Radio frequency identification could revolutionise retailing,
both in the warehouse and at the point of sale, but is unlikely to
appear in your local supermarket overnight, writes Daniel
Thomas
The idea of supermarkets stocking goods without barcodes seems an
alien concept in this day and age, conjuring up a quaint image of
an apron-wearing local shopkeeper picking out goods from behind a
counter. However, as recently as the mid-1980s, the barcode - which
was developed in 1973 - was languishing in the grocery industry
with very little adoption.
It was only later in the decade that barcode use became more
widespread, and for one reason - the backing of US supermarket
chain Wal-Mart, the largest retailer in the world.
Retail industry watchers say, "When Wal-Mart sneezes, the industry
catches a cold."
The company, which today has an annual turnover exceeding $50bn,
mandated barcode use in 1984. Within three years the majority of
its supplier base was in compliance. This benefited not only
Wal-Mart but also the entire retail industry as firms cut costs and
improved efficiency.
Fast forward to 2003, and, if industry experts are to be believed,
the pattern is about to repeat itself with a technology which could
potentially replace barcodes - radio frequency identification
(RFID).
RFID uses microchips to transmit serial numbers to a reading device
wirelessly, without the need for human intervention, allowing goods
to be tracked electronically along the supply chain from warehouse
to point of sale.
The technology, which promises to reduce theft-related losses,
slash inventory levels, improve stock availability and cut checkout
queues, has been around for many years, but the prohibitive cost of
tags and lack of industry support has prevented widespread
adoption.
However, last month RFID received a massive boost when Wal-Mart
said it wanted its top 100 suppliers to be using RFID tags on cases
and pallets destined for its stores by 2005.
"Some company had to make it happen, one with the mass and market
influence to dictate and create a wave of momentum that would wash
over the entire industry," says John Fontanella, analyst at AMR
Research.
"You can count on one hand the number of retailers big enough to
force a whole industry to adopt a new technology in a constrained
amount of time. Wal-Mart is the biggest of them all."
Despite its much talked-about benefits, RFID is evolving too slowly
by itself and needs the support of a market leader like Wal-Mart,
he says. "As Wal-Mart suppliers buy more tags, prices will
drop.
"An increased number of pilots will result in a stronger technology
industry to support them. With risk minimised and prices brought
into line, adoption will speed up and move beyond the Wal-Mart
supplier base."
However, some analysts predict that Wal-Mart's 2005 deadline will
cause problems for the firm's supply chain partners.
"Wal-Mart's timeframe in attempting to get such a system running in
less than two years is very aggressive," says Jack Gold, analyst
for infrastructure strategies at Meta Group. "Wal-Mart is shifting
the implementation burden to its product suppliers and we believe
that many suppliers do not have the necessary expertise to pull
this off without experiencing major problems."
The lack of available RFID tags and the eventual disposal of tagged
goods could prove problematic, says Gold.
"For Wal-Mart to meet its need, we estimate it will require one
billion RFID chips per year, with many times that amount if other
large retailers require RFID," he says.
"Furthermore, the flexible circuits with antennas built in must
also be manufactured. These cause disposal problems, such as
putting copper into landfills or recycling."
Wal-Mart itself appeared to admit its RFID plans were
over-optimistic last month, when it scrapped a test of "smartshelf"
technology and RFID-tagged Gillette razor blades which it had
pencilled in for a store in Boston.
Although much was made of the move, Wal-Mart insisted it was still
fully committed to RFID, but said that it now wanted to focus on
the technology in the warehouse and supply chain.
Although Wal-Mart appears to take centre stage in the RFID arena,
European retailers are, in fact, leading the way with in-store
trials. In the UK, Tesco has launched two high-profile trials of
the technology, tracking razor blades and DVDs, and others, such as
Marks & Spencer and Woolworths have also tested electronic
tagging in some form.
One of the most widespread uses of RFID to date can be seen at
German retail group Metro's showcase "future store" in Berlin,
which features tags on various products, in shopping baskets and on
smartshelves.
Although retailers are progressing with their RFID trials, they may
neglect to consider the overall cost of putting an RFID-based
supply chain infrastructure in place, warns AMR analyst Pete
Abell.
"While all eyes have been trained on the cost of tags themselves,
the significant investment required to build up the infrastructure
has been largely ignored," he says.
"This will inevitably come under closer scrutiny as organisations
evaluate the total cost of implementing RFID, weighing it against
expected benefits."
The potential impact on consumer privacy could also hamper the
progress of RFID, after fears were raised that the technology could
allow companies to obtain information on customers and track their
movements without their knowledge.
