Int. J. Enterprise Network Management, Vol. 2, No. 1, 2008
Is the RFID technology ready to integrate supply
chain activities?
H.K. Chan* and Felix T.S. Chan
Department of Industrial and Manufacturing Systems Engineering,
University of Hong Kong,
8/F Haking Wong Building, Pokfulam Road, Hong Kong
Fax: +852-2858-6535
E-mail: hkchan@ieee.org
E-mail: ftschan@hkucc.hku.hk
Radio Frequency Identification (RFID) is not a new technology and
has been introduced for military applications for a long time. Nevertheless, it
has been recognised as a device that may soon change the mode of operations
throughout the supply chain. There is no question that the technology will
reduce labour and improve accuracy in inventory management by improving
inventory visibility. However, a review of recent research and the development
of RFID technology in supply chain related applications indicated that
deployment of the technology are restricted to the mandates of some giant
players in the industries. It is still unclear that how return on investment of
RFID-based projects could be justified. This paper aims to present a review of
the technology and some recent development of RFID in relation to supply
chain applications. Future research direction is then suggested.
Radio Frequency Identification; RFID; supply chain management;
logistics; data collection.
to this paper should be made as follows: Chan, H.K. and
Chan, F.T.S. (2008) ‘Is the RFID technology ready to integrate supply
chain activities?’
Int. J. Enterprise Network Management,
Vol. 2, No. 1,
Biographical notes:
H.K. Chan is a PhD candidate in the Department of
Industrial and Manufacturing Systems Engineering, the University of Hong
Kong. He received a BE in Electrical and Electronic Engineering and an
MSc(Eng) in Industrial Engineering and Industrial Management from the
University of Hong Kong in 1995 and 2000, respectively. His research focuses
on supply chain modelling and management in uncertain environment, and
applications of artificial intelligence in supply chains. He is a member of the
Institution of Electrical Engineers, a member of the Chartered Institute of
Marketing and a senior member of the Institute of Electrical and Electronics
Felix T.S. Chan received a BSc in Mechanical Engineering from Brighton
Polytechnic (now University), UK and received a PhD in Manufacturing
Engineering from the Imperial College of Science and Technology, University
of London, UK. Currently, he is an Associate Professor in the Department of
Industrial and Manufacturing Systems Engineering, The University of
Hong Kong. His current research interests are logistics and supply chain
management, distribution coordination, systems modelling and simulation,
Copyright © 2008 Inderscience Enterprises Ltd.
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Is the RFID technology ready to integrate supply chain activities?
supplier selection. He is a senior member of the Society of Manufacturing
Engineers and a chartered member of the Chartered Institute of Logistics and
Transport in Hong Kong.
Advances in information technology have changed the expectations for supply chain
management by introducing some breakthrough applications. Recently, the development
of wireless technologies with respect to inventory management has initiated another
opportunity for streamlining supply chain activities. These technologies, together with
associated intelligent software systems, could provide new and innovative ways to
operate supply chains. One of them is the Radio Frequency Identification (RFID)
technology. RFID technology is not a new technology – its origin could date back to the
1940s during the World War II for some military applications (Jones et al., 2004). At that
time, RFID was mainly used for aircraft identification but it is now being used to
improve supply chain management.
Nevertheless, little successful case studies could be found to demonstrate the
usefulness of RFID applications. In this connection, this paper aims to review the recent
development of RFID related supply chain applications and hence to suggest possible
ways of streamlining supply chain activities. The rest of this paper is organised as
follows: Section 2 presents the basic ideas of the RFID operations and the benefits and
limitations of RFID technology. Section 3 summarises recent development in supply
chain applications. Section 4 suggests how RFID can be applied to streamline supply
chain activities. Section 5 is the concluding section.
Basics of RFID
2.1 Principles of RFID operations
RFID technology belongs to the category that makes use of Radio Frequency (RF) signal
to identify individual objects (Jones et al., 2004). Generally, RFID systems consist of
three core components (Keskilammi et al., 2003):
a small electronic data carrying device called a tag (or a transponders –
transmitter and responder)
a reader or a scanner that communicates with the tag by using RF signals and
a host data processing system that contains information on the identified item
and distributes information to other remote data processing systems.
