RFID may never live up to the publicity that has surrounded it, but the industry is jumpstarting the technology by refocusing on store level applications.
Elsevier Food International, Vol. 10, Number 4, November 2007
Depending on who you ask, RFID technology is either the greatest invention since sliced bread or an over-hyped technology that will take far more time to live up to its potential and provide a return on investment.
Industry pundits on both sides of the aisle have debated this issue ever since the 60-year-old technology burst onto the retail scene in the early 1990s and discussions about further investments in RFID projects will continue into 2008 as collaborations between retailers and suppliers pick up steam, according to some observers.
Proponents believe it is simply a matter of time before RFID becomes as ubiquitous as the barcode and far more valuable in terms of information gathering. But they concede it has been a frustratingly slow process for a technology that has already proved its mettle. However, several issues are holding back progress. Among them: RFID can never live up to the hype surrounding it, mid-range suppliers have yet to see the benefits and there is a global shortage of people with RFID expertise.
The hype cycle
“I think RFID has just followed the natural flow of new ideas and hype cycles. We’ve seen the same curve with previous retail technologies,” said Michael Klausmeyer, retail business development manager for Cisco in Germany. “I’m confident of another surge in growth for RFID. I haven’t seen any technology come up that was deployed immediately. Think about DVDs and CDs. It took a long time,” he said.
John Smith, vice president of retail sales for Europe, the Middle East and Africa at ADT, London noted: “The only thing bigger than the potential is the hype. But the green shoots of RFID are beginning to pop up in Europe and companies will be using smaller applications to kick start their programmes.”
Gerd Wolfram, managing director of information technology at Metro Group, which has championed RFID since 1994, is similarly optimistic. “We’re very satisfied with the savings from RFID in terms of time, money and quality of customer service. It’s been what we expected and why we’re continuing,” he said, noting that the 2,000-store chain will aggressively implement RFID through 2008, including a test of item level tagging at its Kaufhof department stores.
This optimistic outlook was underscored in a recent report on the European RFID industry from Research and Markets, a Dublin-based research firm. It was estimated that the European RFID market will account for approximately 40 per cent of the global industry by 2016, driven by increased consumer awareness and government support. At this point, the UK remains the second largest market for this technology behind the US, the report said. Retail and supply chain initiatives accounted for 55 per cent of the total western European RFID industry in 2006 and Germany alone is expected to account for 25 per cent of RFID retail tag usage in Europe by 2010.
Metro drives growth
Clearly, Metro will account for much of the growth. “We’re in the process of rolling out this technology for receiving gates in stores and distribution centres,” said Wolfram, one of the architects of the chain’s RFID strategy. “This includes 60 cash and carry stores in Germany, 100 Real hypermarkets and about ten distribution centres, a total of about 180 locations,” he said.
Another 200 Real stores will begin receiving RFID shipments next year. The goal is to have about 160 vendors ship RFID pallets to the company, he added.
Metro is also giving a boost to European expansion of RFID through CERP, Cluster of European RFID Projects, a 13-member group founded in 2007 to facilitate the exchange of information and experiences on RFID projects. The group, chaired by Metro’s Wolfram, also includes Siemens, ADT, Feig Electronics, Pleon and EADS.
However, even ardent proponents of RFID have doubts. A white paper entitled RFID.Bomb from Heavey RF Ltd., a division of Heavey Technology in Dublin, stated that the technology could not possibly live up to the publicity surrounding it. “RFID simply cannot do what people expect it to do from the hype that has been generated over the last decade. It is not a magic wand that will tell you where all your products are in real time. It is not as reliable as bar coding and can never be as cost effective.”
In fact, the report goes on to cite parallels between RFID and the Internet in that a huge perceived explosion in the dot com industry was generated around speculation, hype and fear of not being part of the new economy. “When the dust settled and reality played its part, the dot com industry began a more organic and sustainable development – the next phase for RFID […] but I would also argue that (RFID) will never replace the bar code and it will never reach a level where all the products we buy in a supermarket of the future are electronically tagged. It just isn’t viable,” according to the report, which also stated that a five-cent tag in a usable form will never be possible.
Leap of faith
“Given that bar coding still hasn’t been fully deployed after 40 years in the supply chain, it’s hard to accept that this much more expensive, infinitely more complicated and not yet mature technology is going to be any different” and that adoption in the supply chain is still be a big “leap of faith.”