Although the idea that Wal-Mart or Tesco would want to track
shoppers as they drive home from the store seems like something out
of a John le Carr' novel, some retailers have taken these fears
seriously.
In April, fashion retailer Benetton postponed plans to roll out
RFID tags in one of its clothing ranges following protests from
privacy groups such as Caspian (Consumers Against Supermarket
Privacy Invasion and Numbering).
In response to this, Royal Philips Electronics, which was due to
supply the technology for Benetton, announced it was implementing a
feature into its RFID tags that would disable them at the point of
sale.
It also called on standards body Auto-ID Center to make a similar
feature part of the Electronic Product Code (EPC) specification,
the key plank of the international RFID standard, which is due to
be ratified by September.
However, Auto-ID says the "kill" feature has been in its
specifications since the beginning. "It is one of the things that
makes our EPC system different, and is also one of the benefits of
developing technology in a user-led environment. Our user sponsors
have always said they needed it," says Kevin Ashton, executive
director at Auto-ID Center.
"We have always been surprised that other technologies have not
implemented something similar."
Ashton says most of the fears are unfounded, but stresses that
privacy is an issue Auto-ID and its members are focused on.
"It is important to take people's fears seriously, apart from how
founded or unfounded they may be," he adds. "Using RFID to track
people in any practical way is difficult, but that does not mean we
should not try to make it impossible."
One way of addressing privacy fears is to outline uses of RFID data
and provide consumers with opt-in and opt-out choices, says
Christine Spivey Overby, an analyst at Forrester Research. "By
doing so, firms will avoid missteps like Benetton's," she
adds.
Companies could also turn to technology to address these fears,
says security specialist RSA Labs, which filed patents on two
privacy-boosting RFID applications in June.
Ari Juels, principal research analyst at RSA, says a "blocker" tag,
which would disable the ability of readers to read tags once goods
have been paid for, and "pseudonym throttling", which means tags
would only be readable every few seconds, would boost consumer
confidence in RFID.
"Technology is required to ensure consumer privacy is not eroded by
RFID because legislation and policy reform always lags behind
technological advancement," he says.
Despite these privacy fears and issues over tag costs and IT
infrastructure upgrades, the progress of RFID, now that Wal-Mart
has caught the bug, appears relentless - and it will not be
restricted to retail.
"The Wal-Mart RFID influence will extend far beyond the
retail/consumer packaged goods market," Fontanella says.
"Companies whose products or services will never touch a Wal-Mart,
or any other retailer's, shelf will benefit from the lower costs
and more stable technologies that will come from its mandate.
"The retailer leaves no question of the direction it is going and
it is this non-negotiable stance that will promote adoption
throughout all industries."
Twenty years after the barcode transformed the retail industry,
companies in the sector and others across the board are preparing
for another technology revolution, with IT directors once again
thrust into the limelight.
In a few years' time, shoppers may be looking back with fondness at
a time when shelves were dumb and a checkout assistant had to scan
every item manually.
Where RFID has been rolled out
Food and clothing: In April this year, Marks
& Spencer announced the first large-scale use of RFID in-store
in the UK. The retailer, which last year successfully implemented
RFID tags on 3.5 million product delivery trays in its food supply
chain, will begin tagging individual clothing items this autumn, in
conjunction with RFID technology specialist Intellident.
M&S will be the first UK company to use ultra high-frequency
tags, which offer faster data transfer feeds and longer read ranges
than high-frequency tags. This makes them suitable for applications
in which many fast-moving individual items need to be read, even if
they are in close proximity to each other, such as in rails of
hanging garments or stacked shirts.
DVDs and razor blades: In June, Tesco extended
its trial of RFID tags, using the technology on DVDs at a Tesco
Extra store in Sandhurst. The move followed the supermarket giant's
initial trial of RFID tags on Gillette Mach 3 razor blades at its
Cambridge store, which started in January.
If the latest trial proves successful, the tags could feature on
a wide range of food and non-food products in the future, says
Colin Cobain, IT director at Tesco.
"In time we will see chips on food products, so we will know
when the products on-shelf are approaching their sell-by dates," he
says. "It will make identifying products a lot easier and allow our
staff to spend more time with customers."
Not just retailers: During the Second World
War, the British military used a primitive form of RFID, with tags
the size of suitcases, on its fighter planes, which allowed the
allied forces on the ground to identify whether an aircraft was
friend or foe.
The technology was used again by the US Department of Defense
during the recent conflicts in Iraq and Afghanistan to track all
assets moving in and out of the war zones electronically.