From technological point of view, RFID technology is not difficult to understand. The
operating principle of RFID is in fact nothing more than physics. The most basic RFID
system consists of a tag, which is made up of an electronic chip with a coil (which serves
as an antenna) and a reader that also equipped with an antenna. The reader sends out
RF signal that carries information and the RFID tags ‘couple’ the signal by the embedded
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H.K. Chan and F.T.S. Chan
antenna. The chip then demodulates the signal and takes corresponding actions. The tag
may then send back a signal to the reader, if necessary. In most cases, the data is
transferred to a host computer.
Regarding the attributes of RFID-based systems, Table 1 summarises the key
variables (e.g. frequency of operation) and selection criteria. Further details could be
referred to Finkenzeller’s handbook (2003).
Table 1
Frequency of
Attributes of RFID projects
Low frequency (125 kHz or
134 kHz)
High frequency
(13.56 MHz)
Ultra-high frequency
(300 MHz to 1 GHz)
Types of tags
Selection criteria
Short transmission range, low system cost
Medium transmission range, cost effective
for most applications
Long transmission range, the highest
systems cost
No power source (power up by induced
magnetic energy) and low cost
Carries its own power source and higher
cost, can send information voluntarily,
more flexible
Status does not need to be updated (e.g.
consumer goods for sales recording only)
Status needs to be updated (e.g. an item
goes through a series of process to be
Reading individual items, for example, for
sales recording
Reading a bulk packed items, for example,
counting how many goods on a pallet
Depends on the usage
Read only
Read/write capable
Reading mode
Single item
Multiple items
ISO 18000-6
EPCglobal Generation 2
Others (e.g. not need a
standard for internal
process control)
2.2 Pros and Cons of RFID systems
Many reports in the literature have discussed the benefits and limitations of RFID
technology. Tables 2 and 3 summarise the benefits and limitations of RFID technology,
respectively. However, it should be noted that the scope of these two tables are limited to
the technology of RFID technology itself, not the benefits or limitations of any particular
RFID-based applications. From Table 2, it is obvious that RFID can not only replace
traditional barcode technology, but also provides value-added features and removes
some limitations of previous alternatives, like barcode (Want, 2004). On the other hand,
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Is the RFID technology ready to integrate supply chain activities?
among the limitations of RFID technology as listed in Table 3, cost and standardisation
are the most important issues to be addressed in applications of the RFID technology in
the industry.
Table 2
No line of sight
Benefits of RFID technology
Tags can be read without being visible to the reader, as long as they are
exposed to the coverage of a reader.
Since there is no line of sight requirement as above, tagged products
can be packaged in, for example, harsh fluid and chemical
environments and can be read in rough handling situations.
Tags can be read over very long range, especially those systems with
UHF frequency tags. This attribute is superior in mass logistic
applications which need a range of at least a metre and up to 4 or 5 m.
The speed of reading a tag is very fast. This is especially useful when
the items needing to be identified are moving quickly, for example, on
a conveyor in a production system.
A number of tagged items can be read at the same time in a short
period of time.
Performance of paper-based barcodes can be degraded easily subject to
the environment, for example, if they become wet. This is not an issue
that affects RFID tags.
Many tags are read/write capable, rather than read only, like barcodes.
In addition, tags with different memory sizes are available for various
applications which may need extra functionality. Of course, additional
cost is incurred for tags with higher memory size.
Long reading range
High speed of
reading a tag
Ability to read
multiple items
Table 3
Limitations of RFID technology
Since the unit cost of a RFID tag is still high, it is still not appropriate to
use RFID tags as a direct replacement of barcodes without any other
value added business benefits. A simple breakeven analysis to show the
effect of high tags cost can be found in Section 2.2.
RF signal may be absorbed by moisture, be it in the product or the
environment and may be distorted or even absorbed by metal. This
means that tags might be unable to be read in some circumstances.
Tag collisions occur when two tags try to respond to the reader at the
same time while reader collisions occur when two neighbouring readers
interrogate a tag simultaneously and confuse it or when they ‘blind’
each other to the relatively weak tag responses (Sarma et al., 2001).
