RFID Evangelists Rejoice
By George Anderson
Praise be, praise be… The day that proponents of radio frequency identification (RFID) technology have been waiting, if not praying for, appears to be close at hand – widespread adoption.
In the RFID Watch Weekly column on DCVelocity.com, John R. Johnson says that there is good reason for rejoicing in RFID circles.
For one, writes Mr. Johnson, the price of RFID tags and equipment is coming down. Avery Dennison has Gen 2 inlays that sell for 7.9 cents per unit for orders of a million units and up. UPM Rafsec is selling its Gen 1 and Gen 2 inlays at under a dime for orders of 50,000 pieces or more and Alien Technology has brought the cost of its Gen 1 labels down to 12.9 cents.
ABI Research analyst Erik Michielsen said, “These new low prices may represent loss-leaders. But when you tie them to the new products and services offered by software companies to help end-users make sense of their RFID data, and to the recent spate of EPC Gen 2 announcements, we may have a three-headed ‘benevolent monster’ that will promote demand.”
Other factors that promise to speed up adoption of RFID, writes Mr. Johnson, is increased access to Gen 2 equipment, positive results from tests conducted with the technology and answers to concerns about the mountains of data that RFID can capture.
“We’ve had those kinds of conversations with out customers, and we’re not of [the opinion] that the sky is falling and enterprise systems are going to get swamped with data,” said Ashley Stephenson, CEO and co-founder of RFID startup Reva Systems. “I think the industry has grown up from the early fears of data storms resulting from all the [data] from tag reads flowing back to some huge database in the sky and causing system overloads.”
New readers and support applications have made it so that companies can capture only that information that they need. Importantly, it is all done in real time.
Another promising development in RFID is the introduction of a new royalty-free software standard for using EPC technology known as the Application Level Events standard (ALE).
“The ALE concept is a critical component of the EPCglobal architecture in that it provides the first line of defense for enterprise systems against the onslaught of EPC tag data,” said Chantal Polsonetti, vice president at ARC Advisory Group. “As standards-based RFID middleware, ALE provides both a buffer to physical layer infrastructure activities and a platform for distributed edge computing.”
ARC’s Polsonetti says the software will eliminate labor associated with drilling down through the raw data to get to information that supply chain partners can use. It also provides a middleware driver platform to interface a variety of different devices used by enterprise systems.
Moderator’s Comment: Are the factors that have prevented the widespread use of radio frequency identification (RFID) technology now gone? What do you
see as the current state of RFID use and where will the retail and related industries be with the technology over the next couple of years? –
George Anderson – Moderator
Wal-Mart’s mandate to its top suppliers has started many companies on the path to pallet and case level tagging. Savvy executives looking for ROI on the mandate have begun to explore such options as vendor managed inventory (VMI), demand management, demand shaping and utilization of real-time data in their S&OP meetings.
Many of these opportunities for ROI have existed since bar codes became ubiquitous. The expense and excitement around RFID have led executives to seek out competitive advantage in places where they could have found it using tried and true bar code technology. In that respect, RFID has provided a welcome impetus to process improvement.
There are, however, opportunities existent with RFID that were not possible with bar codes. For example, one of my fellow students at the MIT Master of Engineering in Logistics (MLOG) Program did a study of container loading in Korea and found that Samsung could save $5 million annually on one single product line by using RFID rather than manual counting.
Regarding data quantities, my own research and systems architecture showed that by utilizing inference and aggregation and an efficient architecture, one could reduce data levels to a very reasonable level.
Even if the tags and software and overhead come to only 10 cents per unit, for many product categories, the price point is so low that the 10 cents removes the profit. Many retailers struggle to make 5% after taxes, and in some channels (supermarkets, warehouse clubs) there is a struggle for 1% and 2% of sales. So if the system cost is 10 cents per unit, why bother? The great success of the UPC is that the per-unit cost is nothing, since it’s preprinted as part of the product label. If the RFID tag tracks a high-value item (certain drugs, precious jewelry, high end electronics) or tracks a case or a skid, then the 10 cents becomes a more acceptable extra overhead. Even then, there needs to be proof that sales are increased or money is saved elsewhere. Retailers would be thrilled to adopt RFID quickly if there was clear evidence of savings and/or better sales. Right now, there is great theory, but not great evidence.
