Novel technologies with transformative potential in the consumer and business-to-business environments don't always come with built-in applications. Developers and end-users need to find common ground on where the technology can be effective. When the Internet began taking shape around academic and defense-industry activities, few probably imagined that the resulting communications revolution would impact on everything from making airline reservations to shopping for antique fishing lures.
Radio Frequency Identification (RFID) is engendering similar unpredictable end uses. When the basic technology was conceived during the Second World War, using it to identify lost or stolen pets through chips concealed in their ear wasn't on the short list of applications. Nor was identifying lost children at amusement parks through chips in wristbands or clothing tags. But these are just a few of the uses RFID is taking on as an old technology - radio waves - merges with the new technologies of microchips and Internet-based software.
In evolutionary terms, RFID is in a state of diffusion. By using radio waves and chips that are encoded with information (and in some cases, chips that have two-way communication capability), the technology is expanding into a wide variety of potentially exploitable niches. It will be a disappointment in some, a surprising success in others. How successful RFID ultimately proves to be in these niches depends on the likelihood of significant unit cost reductions, and acceptance of the technology by both businesses and consumers.
wide variety of applications
Its most promising application area is not in the ears of wayward Labrador retrievers, but in the supply chain and the retail environment. RFID takes supply chain management a quantum leap forward from bar codes, which have been around for about twenty years. Unlike bar codes, RFID tags don't require a line-of-sight reader. Instead, an RFID reader uses radio waves to identify and sort data from individual chips. These chips (or tags) permit the tracking of single items as well as their shipments at the case, pallet and container level.
With the right software, RFID can revolutionize inventory management, increasing efficiencies in just-in-time delivery and shelf restocking. It can help retailers maximize their sales turnover per square meter of shelf or floor space. It can reduce "shrinkage" by combating theft with a more discrete, less cumbersome device than the bulky tags now attached by retailers to garments. "Intelligent" tags can reduce shrinkage by monitoring factors such as temperature and humidity, avoiding spoilage in perishable goods. And reducing shrinkage of course would improve margins and reduce retail prices, which in turn would improve sales.
RFID also promises enhanced security at several levels. International ports can better manage terrorist threats by employing tracking technology that accounts for the movement of every container in motion in the world.
At the consumer product level, RFID's supply-chain intelligence promises major advances in identifying the source of defective or compromised products. This is because RFID tags are envisioned being deployed simultaneously at the individual product, case and pallet level. While each tag might carry only its unique electronic product code (EPC), Internet-based software, managed by computers and servers, is able to use these codes to track the individual package back through the supply chain to its point of origin. Theoretically, a manufacturer can determine the source of a defective product, down to a particular factory and, based on its shipping information, time of production.
This technology could prove invaluable to the food industry, where crises with tainted products could be far more efficiently managed, to the benefit of both manufacturers and public safety, by allowing companies to quickly identify the precise source of a problem food and launch a pinpoint recall accordingly. The U.S. Food and Drug Administration is also interested in RFID as a tool to improve drug security and combat counterfeiting.
uneven adoption
Yet, for all the hype, global interest in RFID has been wildly uneven. Deloitte's recently released poll1 of senior ranking executives within the top thirty retail and consumer product companies in Canada found that 14% of respondents' organizations had already implemented RFID, while 47% of respondents expected their organizations to adopt RFID technology within the next 2 years.
In the United States, the U.S. Department of Defense and retail giant WalMart, both of which have required suppliers to adopt RFID by 2005, have provided momentum. Internationally, the United Kingdom has been at the forefront of deployment, its government having earmarked nine million Euros back in May 2000 for field trials in support of an official "Chipping of Goods" initiative. The U.K may well be ahead of the rest of Europe in deploying RFID, and both are probably ahead of North America.
One reason for the head start of European Union countries is that companies have already been primed for RFID deployment by their adoption of Electronic Data Interchange (EDI) technology, which provides for data sharing and integration between companies. Despite well-publicized RFID initiatives in the U.K. by Safeway stores and Nestlé, there is still widespread indifference or outright hostility to investing in RFID technology. A survey of 200 companies released in March, 2004 by Britain's nonprofit e-centre2, which has been at the forefront of RFID deployment, found that 85 percent of them had no plans to roll out RFID.
