, and RFID solution developers, based on the results of the Phase I pilots, and subsequent controlled pilots and rollouts.

The first DFARS release outlined RFID tagging regulations for DOD suppliers. The document was not complete, or perfect, as subsequent amendments reveal, but it did offer definitions and detailed a number of requirements, including:

RFID technologies and approaches to be employed;
Acceptable tags - EPC Class 0, Class 1, and Gen 2;
Products to be tagged;
Supply chain echelons, case, carton, pallet, to be tagged;
Contract categories subject to the tagging requirements; and

During the summer of 2005, the DOD Program Managers, DOD suppliers and RFID solution providers worked hard studying the results of the original pilots in Susquehanna and San Joaquin, and others, with two goals driving their work:

Identify approaches for improving the technical, operational and financial performance of the pilots; and

Find ways to address sharing the cost of RFID without killing the initiative.

The result of this work produced, among other benefits, the DFARS final rule and amendment in September. This amendment pushed RFID mandate development to a new level:

Definitions for exterior packages across a number of products and echelons;

Unique identification insurance regimes;

Metrics to evaluate existing and proposed RFID installations, including: visibility, shipment accuracy, required touch points, and shipment cycle times; and

But what really makes the DFARS documents so powerful in terms of deploying RFID across the US DOD supply chain? There are three main factors:

1. US DoD affords suppliers latitude at each Phase, within DFARS, to meet the mandate, including technical approaches and timetables;

2. DFARS allows DOD suppliers to pass on the costs of the RFID tagging to the DOD until the suppliers can prove their own internal justifications; and

3. DFARS focuses on the value of the items to be tagged, thus enabling ROI, TCO, and other financial goals.

More importantly, all three are quite different from retailer initiatives that have strict (if changing) implementation timetables, no allocations for suppliers, and focus on the total volume of business conducted, not on the value of the trading.
However, while the new DFARS rules add much needed clarity, a key question remains. More specifically, the US DOD has not communicated a sunset date for Gen 1 Class 0 and Class 1 technology. The pressure to move to a single protocol has increased since retailer mandates now call for all tagged shipments to support Gen 2 by 2007. We expect the DOD to eventually migrate to Gen 2, but the DOD must clarify its multi-protocol vs. single protocol position so that those impacted by the mandate can modify their deployment strategies.

Nonetheless, we believe that DFARS offers DOD suppliers, and RFID solution providers, the right balance of specific requirements and room to meet them.

http://www.vdc-corp.com

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