A number of retailers like Tesco and Metro have taken the leap and one other required its suppliers to do the same. Wal-Mart began using RFID in 2003 and demanded its top 100 suppliers start tagging by January 2005. About 600 suppliers are RFID-enabled, chain officials noted. However, some have declined to do so even though the chain considers it a successful strategy.
However, Wal-Mart has shifted its focus to the store level after missing its goal of installing the technology in at least 12 of its 137 distribution centres last year. “Large suppliers have put their money into pilots. But the challenge for retailers like Wal-Mart, Tesco and Metro is to make the case for RFID with thousands of mid-range suppliers. If you can’t identify your own retail ROI you certainly can’t persuade your suppliers to do it,” said ADT’s Smith.
As he sees it, there have been three issues facing RFID from the beginning. The first was the cost of the tag which started out at US$2 and is now under ten cents. Whether it will ever get to five cents or below is problematic, but this alone is not a major stumbling block, he said. The second issue was the accuracy of the technology, especially in large volume, environmentally hostile environments like distribution centres where several readers may be operating at the same time and are in close proximity to each other. But accuracy rates have been vastly improved and are consistent.
“The quality of the data is fine. The issue is how many tags you can scan in a second. If you are at a 95 per cent accuracy rate, you are still losing five per cent of your inventory. And if you’re not at 100 per cent then you have to do it manually and that takes much longer,” said Klausmeyer.
Changing business processes
The third issue is the greatest stumbling block to RFID expansion. “When you put a new technology into the supply chain and a tag has to be read six or seven times as it moves through,
you’re faced with reading millions of tags. That’s a mountain of information that needs to be sliced up and brought back to the retailer’s ERP system. Only a few notables like Procter & Gamble and Gillette realised they needed serious investment in re-engineering businesses processes in order to handle the data and make sense of it,” said Smith.
These processes are many and varied. “It starts at the beginning of the supply chain. Retailers have to work with suppliers or third-party companies to have some of the same processes in order that the consistency of the information is acceptable,” he said, noting that many suppliers are concerned about making changes to their IT infrastructures.
Another potential problem is privacy. “People are scared of RFID. They think it’s hurting their privacy and the EU is very concerned about it. Metro does a lot of lobbying in the German and the European Parliaments to explain RFID. It’s about educating customers that RFID doesn’t store all their information and that it just stores a number that you can’t do anything with except keep in a database.”
“I think everyone just expected too much,” said Cisco’s Klausmeyer. “But it’s taking off again and in one to three years, technology issues will have all been fixed – mainly the issue of sending and receiving a lot of text in a short time such as scanning 1,000 products on a pallet in one second.
“Prices also need to drop and they will when new technologies are available to print RFID chips. “You can have a positive RFID investment right now when it comes to tagging pallets. But you can’t put a ten-euro cent tag on a Snickers bar.”
Shifting focus
The result is that implementation of RFID has shifted away from the supply chain.
“Wal-Mart identified a faster ROI by going to store level implementation. Closed loop applications enable you to get faster deployment and ROI without re-engineering the business,” said Smith. “The empirical evidence suggests that out-of-stocks can be a potential area of ROI for retailers who need that bang for the buck in terms of increased revenues and lower cost of handling inventories. By using handheld readers in the store you get instant inventory counts and availability without having to go back through the supply chain and mess with business processes.”
Asked what the future holds for RFID, most observers are guardedly optimistic. “I don’t see full supply chain coming for RFID for another three years. But if Tesco does it, Metro won’t be far behind and a couple of other European retailers will quickly follow,” according to Smith.
Will it take RFID decades more to be rolled out like it did barcodes? “I don’t think so. There’s a lot of commercial pressure out there and margins are tight in food. Companies have gone through real estate cost reductions with suppliers, customer relationship management and new store formats. Now, they have to maximise operations and back ends.”
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Current technological research projects in RFID
• Miniature tags with increased reading ranges.
• Tags capable of working in harsh environmental conditions, including high and low temperatures, vibration and chemical substances.
• Tags applied on metallic substances and containers with liquids.
• Low power consumption tags that will lead to increased reading range for passive tags and longer lives for active tags.
• Smart systems such as sensor-enabled tags to monitor temperature, and tags with displays that eliminate the need for a reader.
• Ambient intelligent RFID systems with extensive data structure on tags to allow integration of RFID into different applications.
• Reduce cost of the readers.
• High read range and small-sized antennas for readers.
Source: Cluster of European RFID Projects (CERP)
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