These problems require anticollision mechanisms to coordinate
behaviour between tags and readers.
RF transmission and communications may interference by electronic
noise (e.g. fluorescent light or electric motors).
Tag and readers
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Table 3
H.K. Chan and F.T.S. Chan
Limitations of RFID technology (continued)
RFID is not yet a 100% solution (Anderson, 2004). It can be difficult to
identify and read a specific tag from all the others that are within the
range of a reader.
There is a lack of standard govern RFID operations. An open system is
sought in order to ensure interoperability while the tags are moving
from one place to another place or even one country to another country
with the products.
The ability to write information to tags is one of the main benefits of
RFID technology. The mechanism, however, needs to be secure to
ensure that unauthorised parties are unable to write false information
into the tag. In addition, competitors may be able to retrieve sensitive
information from the tagged products. Therefore, security is an issue to
be tackled before an application can be phased in.
Some consumer groups have concerns about the possibly privacy
implications of RFID (Weis, 2004).
With respect to the cost of RFID, a simple breakeven analysis can be used to reach the
conclusion that the tag is not a cost effective means to be applied at the item level for
consumer products, at least at this moment. Only using the tag in high value goods can
justify the cost of an extra tag. Since the profit of a certain product is the multiple of its
profit margin and consumption as given by Equation (1), this means that the profit
margin will be decreased at least by the tag cost if RFID technology is introduced.
Profit margin
If the benefit is increased in sales, the total profit after introduction of the technology is
the multiple of the new profit margin and new consumption. According to Jones et al.
(2004), percentage increase in sales from pilot is 7% when RFID was used to improve
the inventory visibility on the shop-floor. Therefore, an estimation of 10% is used in the
following analysis which means new consumption is 1.1 times the original consumption.
Total profit after using RFID can be calculated by the following equation:
(Profit margin
Tag cost / Selling price)
It is only reasonable to phase in RFID tag at item level if the profit after implementation
of the new technology is higher than the original profit. That is:
After simplifying the arithmetic operations, we can get the following inequality:
Tag cost
Selling price
Profit margin
At breakeven, the maximum allowable tag cost is equal to the right hand side of the
above inequality. If we assume that the profit margin is 10%, the relationship between
the tag cost and the selling price is plotted in Figure 1. It is obvious that for low cost
products (e.g. packaged consumer products in supermarket), the tag cost at this moment
is still too expensive and only high value product can be justified to use with RFID tag
at items levels. Of course, above calculation is just a very simple one, which assumes
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Is the RFID technology ready to integrate supply chain activities?
many factors to be constant before and after using RFID technology. However, it gives
an insight to us that RFID is not really a ‘cost effective’ means at this moment to track
products at item level.
Figure 1
Breakeven analysis of using RFID tag at items level
Regarding the standard of RFID operations, two leading parties are now working to
standardise RFID systems with the aim to achieve interoperability. One of them is the
International Standards Organization (ISO) as part of the ISO 18000 family, with the –6
group of documents dedicated to UHF operation (Glidden et al., 2004). The other one
was the Auto-ID Centre with labs at Massachusettes Institute of Technology and
Cambridge University. The centre has renamed as Auto-ID Labs (http://www.autoidlabs.
org), which was an organisation that recognised the potential of RFID in an early stage
and was attempting to overcome the barriers in developing RFID tags. The Auto-ID
centre’s goal was to develop the standards and protocols for RFID systems (Atock,
2003). The Centre has completed its work and transferred its technology to EPCglobal
(http://www.epcglobalinc.org) to promote worldwide acceptance of an Electronic
Produce Code (EPC) standard. EPCgloabl is a standard body in development of
industry-driven standards for the EPC to support the use of RFID. A 96-bit version
of EPC has been defined by the EPCglobal which can help to accelerate the adoption of
the technology.
