Use of RFID tags continues to increase as retailers and manufacturers discover its value in the supply chain but item level tagging is still a long way off.
Elsevier Food International, Vol. 9, Number 3, September 2006
Len Lewis

RFID gate in Meto Group's RFID innovation centre in Neuss, Germany

RFID, long hailed as a panacea for what ails the supply chain, continues to be rolled out by manufacturers and retailers as prices of tags and readers decline and technology improves.
However, global deployment remains slow and the question is whether 2006 and 2007 will finally be the breakout years. Industry observers generally agree that the ubiquitous barcode that was introduced nearly three decades ago will probably not be replaced by RFID for another 15 years, if ever. One reason is the initial cost to the manufacturer of anywhere from US$12 to US$23 million before significant savings in labour or inventory can be realised, according to figures from AMR Research.
However, with early adopters such as Metro, Wal-Mart, Tesco, Unilever and Gillette pushing the technological envelope, other companies are jumping on the bandwagon and discussions in the industry have shifted from whether RFID has value to how companies can optimise value throughout the supply chain.

A smarter barcode
"There is a lot of confusion about RFID. It’s been implemented around the world for 50 years and it is used in everything from garage door openers to toll booth passes," said John Greaves, RFID global group vice president at NCR Corp. "It is not a technological revolution. It’s just a smarter barcode. But it is a business revolution. It’s about resolving issues in the supply chain. Resolution of inventory issues and determining the health and welfare of inventory such as whether it’s been heated, frozen and remains dry or wet, is further down the pike," he said. Implementation is going as fast as you might expect considering that the challenge is not about RFID - it is about the impact on IT architecture, according to Greaves. This is more important than being concerned about a mundane, if not primitive, technology called radio frequency. Early adopters in retail are driving the business as are manufacturers, logistics companies, growers, producers and shippers who wish to remain competitive and assured of their place in the business next year, he added.
A recent study conducted by Retail Systems for NCR Corp., found that only nine per cent of retailers have a timeline for RFID implementation. However, 70 per cent of retailers with annual sales over US$5 billion are expected to implement some kind of RFID system over the next 18

Demonstrating RFID-enabled picking during the CeBIT tade show in Hannover, Germany (March 2006)

months. But the report also noted that larger companies also have more integration issues making implementation more challenging than it is for small ones. Among manufacturers, 44 per cent have developed or implemented an RFID timeline and most have pilot distribution centres up and running. They are also discovering that the benefits may be deeper than previously thought.
For example, Procter & Gamble, an early proponent, initiallybelieved that reducing out-of-stocks was the most profitable application. However, improving programmes and new product launches is the "sweet spot" and being in-stock for these can boost sales by 20 per cent, Dick Cantwell, vice president and head of RFID operations for P&G, said at a recent industry conference.

Reducing out-of-stocks
Wal-Mart, the technology’s biggest retail boosters, is similarly optimistic. The results of a study by researchers at the Sam Walton College of Business at the University of Arkansas found that out-of-stocks can be reduced by as much as 62 per cent using RFID, which is far more than the 16 per cent previously estimated. The only items that did not benefit from RFID were high-velocity items like milk and bread, which are continually replenished anyway.
William Hardgrave, founder and director of the university’s RFID Research Center noted that for a  store with an average out-of-stock rate of eight per cent, it is estimated that 3.4 per cent of sales could be lost. "As a percentage, this may not seem like much. But assume a retailer has annual sales of US$100 billion. If they eliminated out of stocks and lifted sales by 3.4 per cent, the retailer would experience as much as US$3.4 billion in increased sales annually," he said.
The information has certainly not been lost on Wal-Mart, which has deployed tag readers at 500 stores and five distribution centres. The store count is expected to double by the end of this year, representing approximately 25 per cent of the chain’s store network. Another 200 suppliers will also begin tagging shipments for Wal-Mart this year. Wal-Mart is so intent on expanding the industry’s use of RFID that it has begun sharing information with Target about product location in the supply chain from 13 manufacturers.
Other pilot programmes are also underway. Kroger is tracking temperature as well as location of case-ready meats throughout the supply chain and Publix is conducting similar tests for fresh fruits and vegetables. At last report, the latter is not terribly successful because moisture and oil interfere with radio waves. The technology is also making headway in the US drugstore industry, with Rite-Aid testing an RFID-based vehicle management system and Walgreen, the world largest drug chain working with 15 CPG suppliers to use tags in tracking promotional displays at about 5,000 stores. However, this test consists of high priced, battery-operated tags that cost approximately US$6 each.
Some of the most interesting work with RFID applications is being done in Europe. Koskilinjat, a Finnish bus company, has upgraded some vehicles to accept payment from RFID enabled mobile phones and smart cards. These types of phones are also being used for vending machine purchases in Japan.

