Wireless technology reshapes retailers

From Prada’s Manhattan digs to The Gap in Atlanta, retailers are trying out new wireless technology that experts say will help improve inventory accuracy and fight fraud.

Radio frequency identification (RFID) technology uses radio waves to transfer data between a reader device and an item, such as clothing or a shipping container. The technology powers myriad applications, from luggage tagging at airports to highway toll collections.

Exxon Mobil Corp. uses RFID technology in its Speedpass payment system. Customers wave a small transponder in front of a sensor on a gas pump, debiting their account. Low-frequency RFID applications range from 3 KHz to 300 KHz; Speedpass operates at 134 KHz. High-frequency RFID systems operate between 3 MHz and 30 MHz – many at 13.56 MHz, a frequency reserved for low-power industrial applications.

Today, retailers are looking to use RFID to keep tabs on their inventory – to find out what products are on store shelves, what’s available in the storeroom, and what’s en route from the distribution centre or from suppliers.

RFID is a descendent of wireless technology used during World War II when the British mounted transponders to their aircraft so they could tell via radar if an approaching plane was one of their own.

In retail scenarios, an RFID system consists of an antenna and transceiver – which often are contained in a single reader device – and a transponder. The reader can vary in format from a simple handheld scanner to a stationary tunnel-like device that scans boxes as they pass along a conveyer belt. The reader transmits a signal over radio frequency waves to activate a transponder embedded in an item tag. When activated, the tag sends data back to the reader.

For retailers, RFID tags are a bar-code alternative. The tags contain miniature chips that store information about the item to which they are affixed – blue jeans or a T-shirt, for example.

Unlike bar codes, RFID tags do not require a reader to come in direct contact with an item, nor do they require a line of sight between reader and tag. Plus, multiple transponders can be read simultaneously. This means that warehouse staff can inventory the contents of a sealed pallet with a single scan, and storeroom staff can tell what’s inside a sealed carton without removing each item.

RFID tags also hold more information than a standard Uniform Product Code (UPC) identifier. Whereas a UPC bar code identifies a particular manufacturer’s product, such as a style of shoes, an RFID tag potentially can identify a pair of those shoes through a unique item-level serial number. It also can store information about where and when that pair of shoes was manufactured, when it was placed on a store’s shelves, and when it was purchased.

Wireless proponents

Proponents say RFID technology eventually will let every company in the supply chain track individual products. For example, as a container arrives at the loading dock of a distribution centre and workers scan the pallets, information about the container’s arrival immediately can be shared with the suppliers that sent the shipment and retailers who are waiting for their share of the content to arrive.

Today, RFID is most common at the distribution and warehouse stage of the retail supply chain, says Jim Crawford, retail analyst at Forrester Research Inc.

Companies primarily use the technology to identify containers or pallets – as opposed to tagging individual items – which limits the number of RFID tags they need to purchase. But increasingly, retailers are testing its use on the shop floor as well, Crawford says.

Inside stores, readers mounted on display shelves can poll item tags and send inventory data to back-end systems, rather than relying on point-of-sale data or manual counts. When shelf counts get low, the system can alert staff that particular sizes and styles need to be replenished.

Clothing retailer Gap Inc. conducted a three-month RFID pilot late last year in an Atlanta store. Neco Can, director of The Gap’s product management office, shared his company’s experience at this summer’s Retail Systems 2002 conference in Chicago.

“RFID technology works,” Can said. It let The Gap identify individual items without physically seeing them. “And if I know where my goods are, I can make much better decisions,” Can said.

Can emphasized that RFID could improve data integrity – which is a big issue for retailers. All along the retail supply chain there are opportunities for errors to be introduced as items are manually counted and entered into systems, Can said. “Data accuracy is pretty bad,” he said. Less than 85 per cent accuracy is not uncommon; but for its in-store RFID trial, Gap’s inventory accuracy levels hit 99.9 per cent, Can said.

Following the pilot, The Gap has shelved its plans for deploying RFID throughout its chain. But Can foresees many opportunities for the technology. For example, a cashier could conduct mass scans at the register to speed up checkout times, Can said. And to combat fraud – particularly among employees – RFID technology would let retailers write sales data to an RFID tag so that if someone tries to return stolen merchandise for cash or credit, the system can alert the cashier, Can said.

RFID roadblocks

Forrester Research’s Crawford says RFID technology has the potential to change everything about the way companies manage the supply chain.

But there are obstacles, one of which is price. The cost of transponder tags today ranges from 20 cents for disposable paper labels to several dollars for tags that can be rewritten thousands of times, according to Forrester Research. The Auto-ID Centre, a research program at the Massachusetts Institute of Technology, hopes to see prices drop to five or 10 cents per tag in the next few years.

A second obstacle is data collection and dissemination.

“RFID requires a whole new category of applications,” Crawford says. RFID systems inside a store might poll tags every 5 seconds, but there’s no need to pass that massive amount of information to a company’s central inventory system, he says. Exception-based software that reports inventory changes at reasonable intervals is more appropriate.

Pilot action

For these reasons, RFID technology is still very much in pilot mode, Crawford says.

“We’re still seeing a lot of pilot action, which is typical when companies are rolling out new technology,” says Bill Allen, eMarketing manager of Texas Instruments RFID Systems. Texas Instruments offers low-frequency and high-frequency RFID products. Its technology was used in The Gap’s pilot and in an RFID rollout this year at Prada’s flagship New York store.

Other companies participating in RFID pilots include Auto-ID Centre sponsors Wal-Mart Stores Inc., Proctor & Gamble Co., The Gillette Co., Kraft Foods and The Coca-Cola Co. Minneapolis’ Target Corp., too, has said it will test RFID.

Texas Instruments expects full-scale RFID rollouts to pick up, Allen says. British retailer Marks & Spencer ordered 3.5 million tags, which the retailer will embed in reusable plastic trays, dollies and cages used to transport refrigerated fresh foods.

“An order of 3. 5 million tags means they’re pretty serious about the technology,” Allen says.

As for pricing, Allen says RFID tag prices are less than half what they were five years ago, when Texas Instruments originally came out with RFID products. And the prices continue to drop, little by little, Allen says.

Key to deploying RFID sensibly is finding appropriate applications. “You’re not going to stick a 35-cent label on a 75-cent can of beans,” Allen says. “It has to be the right application.”

Along with Texas Instruments Inc., other vendors with RFID offerings include Matrics Inc., Philips Semiconductors BV and Symbol Technologies Inc.