2.3 Implications of the RFID technology
By looking at the characteristics, benefits and limitations of RFID systems as
summarised above, a short conclusion can be drawn for RFID systems as follows: RFID
system is in fact another type of information system that makes use of RF signal to
collect data and it is useful only if a proper tool is used to analyse the large amount
of collected data. Software solutions have to be developed to cope with the large
volume of data that RFID systems generate (Walko, 2004). On top of this principle,
if the technology can be deployed for in house applications only, the chance for
successful implementation will be raised. This is because the cost impact will certainly
be minimised if tags can be designed as reusable for internal usages. Also,
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H.K. Chan and F.T.S. Chan
non-standardisation of RFID operations (e.g. frequency) would not be a hurdle anymore
since the applications are not required to be used somewhere outside the factory.
Therefore, it is suggested that at this stage, applications of RFID technology should be
initiated for in house applications, rather than phasing it to streamline the whole supply
chain activities, which is too ambitious as an initial objective. As long as real benefits
can be gained from internal operations, the RFID-based systems can be spread out to
other inter-company activities.
Recent development in supply chain applications
The most well know supply chain applications are the mandates of Wal-Mark and the
US Department of Defence (DoD) (Byrne, 2004; Morgenroth and Fobes, 2004). The top
100 suppliers of Wal-Mark were required to place RFID tags on all its pallet and cases
by January 2005. The US DoD required all of its suppliers to put RFID tags on their
shipping pallets and cases also by January 2005. However, they are not the pioneers in
the application of RFID in industrial and supply chains. For example, Octopus card
system (http://www.octopus.com.hk), an electronic payment system using contactless
smart card and Autotoll (http://www.autotoll.com.hk), an electronic toll collection
system to identify registered cars which are equipped with RFID, in Hong Kong are
among the most successful and famous examples.
In the year 2000, Sainsbury rolled out RFID systems as a trial in tracking chilled
goods. Tags, which store product related information (e.g. expiry date), were applied to
recyclable plastic crates in its supply chain (Kärkkäinen, 2003). It was estimated that the
potential benefits for the company were 8.5 million (pounds) a year by reducing the
chance of out-of-stock situation. In 2003, Gillette, probably the first consumer goods
manufacturer in adopting RFID technology, placed a big order for RFID tags (Jones
et al., 2004). Gillette estimated that its sales would be increased by 15% if out-of-stock
situation could be reduced or even be eliminated, by the technology. In the same
year, Tesco announced that movement of its trays and cases were tracked by RFID
tags between its distribution centre and its stores (Jones et al., 2004). Then, Marks &
Spencer revealed that a trial with RFID tags had been conducted to men’s clothes
(Jones et al., 2004).
It can be observed from above mandates and trails that, a number of large players in
the industry are really interested in using RFID in order to streamline their operations
since the beginning of 2000s. This also led to some projections of exponential growth
and huge user benefits (Trebilcock, 2004). However, there are others players who would
prefer to slow down the pace in using RFID technology. A recent survey on retailers
indicated that capital of only 1.7% of the respondents would go towards RFID
in 2004, with 75.9% of respondents indicating no investment at all (Chain Store
Age, 2004). Moreover, 86.2% of retailers had allocated the same budget for RFID in
2004 as they spent in 2003, that is, the budget for RFID had not grown. Another survey
concluded that only 6% of the respondents had done a RFID project before
2004 (Trebilcock, 2004).
It seems that the survey results are surprising since RFID has been a hot topic both in
the academia and the industry in the past few years. If we look at the benefits of RFID as
summarised in Section 2, there is no question that RFID technology is a potential tool to
reduce labour and improve accuracy in many facets of supply chains. In fact, more
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Is the RFID technology ready to integrate supply chain activities?
applications like counterfeit protection (Staake et al., 2005), physical asset management
(Chow et al., 2006), asset management (Goodrum et al., 2006), etc., could be found in
recent years. However, no published studies could be found to support that RFID
provides greater gains than expenditures. Only pilots or trials results were available.
Since there are many intangible factors get involved in a RFID-based project, calculating
a precise return on investment may be impractical, if not impossible (Smart and Schaper,
2004). In fact, phasing in RFID is not risk-free. The most fundamental risk that many
firms have to overcome is simple and raised by Rappold (2003): “Are they prepared to
take advantage of the faster acquisition and transmittal of data that RFID promises?”
