RFID gains steam despite cost pressures

Analysts, suppliers and attendees at IDC's RFID Update conference in Boston agreed that the combination of RFID tags with...

Analysts, suppliers and attendees at IDC's RFID Update conference in Boston agreed that the combination of RFID tags with electronic product codes could change the way manufacturers and retailers manage their supply chains.

For years RFID technology has been used in access cards and transponders for automated highway toll collection, but what is new about RFID technology, and what is attracting the interest of supply managers and privacy advocates, is the ability to track products across the supply chain more efficiently than barcodes, said IDC analyst Christopher Boone.

RFID technology will allow supply managers to track products without a direct line of sight to a particular product, saving labour and equipment costs, said Lyle Ginsburg, managing partner for technology innovation with Accenture.

Right now, the retail industry watching a pilot project launched by Wal-Mart Stores to require merchandise bound for one of its three Texas distribution centres in the Dallas-Fort Worth area to carry an RFID tag with an electronic product code. Suppliers need only to track shipments of pallets or cases of merchandise to meet Wal-Mart's 2005 requirements, Boone said.

The real growth in the RFID market would not occur until manufacturers are comfortable with tracking individual items, around 2008 by IDC predictions, Boone said.

German supermarket company Metro is testing item-level RFID technology at its Future Store in Rheinberg, but most companies are nowhere near close to deploying RFID on individual items. For this to happen on a wider scale, the cost of an RFID tag will need to fall, Boone said.

Ginsburg said cost is a major hurdle for companies considering RFID/EPC adoption today. Many of the industries that would benefit from this technology are high-volume businesses that operate on very low margins, and even a five-cent price tag can be a tough sell to chief financial officers at low-margin companies, he added.

Michelin North America started to investigate RFID technology after rival tyre company Bridgestone was forced to recall millions of faulty tyres in 2000, said Pat King, global electronics strategist for Michelin.

The company has developed a method of placing an RFID tag on a tyre that can withstand strenuous manufacturing and distribution processes, but no one has requested the RFID tyres yet because of the extra cost.

While product recalls on the scale of the Bridgestone incident are rare, they can be a disaster if not properly managed, Ginsburg said.

Upper management at Johnson & Johnson needed only be reminded of the costly Tylenol aspirin recall in the 1980s to authorise a study of RFID/EPC technology, said Pat Rizzotto, vice president of global consumer initiatives at Johnson & Johnson.

RFID/EPC technology can also help reduce product theft and counterfeiting, Ginsburg said. Retailers of high-end clothing and pharmaceuticals are two industries where item-level tracking is expected to provide immediate benefits.

About 2% to 7% of pharmaceuticals are counterfeit, and the problem is worse in emerging markets, said Jamie Hintlian, a partner for health and life sciences with Accenture.

Pharmaceutical companies want safe and secure supply chains, and RFID technology can help assure that by authenticating products at every step of the supply chain from product development to the doctor's surgery, he added.

RFID/EPC technology concerns some privacy advocates who feel the chips will allow retailers to track products once they leave warehouses and stores and head to homes and businesses.

A group called Consumers Against Supermarket Privacy Invasion and Numbering (Caspian) has launched a campaign that seeks to limit the use of RFID tags to pharmaceuticals and pallet tracking. The group, backed by the American Civil Liberties Union, the Electronic Frontier Foundation and the Electronic Privacy Information Center, wants to prohibit item-level tracking of consumer goods.

RFID backers are less worried about the privacy implications because an RFID tag reader has a maximum range of around six metres, and even then only if the tag is very powerful. An active tag, or a tag equipped with a battery, can be read at a longer distance, but the battery would add so much cost to an RFID tag as to dissuade anyone from implementing it today, Boone said.

Any company thinking about deploying RFID for item-level tracking should consider informing the customer right on the store shelf that the product they are about to purchase contains an RFID tag, Boone said. "What vendors should not do with RFID is as important as what they should do."

As with most new technologies, RFID/EPC growth requires a common set of standards to really take off, said Bernie Hogan, senior vice president and chief technology officer for EPCglobal, one of the groups involved in the RFID/EPC standards-setting process. The goal is to create a "royalty free" standard based on the collaborations of industry companies.

The second generation of the wireless standards for RFID/EPC technology will be decided later this year, Boone said.

Tom Krazit writes for IDG News Service

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