Orwellian fears
Certainly the technology faces a number of hurdles. Creating a set of international technology standards is a fundamental one. EPCglobal, which is marshaling those standards internationally, only announced a "tag data standard" specification on April 4, 2004. Another obstacle to broad deployment is a lack of engineers conversant in RFID technology, without whom individual companies in the supply chain cannot hope to create and manage their RFID data systems. There's also recognition that, despite being an older and less sophisticated technology, the bar code system is still useful, cheap, and capable of fulfilling some of the tasks for which the unproven RFID is being touted.
There has also been significant resistance to RFID among consumer groups. RFID proponents probably committed a tactical error in trying to make a virtue of RFID "intelligence," which to many consumers sounds Orwellian in its implications.
"Smart" chips were envisioned which could work in concert with "smart" appliances. An RFID-enabled refrigerator could alert you to when your coffee cream had reached its best-before date, or when you are out of strawberry jam and need to order some more - and maybe even do the ordering for you over the Internet.
And because one of RFID's envisioned strengths is the data mining that companies can perform on the information streaming in from the supply chain, consumers have begun to wonder (in an age of valued-customer cards that are swiped with every checkout) how much information about individual consumption of particular products an RFID system could gather. A retailer or manufacturer could be able to learn, over a long monitoring period, that you are consuming a particular brand of yogurt at the rate of one container every eleven days. And because RFID radio waves can read through solid walls, one could begin to imagine RFID data vehicles roaming neighborhoods, conducting sweeps of active tags within homes and businesses to garner commercially lucrative information.
RFID proponents have had to respond to these consumer concerns, particularly in Europe. For now, it seems, consumers won't tolerate "intelligent" RFID tags on their products, at least ones that aren't switched off once they leave the checkout counter. In March, 2004, EPCglobal announced the creation of a Public Policy Steering Committee, whose goal is "to provide a forum for learning and dialogue with key stakeholders to address a range of important public policy issues including privacy."
a matter of cost
Ultimately, the potential to deploy RFID as envisioned comes down to cost, not only for the computer hardware and software in which individual companies must invest, but for the tags themselves. While RFID scenarios envision individual tags being attached to every single item in a supply chain, current tag costs cannot support such an ambitious deployment. Tags will have to be priced in the single-digit penny range, or at least cheaply enough that the realized savings in supply-chain efficiencies justifies their expense.
At the moment, the cheapest "passive" (one-way communication) tags are on the order of 40 cents, which makes them economically unfeasible to slap on individual cans of soda pop. The most likely widespread deployment is still at the case and pallet level, where the tag's cost is much less significant. How far the price of tags can drop is a matter of speculation. In April, Audio-ID labs at the Massachusetts Institute of Technology announced the formation of a Packing and Special Interest Group, a consortium of end-user suppliers and technology manufacturers that will investigate the integration of RFID technology and packaging materials. While it is focusing on case and pallet application in its initial year of study, this initiative promises advances that could eventually trickle down to tags deployed at the individual product level.
For companies confronting RFID, the task may seem both bewildering and daunting. Standards are still being created, and areas of deployment are beholden to the unit price of tags. As a result, companies contemplating a move into RFID deployment need to take a long-term strategic view, and lay a foundation that can be built on and isn't doomed to obsolescence or incapable of functioning effectively in concert with its own internal data systems and those of its key business partners.
RFID has the potential to change the way businesses interact. Rather than creating an overnight revolution, it will do so relatively slowly, as different functionalities are adopted. Therefore, companies have time and opportunity to study RFID carefully before making choices. 049952
1 Deloitte Canadian Radio Frequency Identification Study 2004 (see Trendlines, pg 9.)
2 The U.K. provider of the EPC network
Christian Stephan is a partner with Deloitte's Strategy and Operations consulting practice. Based in Toronto, he can be reached at (416) 874-3351 or cstephan@deloitte.ca.