It may be "the oldest new technology," in the words of IDC analyst Christopher Boone, but the combination of radio frequency identification (RFID) tags with electronic product codes could change the way manufacturers and retailers manage their supply chains, according to analysts, vendors and attendees at IDC's RFID Update conference in Boston on Monday.
For years RFID technology has been used in access cards and transponders for automated highway toll collection, Boone said. What is new about RFID technology, and what is attracting the interest of supply managers and privacy advocates, is the ability to track products across the supply chain more efficiently than the venerable bar code.
RFID technology will allow supply managers to track products without a direct line of sight to a particular product, saving labor and equipment costs, said Lyle Ginsburg, managing partner for technology innovation with Accenture Ltd. A chip and an antenna are integrated into a tag that is placed onto a shipping pallet or individual item. A separate device called a reader senses the chip and records identifying data as the products move through a gateway or checkpoint.
Right now, the retail industry is eyeing a pilot project launched by Wal-Mart Stores Inc. to require merchandise bound for one of its three Texas distribution centers in the Dallas-Fort Worth area to carry an RFID tag with an electronic product code (EPC). Suppliers need only to track shipments of pallets or cases of merchandise to meet Wal-Mart's 2005 requirements, Boone said.
The real growth in the RFID market won't occur until manufacturers are comfortable with tracking individual items, around 2008 by current IDC predictions, Boone said.
German supermarket company Metro AG is testing item-level RFID technology at its "Future Store" in Rheinberg, Germany, but most companies aren't even close to deploying RFID on individual items. For this to happen on a wider scale, the cost of an RFID tag will need to drop to about US$0.05, from about $0.50 today, Boone said.
Cost is a major hurdle for companies considering RFID/EPC adoption today, Ginsburg said. Many of the industries that would benefit from this technology are high-volume businesses that operate on very low margins, and even US$0.05 a tag can be a tough sell to chief financial officers at low-margin companies, he said.
Michelin North America Inc. started to investigate RFID technology after rival tire company Bridgestone Corp. was forced to recall millions of faulty tires in August of 2000, said Pat King, global electronics strategist for Michelin. It has developed a method of placing an RFID tag on a tire that can withstand strenuous manufacturing and distribution processes, but no one has requested the RFID tires yet because of the extra cost, he said.
While product recalls on the scale of the Bridgestone incident are rare, they can be a disaster if not properly managed, Ginsburg said. Upper management at Johnson & Johnson needed only be reminded of the costly Tylenol aspirin recall in the 1980s to authorize a study of RFID/EPC technology, said Pat Rizzotto, vice-president of global consumer initiatives at Johnson & Johnson.
RFID/EPC technology can also help reduce product theft and counterfeiting, Ginsburg said. Retailers of high-end apparel and pharmaceuticals are two industries where item-level tracking is expected to provide immediate benefits, he said.
About 2 per cent to 7 per cent of pharmaceuticals are counterfeit, and the problem is worse in emerging markets, said Jamie Hintlian, a partner for health and life sciences with Accenture. Pharmaceutical companies want safe and secure supply chains, and RFID technology can help assure that by authenticating products at every step of the supply chain from product development to the doctor's office, he said.
RFID/EPC technology concerns some privacy advocates who feel the chips will allow retailers to track products once they leave warehouses and stores and head to homes and businesses. A group called Consumers Against Supermarket Privacy Invasion and Numbering (CASPIAN) has launched a campaign that seeks to limit the use of RFID tags to pharmaceuticals and pallet tracking. The group, backed by the American Civil Liberties Union, the Electronic Frontier Foundation and the Electronic Privacy Information Center, wants to prohibit item-level tracking of consumer goods.
"Used improperly, RFID has the potential to jeopardize consumer privacy, reduce or eliminate purchasing anonymity and threaten civil liberties," the group said in a position paper available on its Web site at www.spychips.org.
RFID backers aren't as worried about the privacy implications of the technology as groups like CASPIAN. For one thing, an RFID tag reader has a maximum range of around 20 feet — 6 meters — and even then only if the tag is very powerful. An active tag, or a tag equipped with a battery, can be read at a longer distance, but the battery would add so much cost to an RFID tag as to dissuade anyone from implementing it today, Boone said.
Any company thinking about deploying RFID for item-level tracking should consider informing the customer right on the store shelf that the product they are about to purchase contains an RFID tag, Boone said.
"What vendors should not do with RFID is as important as what they should do," he said.
As with most new technologies, RFID/EPC growth requires a common set of standards to really take off, said Bernie Hogan, senior vice-president and chief technology officer for EPCglobal Inc., one of the groups involved in the RFID/EPC standards-setting process. The goal is to create a "royalty-free" standard based on the collaborations of industry companies, he said.
The second generation of the wireless standards for RFID/EPC technology will be decided later this year, Boone said.