In other words, RFID technology itself is not the most important tool, how to handle the
information or data that are recorded by the technology should be the focal point of
future development in RFID-based supply chains applications. Middleware (e.g. legacy
or new information systems), which can filter unwanted information or data, by
incorporating with proper data mining techniques would be the essential research
direction in the near future.
How can RFID streamlines supply chain activities?
As in the Wal-Mark and US DoD mandates, RFID will not be applied at items level in
the near future. One reason behind this is due to the fact that the relatively high cost of
tags at this moment. The technology is still too costly for many consumer product
applications. However, the benefits of a RFID tag can still offer organisations with better
supply chain visibility and control over their security and assets such as inventory and
working capital. Below are some examples that how RFID can streamline supply chain
and logistics activities.
4.1 Inventory management
Since RFID scanning does not require line of sight, inventory is visible to the
middleware without human intervention for counting, even tags are applied at the pallets
or cases level. Therefore, inventory replenishment is easier than before if an intelligent
inventory tracking software is linked with the RFID system. Joint replenishment
schedule with suppliers is possible whenever the inventory falls below a threshold, the
middleware can generate a signal to the person-in-charge. The middleware can even send
the most updated inventory details to its suppliers. In fact, the principle can also be
extended to help Vendor Managed Inventory (VMI) systems.
VMI is an alternative to traditional order-based inventory replenishment practices
(Kaipia et al., 2002). The rationale of the VMI systems is to push stock back to the
upstream of the supply chain, usually the manufacturers or suppliers, who have the
responsibility and authority to manage the entire inventory replenishment process. RFID
technology is an enabler for manufacturers or suppliers to coordinate with their
customers for monitoring real time inventory level, both internal and external, in order to
define some policies to estimate the level of inventory at a particular period. In the past,
manufacturers or suppliers can only access customers’ sales information from orders.
With RFID, real time point of sales data is available and they can be retrieved through a
middleware. Trust or security issues can be resolved by incorporating the specifications
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H.K. Chan and F.T.S. Chan
in the middleware. In this connection, VMI should result in reduction in excessive stock
and reduce penalty cost due to late shipment. In other words, total supply chain costs
should be reduced.
These examples also show the importance of middleware – even if the inventory is
visible to you, you may not be able to take the next action if there is a lack of decision
making tool. Above applications can be implemented at pallets or cases level. However,
as mentioned before, it is too costly to attach a RFID tag with individual item.
4.2 Reverse logistics
Reverse logistics, which is a relatively new concept in supply chain management
(Dowlashahi, 2000),
“includes the processes of receiving returned goods, determining product
status (i.e., resale, repair, remanufacture, parts, scrap), and crediting customers
before either processing the material or taking back the product and its
packaging to deliver recyclable or reusable material to the manufacturer”
(Brockmann, 1999).
Since returned products/materials are usually not in a good condition, handling such
materials may waste a lot of labour, hence cost. If reverse logistics is found to be useful
between companies, it is worth to apply RFID tags as identification so the whole reverse
logistics process may run smoothly. For example, date of manufacturing of
returned materials can be traced back if life time is an issue for reuse. Even if the
returned materials are those rejected items, manufacturers can make use of RFID tags
to trace the date of manufacturing or process information that have been stored in the
tags so that process control or quality improvement actions can be analysed (e.g. track
quality problem due to seasonal environmental problems). These value added
activities can compensate the relatively high cost of the RFID tags. In addition, returned
tags can be reused, which can further lower the barrier of using RFID tags due to its
high cost.
4.3 Quality management
Regarding quality management as mentioned above, RFID tags can also be integrated
with ISO quality system. Since document traceability is a core ingredient of ISO quality
system, RFID tags can be used as a ‘stamp’ on each ‘valuable’ paper (like controlled
copy, work instructions, etc.,) so that maintenance of the system can be done
electronically. For example, once a document is revised, its tags can be ‘killed’ by a
command like the situation when a consumer buys a tagged item at the checkout counter
and the tag can be ‘killed’ by a device. In other words, only valid documents will
respond to the readers. Applying the tags can also improve quality assurance when a
production line is switched from one product to another product. In such case, a new set
of instructions and related documents are required. Since the documents are assigned
with unique number (analogue to the documents number with version number printed on
the document), valid documents on production line can be traced electronically. In other
words, no visual inspection is required for checking whether the documents on site are
matched with the process or not. In fact, the principle can be extended to any documents
other than those ISO related documents.
