A year ago, radio frequency identification (RFID) topped every pundit’s list of important business technologies to watch in 2005. A year later, businesses are still watching and waiting. But while the rise of RFID in 2005 hasn’t happened as fast as many experts expected, businesses should continue to pay attention.
RFID promises to revolutionize the world’s supply chain, replacing the ubiquitous bar code on product packaging today. It will change the way suppliers and customers interact, allowing both to – among other things – know at any given moment where shipped goods are located, tracking them through every stage of manufacturing and transport, and even to the point of sale itself.
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RFID is a wireless data collection technology that uses electronic tags for storing data. RFID tags are a “smart” replacement for bar codes, providing a means to attach information to any product and retrieve it easily. Unlike bar codes, which must be brought close to the scanner for reading, RFID tags are read when they are within the range of a transmitted radio signal. For the low-cost “passive” RFID tags used in retail products, that’s a range of about 15 feet or less.
RFID is by no means limited to retail and manufacturing, but these are the areas where it has received the most attention. Its supporters promise revolutionary changes in terms of how retail inventory is managed and sold. For example, besides tracking deliveries, RFID could allow retailers to more balance supply more precisely with consumer demand by tracking any item that leaves a retail shelf and triggering orders for new stock. Such an efficient logistical process is important in a retail age where it’s essential to shave costs wherever possible.
“Suppliers and manufacturers need to know where a product is – to be able to place it [in a warehouse] and relocate it for shipping processes – as well as know what you have on hand in your warehouse,” says Alwyn Mitchell, vice-president of events for SoftMatch.com, which is hosting a Toronto conference on RFID in October. A great deal of money and resources are being invested by retail companies in managing how much stock to keep and when to ship it, he says.
Retail giant Wal-Mart is the retail poster child for RFID. Only a year ago it mandated that by this year at least 100 of its top suppliers must start using RFID tags.
“Our RFID implementation is right on track,” Wal-Mart spokeswoman Christi Gallagher said Wednesday. “We currently have 100-plus suppliers shipping tagged cases and pallets to our 104 stores, 36 Sam’s Clubs and three distribution centres in Dallas/Ft. Worth, Texas. We are also working with our next top 200 suppliers, plus several volunteers, to be tagging during or before January 2006.”
Eventually the plan is that all Wal-Mart locations will be RFID-enabled, and presumably all suppliers, both large and small, will need to comply.
But there’s a growing community of RFID doomsayers. The tracking technology is still shaking out some bugs, which is not so surprising given its newness. Some reports suggest RFID retail tags have a read-failure rate as high as 20 per cent due to radio interference from surrounding objects and the products themselves.
Mark Hall, Computerworld US editor-at-large, predicted last December that there would be problems with the basic Class 1 RFID tags used in the retailer’s pilot project. “The readers that use radio frequency signals to get information from the labels aren’t capable of achieving 100 per cent success in noisy warehouses loaded with signal-distorting metal objects. And the relatively weak signals from the Class 1 readers will have loads of trouble figuring out what cases of, say, shampoo or dish soap contain, since those signals don’t propagate well through liquid,” he noted.
Wal-Mart’s Ms. Gallagher has said some suppliers have had difficulty finding tags that fit their products or placing them properly. Still, things are improving. A story that appeared in the U.S.-based RFID Journal earlier this year, for example, reported a 98-per-cent read-rate success in seven Wall-Mart pilot stores. And a recent Associated Press story said a new lab at the University of Wisconsin-Madison, funded by Wal-Mart and more than 40 other companies, is working on ways to make RFID work better by testing new types of tags and the best ways to place them on products. Other universities, including the University of Florida and the University of Arkansas, also have RFID labs, as do dozens of corporations.
As a result, RFID tags themselves are improving – albeit at a cost. Class 3 and 4 products, at about $25 (U.S.) per tag versus about 50 cents for the Class 1 types, are much more reliable. These tags won’t be suitable for general consumables until their price falls substantially, but they could make sense for big-ticket items like cars.
The other problem today is that the high cost of deploying RFID systems, coupled with the slow return on investment, will hinder retail use. Louis Sirico, an editor for RFID Operations, estimates the cost of RFID hardware, software, tags and consulting services needed to set up a system that can tag 1,000 items a day amounts to at least $100,000.
“The time to implement a solution like this also varies by company,” he notes in a July 7 article, The Cost of Compliance. “The up-front analysis takes more time than installing the equipment. Overall, the internal and external budget to get started will run you between $500,000 and $750,000.”
No doubt retail enthusiasm will be tempered if not eliminated by such a large price tag. But despite these rather formidable hurdles, RFID is in a formative stage and continues a march to greater reliability and affordability. It will get cheaper – and better.
The use of RFID by retailers such as Wal-Mart is a vital step in the evolution and ultimate success of the technology – even RFID critics applaud the giant retailer’s initiative. Somebody needed to be the test case, and Wal-Mart will prove what RFID can and can’t do, having the commitment to the technology, the deep pockets and the clout with suppliers to drive its use in business.
“I think the overarching sentiment among large retailers is, ‘let’s be fast followers,'” Mr. Mitchell says.
RFID may be moving more slowly than its supporters anticipated, but it’s inevitable that it will filter down to the rest of the retail industry. While that may take time, all businesses – small, medium and large – should keep a close eye on the deployment and use of retail RFID, since they’ll all be touched by it in one way or another.
