Finally, radio frequency identification (RFID) is reaching real-world supply-chain applications. But although the technology is proven for other purposes, its use in the supply chain is immature. A few large retailers are seriously interested so far, and most suppliers are doing the bare minimum
to safeguard relationships with muscular retailers.
The obvious example is Bentonville, Ark.-based Wal-Mart Stores Inc. January marked a deadline for Wal-Mart’s 100 top suppliers to put RFID tags on cases and pallets shipped to three Texas distribution centres.
Wal-Mart Canada spokesman Kevin Groh says only about two-thirds of cases and pallets coming into those distribution centres from participating suppliers have RFID tags today. Still, roughly 40 suppliers not on the top 100 list volunteered to participate. Groh says Wal-Mart has publicly identified only a few participating suppliers, and none of those are Canadian.
Wal-Mart hopes all its American suppliers will participate next year, Groh says, but for now the project is confined to the U.S.
U.S. retail chain Target Corp., Britain’s Tesco and Germany’s Metro AG are also exploring RFID, and the U.S. Department of Defense is pressing suppliers to RFID-tag their shipments.
Canadian retailers are taking a wait-and-see attitude. Scott Riddell, manager of solutions information technology at London Drugs Ltd. in Richmond, B.C., says his company is thinking about RFID, and believes it will be used to tag incoming pallets first and then maybe later to tag individual products. Lisa Gibson, a spokeswoman for Canadian Tire Corp., says the company has no immediate plans. But she adds, “”we will continue to monitor the industry and decide if there is a business case.”” John Melodysta, vice-president of information technology at Grand & Toy, is looking at it. “”We’ll be dragged along with the vortex,”” he predicts.
“”Dragged along”” is probably how most suppliers will move into RFID. Erik Michielsen, director of RFID and ubiquitous networks at research firm ABI Research in Oyster Bay, N.Y., says a few manufacturers are studying what RFID can do for them, but most are doing “”just enough to keep Wal-Mart happy.””
In a study of Canada’s 30 top retail and consumer products companies released late last year, consulting firm Deloitte found 47 per cent expected to implement RFID. Of those, half forecast they would do so within two years, and another 29 per cent estimated three to four years.
U.S. practices observed
“”I think 2005 is the year of the study,”” says Shai Verma, RFID practice leader at IBM Canada Ltd. in Markham, Ont.
“”People are probably looking at what’s happening in the U.S. with interest,”” adds Christian Stephan, a consumer business group partner at Deloitte in Toronto.
David Jacobson, director of technology at consulting firm PricewaterhouseCoopers in Toronto, says big firms will adopt RFID first because they are better able to bear the up-front costs. But “”I would expect in the next few years to see a very rapid upswing in the use of RFID,”” he says.
Many suppliers that are implementing RFID take a “”slap-and-ship”” approach, adding an RFID tag just before shipping to satisfy retailers. That’s OK for starters, says Paul Heino, president of Sundex Information Services, a Toronto company helping some suppliers meet Wal-Mart’s deadlines. But in the long run, suppliers should look at an approach that will bring them more benefit.
“”If I have to tag it anyway, I may as well use it within my own four walls,”” agrees Sue Hutchinson, director of product management at EPCGlobal U.S., a unit of the EPCGlobal organization setting standards for RFID among manufacturers and retailers.
Retailers such as Wal-Mart want RFID tags on incoming shipments to speed receiving and reduce inventories. Today this is done by scanning bar-coded labels, explains Tom Dziersk, president and chief executive of ClearOrbit Inc., an Austin, Tex., company that sells bar-coding and RFID technology. Replacing those with RFID tags will initially just eliminate the scanning of bar codes on incoming shipments. Even for Wal-Mart, that won’t add up to huge savings. It’s worth Wal-Mart’s while partly because the retailer has the clout to make its suppliers bear the costs, and partly because RFID has potential to do more in the future.
“”They’re doing this as a loss-leader to get adoption,”” Dziersk asserts. Groh says Wal-Mart’s goal is “”to find out what role RFID can play in the retail chain.””
Full adoption years away
The long-range promise is that once goods are tagged, data can be captured more frequently because the process is fully automated. Proponents believe that eventually individual items on store shelves can be tagged. This would improve inventory tracking and deter shoplifting. But it won’t come overnight.
“”It could be as many as 10 years or more before we’re actually tagging products on the sales floor,”” Wal-Mart’s Groh says.
To begin with, RFID tags are too expensive today to attach to most individual items. The cost of a tag is typically in the 50-cent range, says Verma.
That is not a lot to tag an entire pallet or case. It is not even a large price to tag an individual item that is expensive and vulnerable to theft. In Britain, notes Mike Wells, vice-president and general manager of RFID at Intermec Technologies Corp. in Everett, Wash., retailer Tesco tags individually the 10 items most often stolen from its stores — such as DVDs and makeup.
A chip off the old tag?
But can it ever make sense to tag a bag of chips? Not at 50 cents per tag. Maybe not at any price — but some observers believe it might if the cost of RFID tags comes down enough. The magic price point is thought to be around five cents a tag, says Wells. “”Anything from a penny to a nickel will likely drive adoption to the point where it’s on everything.””
Is that attainable? Saswato Das, a spokesman for innovation technology at Munich-based Infineon Technologies AG, believes it is.
“”Our goal is to see a one-cent RFID tag,”” he says — though he quickly adds “”but that’s still in research.””
To help attain economies of scale and simplify RFID implementation in supply-chain applications, EPCGlobal developed the UHF Generation 2 air interface protocol, a standard for UHF RFID technology ratified in December. Products conforming to it should be available by midyear, Hutchinson says.
Cost is not the only concern. Reliability is also top of mind for everyone considering the technology.
With RFID tags today, Dziersk says, one in seven or eight fails to encode correctly. To combat this, Verma says, tags must be read right away to ensure the data has been written successfully.
The location of the tag on a pallet or case can make a difference to readability, says Stephan, and shrink wrap around a pallet may interfere with reading.
“”Reliability is a key concern,”” says Michielsen. “”The performance needs to be addressed before large-scale orders . . . will be implemented.””
RFID will also need to be integrated with existing systems. Jacobson says Enterprise Resource Planning (ERP) vendors like SAP AG already offer modules adding RFID support to their software.
Retailers and suppliers, Stephan concludes, “”are not going to go from where they are to the ultimate nirvana in a year or two. It’s going to take a while.””