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| Tagging The Material World |
August 2, 2004 |
By Trevor Marshall
They’re tiny, they’re cheap — though not quite cheap enough yet — and pretty soon they’ll be everywhere. Already, marathon organizers use them to track runners, drivers use them to pay for gas, and toll-highway operators use them to collect fees. And after years of talking about it, businesses, manufacturers and retailers are starting to introduce them into everyday operations.
They are Radio Frequency Identification ( RFID) tags, and can be affixed to any item from a tin of baked beans or a T-shirt to a pallet or crate, or even a boat, plane, automobile or railway car.
Each tag is coded with a unique identifier, akin to a serial number.
When a tagged item passes an RFID scanner, the scanner can access the tag and read its ID. That data can then be used in several ways: a database can be queried to find the item’s price, when it was made, where it was made and where it’s going, or the tagged item’s location can be recorded so it can be found later.
RFID systems promise radical changes to many day-to-day activities. For example, shopping could be as easy as pushing a loaded cart through a scanning arch, similar to an airport metal detector; in an instant, the scanner would record everything in the cart and charge the total to the shopper’s credit card. A transaction that takes several minutes now could be completed in mere seconds.
MANAGING SUPPLY CHAINS
RFID is an attractive proposition for businesses, too, particularly retailers and their suppliers. Supply chain management is a huge and constant headache for retailers, but it’s a challenge that RFID is ideally suited to address.
“The real value of RFID is more granular information and more timely information,” said Christine Overby, a senior analyst at Forrester Research who specializes in the retail industry.
“What’s important is it provides information about how an individual item, case or pallet works its way through a supply chain.”
“The key value proposition (for retailers) is, ‘where’s my inventory?’” added John Tulley, area vice-president of retail and national accounts for Teradata Canada, who noted that merchandise is increasingly manufactured offshore with long lead times. “(A buyer) will go to China and order 100,000 beach balls in December for the summer season. Those will be put on tractor-trailers and on ships, and the question is, where are they in the supply chain? With an RFID tag at the pallet level, you can have positive acknowledgment that it did actually get on the ship.”
THE PILOT EVERYONE’S WATCHING
This potential for increased data capture has encouraged the 800-pound gorilla of the retail world to test RFID first-hand. In June 2003, Wal-Mart announced that its top 100 suppliers would have to be RFID-ready by January 2005. Subsequently, in April 2004, the company launched a pilot program with eight key suppliers. Products destined for distribution centres and stores in the Dallas/Fort Worth area are being shipped on RFID-equipped pallets in a large-scale, real-world test of the technology that’s being closely monitored by everyone in the retail industry.
“At the end of the pilot we’ll have a broad understanding, as will our suppliers, of how RFID fits in the retail process,” said Kevin Groh, corporate communications manager at Wal-Mart Canada.
Groh was coy about when RFID would come to Wal-Mart Canada, but he points out that Wal-Mart is already planning to expand the program.
Other retailers that have announced RFID plans include Target in the U.S., and Tesco and Metro in Europe. Meanwhile, the U.S. Department of Defense is using RFID to track inventory of everything from soldiers’ rations toHazardous Materials suits.
What’s interesting about pilot programs at Wal-Mart and elsewhere is that it’s the end users who are driving the interest in RFID, not technology suppliers. “This is very different from a lot of the technology waves that we’ve seen previously — even the Internet,” Overby said. “We have a couple of really big companies that have said they believe in data, that it’s their strategic asset, and they see this technology as a means to collect more.”
GAS, FAST
Supply chain management is the obvious application, but by no means the only one. For Imperial Oil, RFID technology has already proved itself at the gas pumps.
Imperial introduced the RFID-equipped Speedpass in 2001, and has equipped more than 1,200 of its 2,200 Esso stations across Canada with the service.
The Speedpass is an RFID tag. Point it at a scanner-equipped pump, fill the tank and go; the ID is used to charge the gas to a predetermined credit card.
When enrolling, customers can opt to turn off pump-side prompts for additional services like car washes or printed receipts. And since it hangs on a keychain, the Speedpass is always handy. “Customers don’t have to fumble for cash or look for credit cards,” said Kathy Stewart, Imperial Oil’s loyalty and promotions manager and the person responsible for the Speedpass program.