Metro slows implementation
On the supermarket front, Metro, which opened its RFID Innovation center in Neuss in 2004, has become the first chain in the world to use RFID throughout the entire logistics process and of course in its Future Store, where RFID applications are located throughout the store. But Metro also put the brakes on RFID deployment in order to wait for the Gen 2 EPC readers that are now being installed at its Metro Cash & Carry, Kaufhof and Real divisions along with several distribution centres. Gen 2 technology, first implemented by Wal-Mart, is said to offer better performance than its predecessor and provides a standard so that retailers and vendors can work together more efficiently. European versions of the reader are designed to work on the mandated 868 MHz frequency.
Industry sources have mixed opinions on whether the technology is moving forward faster in Europe than in the US. European retailers have been focused on more measured and deliberate learning plans about RFID than their US counterparts, according to Milan Turk, director of customer eBusiness for Procter & Gamble. "European retailers have been hampered by continuing debates over public consumer policy, availability of frequencies in each country and the passing of the Gen2 standard. However, they have identified compelling areas to pursue such as asset tracking," he said.
Metro is an excellent example of a retailer that is taking an almost scientific approach to their testing by building and proving layer upon layer of technical capability as well as work processes into their plans, said Turk
"When Metro moves from pallet level tagging to case level tagging, as they are expected to do in the autumn, it will mean that they understand and have made changes in their work processes to use the pallet level tagging information and are ready to support the next level of testing."
Tesco is also reining in its plans for RFID due to problems with EU regulations. Originally, the chain wanted to have the technology in place at 1,400 stores and 30 distribution centres by 2005. At present, only 40 stores and one warehouse use RFID due to problems with UHF frequencies regulated by the EU. As such, Tesco is no longer mentioning a specific timetable for rolling out RFID chain-wide and only notes that it will be in the next several years.

Replacing barcodes?

Wal-Mart has deployed RFID tag reader at 500 stores and five distribution centres.

As noted, few people see RFID replacing the barcode and NCR’s Greaves really does not see it coming at all. "After 30 years, have barcodes replaced the use of paper or human handwriting?" he asked, adding that item level tagging is "preposterous" on silicon-based RFID tags, which are more expensive due to the silicon content. The cost to produce a UHF tag, which only represents about two per cent of the market, is about ten cents compared with two to three cents for a 1356HF tag, which is also the prevailing frequency.
The problem with the HF variety is that it does not lend itself to complex data transmissions from multiple tags. The real Utopia is in contactless inks which have radio reflective coatings that can be printed onto packages and propagate the same signal as a tag, Greaves said. "The problem here is that it only has a range of inches," he said. As to concerns about consumer privacy, Greaves believes it is a non-issue. "Less than 20 per cent of all consumers actually sign the privacy notice that is sent to them annually with their credit cards and you can certainly track purchases with credit cards. If you want to do it via RFID you’re going to have to invest a couple of million dollars more plus the cost of the software," said Greaves.
"It will determine that when John Greaves boarded his flight to Chicago he was wearing a Wal-Mart shirt that he bought in St. Louis in April of last year for US$18. Explain the value proposition in that."
However, he agrees that consumers must be assured that their information is safe and he applauded the EC Commission’s actions in creating charters and legislation which, as he noted "will prevent the bad guys from moving in and exploiting information gained from an RFID environment."