RFID will remain in pilots and tests through 2010 (at least). No amount of wishful thinking or cheerleading will make things move faster.
To date, the following have been impediments to widespread adoption:
· The ratifying of the ALE middleware
· Costs below 10 cents for tags
· Release of the “Generation 2” technology
While these impediments have prevented widespread adoption of RFID, I believe the following are issues that will need to be addressed before critical mass is achieved:
· EPC implementation is still a substantial investment that requires both the supply and demand side in-depth, joint planning.
· In order for EPC to truly work and deliver the ROI, the supply and demand side need to operate with the same accurate data set.
· We need end to end deeper data integration within the supply chain which will require expensive business process changes.
· Entire Supply chain adoption. To deliver the perceived ROI, you’ll need to follow the traded unit throughout the links of supply chain.
· Clearly defined ROI. Companies must begin reporting results in terms of business value obtained such as reduction in out of stocks etc. rather than the technically charged results reported such as read rates.
· Moral issues have not yet been satisfactorily addressed. California Senate Bill 682, more commonly known as ‘The Identity Information Protection Act of 2005.’ This bill bans the use of RFID technology rather than preventing bad behavior among parties attempting to access data encoded to an RFID without permission.
· Read rates errors; while they are improving I believe there’s still a way to go with regards to missed and phantom reads.
In Summary, RFID technology is evolving because of varying opportunities driven by specific dynamics. I believe you will continue to see innocuous RFID readers appear in the marketplace. That said, the RFID early adopters will remain in certain classes of trade and categories for the next several years. Further, until the above are addressed, we will not see widespread adoption.
Having read all the comments and being in the packaging field – very few things move quickly unless a new regulation takes effect! Sure WM and a few others are pushing, and sure there are lots of dollars to be saved by “demystifying” the supply chain. Yes the costs are coming down, but the cost is still high. And where are the resources that are going to do the implementation across organizations? Will internal resources be put on RFID implementation or bigger known productivity projects? And how will these resources compete with demand side resources pushing for package innovation, the big new trend out there. Folks, we have years before RFID is close to main stream. I agree with Brand Manager.
The new prices bring RFID into the realm of supply chain usage. But it’s still not cheap enough to warrant widespread use on individual products. Think pennies if you want to use it in-store.
Also, we’re focusing on price. Is anyone talking about improving the technology so it works all the time on all products?
The factors that have inhibited widespread use of RFID at the pallet and case level are decreasing, but they remain inhibitors. RFID tags are closing in on a realistic price point for mass use, and readers and other hardware/software items needed to capture, store and analyze data are both more effective and less expensive than they were even 12 months ago. Still, most pallets and cases sent to Wal-Mart, the DOD and others with RFID mandates receive tags that are physically slapped on the boxes or the shrink-wrapped unit loads, and this is clearly inefficient. There were several vendors at PackExpo, the giant packaging show held last month in Las Vegas, trying to address this problem with machinery that applies the tags to the case at the end of the production line, and that can integrate RFID chips into stretch wrap.
A point also has to be raised about scan rates. As important as it is to have reasonably priced tags and data collection equipment, it is more critical that the industry reach 100% scan rates. Because manufacturers are slapping tags on two, three or even four sides of the unit loads as they leave the processing facility or DC, they are reaching 100% read rates at the pallet level. Now they have get to that same rate using only a single tag. And, while case level tagging is meant for use in automated sortation and conveyor systems, additional work needs to be done to bring those read rates up to 100%.
As for the future, there is still a lot of money pushing innovation in the RFID world, and that will continue. An example of this, and I hope it doesn’t sound like an advertisement, is RAM Communications client CHEP, which announced their latest RFID innovation yesterday — a 3-in-1 tag that can be read through RFID, bar code or visually using a human readable identification number. The new tags reduce the need for installation of RFID readers in all supply chain locations and have full read-write capability, with two pages of user memory enabling users to temporarily write product-related information, such as serial shipping container code (SSCC) to the tag.
Also, the commercial applications for RFID are expanding as rapidly as the technology that supports them. New business intelligence tools are being introduced by leading software companies like Business Objects, Cognos, i2 and MicroStrategy almost weekly. This, too, I expect to continue, as there is no reason to collect all of this data without applying the resulting analysis to grow business and/or cut costs.
I haven’t touched on item level RFID, because that remains a wholly separate can of worms, one that I could spend the rest of the week writing about.