The good, the bad, and the ugly of RFID

An old adage suggests that the proof of the pudding is in the eating. In the case of Radio Frequency Identification, the proof of the technology may be in the piloting.

More from Dan McLean

To read more of Dan’s articles for The Globe and Mail, click here.

Proof of business value is what’s needed to make this technology a success. RFID deployment in Canada seems to have stalled because most businesses aren’t convinced that the promised improvements in retail lifecycle efficiency are worth the investment. A major project currently under way in Toronto aims to provide confirmation of those benefits to retailers and wholesalers, as well as show how to successfully implement and apply the technology.

RFID technology is a system that involves tiny low-cost chips or “tags” affixed to a product or shipping container to allow people to monitor it throughout an entire order and shipment life cycle. An RFID reader sends out a wireless signal, which causes the chip to respond with a code. A tag on an individual product or an identifier on a large shipment lets retailers keep a constant watch over their goods as they move through the supply chain. The technology has been around for a number of years and retailers are using RFID to effectively manage inventories of everything from automobiles to shampoo bottles. It’s supposed to revolutionize retail, but can’t seem to ignite a whole lot of local interest.

The Canadian RFID Centre, an agency funded by the federal government, is working with technology companies, food stores and grocery product producers to uncover the good, the bad and the ugly of RFID – the compelling benefits, potential drawbacks, plus a blueprint for how to build and use it. It’s exactly the kind of information that’s needed to drive the technology forward.

The six-month pilot project involves a supply chain consortium that includes Loblaws, Maple Leaf Foods, General Mills Canada, Scott Paper and Unilever, as well as technology companies EPCglobal Canada, Intermec, Symbol Technologies and IBM Canada.

“People understand that the technology works,” says David Wilkes, senior vice-president of trade and business development for the Canadian Council of Grocery Distributors. “This pilot step will define the business benefit of RFID. All technology is interesting and exciting, but [it has to] impact business in a positive way … it’s got to get by the ‘yes, that’s cool stage’ to ‘yes, this makes business sense.'”

Mr. Wilkes, who also serves as the chair of the Canadian RFID Centre steering committee, says the trial program features grocer participants using RFID in a live business situation. Through it, they’ll track palettes of products as they leave a manufacturing facility, make their way into and out of a distribution centre, arrive at the receiving locations of a grocery chain retail outlet, and ultimately are moved out of the stockroom and onto store shelves.

All of the business processes touched by RFID technology will be monitored, efficiencies will be measured and the information gathered will quantify the benefits realized by all players in the supply chain.

“We will do ‘befores and afters,'” Mr. Wilkes says. “If there’s an out-of-stock situation, we should be able to examine it. If a product is out of stock, we can assess whether the product was shipped, lost, or put in the wrong stock place.”

The information will help build a business case for RFID. Benefits expected include: distribution process efficiencies, the ability to track products more accurately, transparency in following the supply chain, and ultimately ensuring products are in the right place at the right time. Manufacturers and other product suppliers are less excited about RFID, though, since it represents new infrastructure-related costs. They’ve been mandated to use it by their retail customers, and often see the technology as an unwanted additional cost with no perceived benefit. Nigel Wallis, research manager of application services for IDC Canada Ltd. in Toronto, says his investigations show 60 per cent don’t see a business need for RFID, according to a survey conducted earlier this year.

“The issue isn’t so much that the technology isn’t thought to be useful, it’s that there is no demonstrated value beyond what they currently [understand],” Mr. Wallis says. “Unless you see proof that RFID contributes to improving the bottom line, you won’t see much adoption.” Canada is at least two years behind the U.S. in terms of RFID adoption, he says, adding that his research into the technology since 2004 has shown almost no uptake in investment by Canadian business.

The Canadian RFID Centre hopes to change that. Bill Langlois, director of customer service for Unilever Canada – a participant in the pilot, says his company is an enthusiastic supporter of the project and hopes the effort will help him assess the business case for RFID. Unilever is tagging two of its dry food products as they make their way through the distribution chain. “We will measure things like the location of products within our distribution system, how they flow, [how to] keep products shelved in a better manner, and temperature control, which is important for [maintaining] product quality,” he says.

Shai Verma, RFID practice leader for IBM Canada, says the pilot will provide the foundation for driving greater adoption of the technology in Canada. Even smaller businesses stand to benefit from the work being done.

“We’ll try to create a road map or guide for how to introduce RFID,” he says. “Smaller businesses won’t have to do the work themselves.”

Achieving a critical mass by having businesses of all sizes adopt RFID is the key. Mr. Verma estimates 75 per cent of products must be tagged as they move through manufacturing supply chains in the retail space in order for RFID to truly be successful for everyone and to realize its maximum benefit. And that’s where the real importance of this pilot project lies. RFID won’t budge much beyond its stalled current level of use unless every retailer and supplier sees how the technology can quickly pay for itself and deliver the kinds of efficiencies and functions that truly make businesses better. Everyone needs to get on board.

But achieving ubiquitous use definitely won’t happen overnight, according to IDC’s Mr. Wallis. “This is definitely a growth market, and there’s definitely some adoption interest,” he says. But many companies “simply don’t see a business case for it. It’s early days and, in Canada, it’s early morning in the early days.”

Proof of RFID’s value must be real. The pilot must tell all and be a true and truthful test otherwise Canadian businesses will remain unconvinced.

While it would definitely help the cause of RFID to have a good news story at the end of the project, Mr. Wilkes insists the work being done by the consortium is not simply an industry effort to promote the use of a desired technology.

“We’re not starting with an assumption that there is a business case,” Mr. Wilkes says. “We want to be able to quantify that benefit. We want to then come to our industry and say it makes sense.”

In other words, prove it and retailers will eat it up.