Innovative uses of RFID technology promise benefits beyond improving efficiency in retail supply chains, providing issues of cost, privacy and standards can be resolved
Radio frequency identification technology is starting to produce efficiencies in the supply chain for early adopters such as Wal-Mart and Procter & Gamble, with Tesco and the Ministry of Defence are among those planning RFID implementations for next year.
The technology could soon move beyond the supply chain and enter mainstream business and consumer use, according to analysts. But first, RFID providers and users need to resolve issues of cost, privacy, return on investment and lack of standards, which are delaying adoption.
RFID has the edge over barcodes, which are a line-of-sight technology, requiring a scanner to "see" the barcode to read it. It uses radio waves to automatically identify tagged objects. Tags can be read as long as they are within range of a reader.
The retail sector is driving RFID deployment, where the technology is helping to improve supply chain efficiency by tracking products, cutting down on theft and loss, and reducing supply chain costs.
Analyst firm Gartner said RFID has become one of today's most discussed retail technologies, spurred by industry speculation that an RFID tags costing just 3p will be available in the near future. However, Gartner said it was unlikely that such low-priced tags would appear soon.
"RFID technology holds exciting opportunities for almost every business," said Stephen Smith, research vice-president at Gartner. "The use of RFID to capitalise on data flow in global supply chains could be one of the most significant developments in business strategy since companies first recognised the importance of information flow."
John Fontanella, president of supply chain services at AMR Research, said RFID brings the most benefit if a company has optimised its supply chain first.
"Successful companies have overhauled their business processes to take advantage of the process automation capabilities it offers. RFID delivers value when applied to well-defined and controlled business processes," he said.
Kara Romanow, research director at AMR Research, said, "The business process impact is the hard part - this can be a very disruptive technology, and to exploit all the benefits it promises, companies must embrace the data it can provide and ensure the rest of the supply chain takes advantage of that information and is able to act on it to make a difference.
"The benefits of RFID include eliminating the line-of-site requirement for inventory tracking. In addition, there is a lot more data that can be provided to an optimised supply chain that would be very difficult, if not impossible, to achieve without a technology like RFID."
Return on investment for RFID-enabled supply chains comes from reducing out-of-stock items, cutting headcount, gaining better inventory visibility, and for more expensive items, preventing counterfeit and theft. But Romanow said, "For manufacturers of low-cost products, there is very little benefit."
Analysts expect RFID will soon offer benefits in mainstream business and consumer applications. Romanow said, "As RFID tags get smaller and less expensive, you will see everything from matching patients with medication to more unusual uses. An innovative use is tagging VIPs with RFID at the Baja Beach Club in Barcelona so they do not have to carry credit cards."
Another example comes from the US Food and Drug Administration. The agency already mandates traceability of food and drink imported into the US, requiring manufacturers to deploy RFID. But the agency sees a far wider use for the technology.
Last month, it approved a plan to allow hospitals to place RFID tags under patients' skin. This caused widespread concern among privacy advocates, some of whom believe it is a sign that the RFID industry is poised to bulldoze through opposition and begin widespread deployment of tags.
Alan Lawson, research editor at Butler Group, said that in the future we could see RFID being used to tag children for their protection. And prisoners could also be tagged.
"We will see more acceptable ideas. This is a technology with a lot of potential, positioned in a very negative light at the moment. Getting people to adopt it in consumer situations is really personal: people do not want their privacy invaded, but I don't think it has to invade their privacy," said Lawson.
For businesses, applications beyond supply chain optimisation are starting to emerge. John Fontanella, president of supply chain services at AMR, said RFID could save organisations money for a reasonable outlay.
"With an investment of £200,000, a UK distributor cut energy charges by almost 25% by using RFID to synchronise the opening and closing of doors in its refrigerated warehouse with the arrival and departure of trucks," he said.
Fontanella added that companies should view RFID as an automation technology, not just a data collection method.
Jonathan Himoff, chief executive at supply chain software firm Magenta, said the next generation of read-write RFID tags would allow data such as product pricing to be altered.
"Products could change their pricing dynamically based on local and regional availability. Products could dynamically create bundled offerings for specific people as a way to attract them to spend more. RFID could also be used in places such as museums to describe pieces, or to help people navigate to destinations using RFID like a location-based service," he said.
Another unusual application comes from French RFID start-up Dentalax, which has launched an RFID-based system to help reduce errors and improve productivity in the development of dental prosthetics such as crowns and bridges.
Looking forward, Gartner predicts that companies will go through a two-phase adoption of RFID, first creating RFID-enabled business processes, using it in existing business processes to achieve marginal benefits.
The second phase will be when companies adopt RFID-centric business processes and radically re-engineer their processes to embrace the technology. How firms are using RFID
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How firms are using RFID
The supermarket's Secure Supply Chain initiative will use RFID from next year to improve on-shelf availability and reduce theft, particularly for high-value goods.
The US supermarket giant will require its 100 largest supplier partners to use RFID chips on pallets and cases by January 2005.
Procter & Gamble
The consumer goods group is using RFID to distinguish genuine from counterfeit products and identify and recall outdated products.
The aircraft manufacturer will issue its RFID specifications to suppliers during the first half of next year to spell out its technical standards for frequency, memory capacity and size of RFID tags and labels.
Ministry of Defence
The MoD is investing heavily in RFID to track army equipment. It is a significant part of a new consignment tracking system to be phased in over five years.
High price and lack of standards hold back RFID
One major problem with implementing RFID is the cost of the equipment. RFID readers typically cost in excess of £600 each, and a large firm could need thousands of them to cover all its factories, warehouses and shops.
RFID tags are also still too expensive for use with low-cost products.
Stephen Smith, research vice-president at analyst firm Gartner, said passive tags cost from 22p to £5.40, with active tags starting at £2.20 to £2.70, increasing to hundreds of pounds. By 2009, the most competitive RFID tags will cost 11p, said Smith.
Another inhibitor to RFID adoption is the lack of standards. Most existing RFID systems use proprietary technology, so if one company puts an RFID tag on its products, another company cannot read them unless it uses a system from the same supplier.
Many of the benefits of RFID come from tracking items as they move from one company to another, and even one country to another. Alan Lawson, research editor at Butler Group, said, "It is necessary to have RFID standards for companies such as Wal-Mart which have to interact with multiple partners."
The International Organisation for Standardisation is working on RFID standards, and product code organisation EPCglobal also has its own protocols which it intends to submit to ISO to become international standards.
Kara Romanow, research director at AMR Research, said, "Standards are important, and we will not get the benefits of worldwide adoption without worldwide standards, but I am confident the industry is moving in the right direction."