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Is the RFID technology ready to integrate supply chain activities?
4.4 Manufacturing process control
Another possible area that RFID may be useful is to collect sensor-derived data in
manufacturing process control. Since active tags have their own power source, which can
also be used to supply electricity to other devices. For example, a manufacturer may
employ active tags together with electronic thermometers to make sure that the
products/semi-products that undergoing a particular process are kept at an acceptable
temperature range. Whenever the temperature exceeds a certain threshold or out of a
predefined range, the active tag can send signal to all passive tags on each unit in order to
‘label’ the units. The RFID tags are served as identification for potential ‘bad’ units and
these units will then be sorted out for quality assurance (the next step depends on
different products or processes). Since the passive tags can be reused after a process, the
relatively high unit cost of a tag is not an issue in this application. In addition, more than
one active tag (together with sensor) can be located in different regions along the process
so that not all units are required to be ‘labelled’. In other words, quality assurance is
easier to control and the yield rate can be improved since it is not required to scarp the
whole lot as in the past. The concept can be applied to use with other sensors which can
measure physical parameter like dust level in clean room for LCD manufacturing,
pressure in vacuum potting, etc.
Intelligent tracking in manufacturing is also a potential application of RFID
technology. Using RFID, a link between individual items/cases/pallets can be created to
ensuring the history of the tagged item to be known. One benefit that can achieve is
better quality control because the traditional approach is to process individual item and
mark a label on the item manually. With RFID, once a unit is processed, it can be
‘written’ a code to ensure a particular operation is completed and checked. This can also
improve management of Work-In-Process (WIP) inventory. Assume each tag can store
the ‘code’ of next operation so that workers in one workstation can easily select the
correct items from a batch for processing. It would be even beneficial if a unit does not
require to going through a sequential operations, that is, some operations can be done
earlier or later, depending on the shop floor conditions. In other words, shop floor
scheduling is more visible and real time schedule would be achievable.
In fact, above philosophy is similar to Just-In-Time (JIT) policy, which is another
area that can be improved if RFID technology is put into practice. The goal of JIT is to
improve the response to customer demand (Olhager, 2002), no matter by reduction of
WIP inventories or careful planning of production schedules, etc. Kanban is a visual tool
to monitor the materials flow in at each stage a JIT system in order to trigger inventory
replenishment (Mathieu et al., 2002). Kanban can be replaced by RFID tag
(RFID-Kanban hereafter) so that not only the same functions of traditional Kanban
remain unchanged, the RFID-Kanban can be read remotely and can be reconfigurable
due to the fact that the RFID-Kanban is programmable. In other words, the status
of the RFID-Kanban can be changed according to the actual position in the production
line. With proper middleware, the WIP inventories are visible to the planner and more
accurate inventory level can be tracked. By the way, the RFID-Kanban is also reusable in
such applications.
It should be stressed that above applications are not operating in open environments
and most of the tags are reusable. This is the only way that RFID can be applied instantly
without being affected by cost and interoperability problems (i.e. standard related issues).
In addition, implementing RFID technology is not the sole action a company has to take.
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H.K. Chan and F.T.S. Chan
Proper information system (or middleware as quoted before) should be developed as
well. Without a good information system, the RFID technology is useless because it can
only serve as a direct replacement of barcode.
The focal point of any potential RFID-based applications is actually not the tag or reader,
but rather the information itself that makes RFID as an enabling technology. Bar code
replacement is not the most appropriate way to gain improvement. The real benefits that
could be generated by the RFID technology could only come from higher-level and
innovative applications of the technology, due to its high cost.
Within the next few years, it is highly possible that RFID will be integrated into the
supply chains. At this moment, it is suggested that interested firms should start figuring
out even the basics of RFID technology implementation, such as where to place RFID
tags, which will require testing and resources that may be out of reach for many small
businesses. The basic of the technology will not change. However, potential obstacles in
implementing RFID-based systems could not be resolved without actual testing and
related knowledge could be acquired through even a small-scale pilot.
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