Beyond convenience, Stewart added the Speedpass is safer because it contains no credit card information, so it can’t be skimmed, and if it’s lost the customer doesn’t have to cancel a credit card, just the device itself.
For Imperial, RFID improves the customer experience, which has resulted in more business. “If you have a Speedpass you’re more likely to buy from Esso, and to buy more frequently,” Stewart said. “Even people who would come in occasionally we have seen come in more often because they enjoy the device.”
MANY APPLICATIONS
Other potential RFID applications include counterfeit detection, more flexible manufacturing processes, quality control, warranty validation, even using RFID tags to match up pairs of shoes in a store after a busy shopping day. Many such applications are being studied at Hewlett-Packard, which is opening dedicated RFID centres of excellence around the world.
“What we’re trying to do is build a platform to give users visibility into the supply chain,” said Salil Pradhan, Hewlett-Packard’s chief RFID technologist and leader of the related research program at HP Labs. “Based on this visibility, you can create a large number of applications on top. Some of these are to do with existing supply chain management…but then there are lots of applications that go beyond that.”
Hewlett-Packard already uses RFID in its own supply chain, and Pradhan said benefits are being realized. “As we do deeper and deeper integration (of RFID into our own business) I’m sure we’ll find that certain business processes can be completely eliminated because RFID can do it.”
RF HURDLES
Of course, the picture is not all rosy. A number of challenges must be addressed before RFID becomes ubiquitous. Chief among them is the cost of the tags themselves. “Tag costs have to come down,” Overby said. “That’s one of the biggest bottlenecks.”
Pradhan agreed, adding champions such as Wal-Mart are necessary. “The technology needs to be cheap enough that it gets pervasive, but this is a Catch-22 — it won’t be pervasive until it’s cheap enough, but won’t be cheap enough until it’s pervasive. Really what it takes is for somebody to come in and say, ‘I think it’s the right price point right now, let’s start doing it,’ and as more people jump aboard the price will drop.”
Managing the data generated by RFID tags is another challenge.
Michael Turney, senior program manager at SAS Canada, said it’s important to determine early on what data a business should collect. “Wal-Mart generates something just shy of eight billion terabytes of data in a day across its value chain,” he pointed out. “(By comparison) the world’s largest database, at Stanford’s Linear Accelerator Center, processes about 500 terabytes a day.”
Turney said SAS helps companies determine how technologies like RFID can be used to address specific business issues. “We go back to helping the customer from the very beginning, regardless of the industry they’re in, to step back to ask ‘what are your business objectives and strategies?’ and based on that ‘what type of data does it make sense to collect?’” he explained.
As well, standards are an issue. An international body, EPC Global, has done a good job of developing protocol standards for new systems. But frequency assignments may pose problems: 915 megahertz is used for RFID in North America but that band is occupied by mobile phones in Europe, so countries there have adopted the 968 megahertz band for RFID. Pradhan said this has to be addressed because of the global nature of today’s supply chains — North America is a major retail market for products produced in the Far East. “We’re looking at open-loop supply chains, where any manufacturer can supply any retailer through any third-party logistics company,” Pradhan pointed out. “Some countries in Asia don’t even have standards that have been opened up (for RFID), which is a barrier to adoption.”
Beyond near-term challenges, Overby added RFID implementation costs are fairly steep and the return on investment takes time. “Companies are trying to think creatively about how they absorb those costs, in particular with a business benefits case that’s three to five years out in many cases,” she said.
“Couple that with higher costs and immature technologies, and then couple that with all the retailers and other companies demanding (RFID), and you’ve got a very volatile market.”
PREPARING FOR RFID
Despite the challenges, the consensus is it’s only a matter of time before RFID is broadly deployed. In the meantime, companies can get ready. The volume of data that can be collected and analyzed is far beyond what most companies are currently capable of managing.
“It’s going to take real process change and organizational change. That’s going to take time and that’s the biggest thing we advise companies,” Overby said. “I think it doesn’t hurt to get your feet wet and experiment with the technology.”
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