Experts debate RFID benefits, challenges

While speakers at the EPCglobal Inc. U.S. conference last weektalked up the benefits of radio frequency identification (RFID), analysts watching RFID adoptions said many U.S. companies are still waiting to see a clear reason to adopt the technology.

EPCglobal, which focuses on industry-driven standards for the Electronic Product Code (EPC) to support RFID, trotted out several speakers who talked about how RFID tagging can help companies track their products, cut down on theft and reduce supply chain costs. Scott McNealy, chairman and chief executive officer of Sun Microsystems Inc., spoke to attendees of the Baltimore conference on video, saying the concept of an EPCglobal network that securely connects products to manufacturers and retailers throughout the supply chain has graduated from a futuristic concept to a reality.

“We are able to go into the supply chain and do some very interesting things,” McNealy said, as executives of EPCglobal and member companies demonstrated a Web-based product-tracking system allowing manufacturers to ensure enough of their products are on shelves at retail stores.

Procter & Gamble Co. CIO Steve David said the company is using RFID to distinguish genuine products from counterfeit products, including fragrances and even shampoo. The company also uses RFID to identify and recall outdated products — customer attitudes about products can decline if their toothpaste doesn’t taste fresh or their laundry soap has lost its scent, he said.

RFID uses small computer chips and antennas that are integrated into paper or plastic labels. Those chips can then be read by an electronic scanner, and unlike bar codes, RFID chips withstand dirt and scratches and can be scanned from distances upward of 762 centimetres (25 feet).

After the crowd of about 1,400 attendees — including integrators, manufacturers and retailers — heard about the benefits of RFID, a trio of analysts told the crowd that many RFID users are adopting the technology because they have to. Wal-Mart Stores Inc., a leading adopter of RFID, plans to phase in use of RFID, with major suppliers of its north Texas stores required to use RFID chips on pallets and cases by January 2005. The U.S. Department of Defense (DOD) plans to require suppliers to use RFID tags by early 2005.

Many companies, trying to comply with requirements by the DOD, Wal-Mart, or other retailers, are taking a “slap-and-ship” attitude about RFID by making minimal investments to meet the requirements, said Reik Read, an analyst with Robert W. Baird & Co. Inc.

Requirements from Wal-Mart and other RFID backers are driving major investments by technology vendors, noted Philip Alling, an analyst with Bear Stearns & Co. This week, IBM Corp. and Hewlett-Packard Co. both announced multimillion-dollar investments in RFID.

Still, Alling predicted that 2005 wouldn’t see many major RFID implementations.

While interest from chief information officers in RFID remains high, RFID hype at public companies seems to be waning, added Sarah Friar, a technology analyst with The Goldman Sachs Group Inc. Interest from venture capitalists and private companies seems to be growing, however, she said.

“(Talking about RFID) is the easiest way to get on a CIO’s agenda these days,” she said. “This is something they think they should know about. We’re at an interesting point in the hype cycle.”

Before major investments in RFID, companies need to make a good business case for switching from other tracking methods such as bar codes, Friar added. Businesses want more case studies on RFID, she said. “It’s important if we want to find more return on investment, not just because Wal-Mart says so,” she said.

Read noted that many companies see the cheaper bar-coding as an acceptable way to track products. “You can make the case that RFID is a better technology,” he said. “But bar-coding is out there, it’s proven, it’s cheaper.” Organizers of the EPCglobal conference noted that RFID is already pervasive in some industries, including the automotive industry, where many cars and most tires have RFID chips, said Mike Meranda, president of EPCglobal U.S. The retail and pharmaceutical industries are good fits for RFID as well, he said, because both industries want to keep close tabs on their products moving through the supply chain.

But conference organizers agreed that major RFID growth is still in the future.

“It’s very difficult to build a strong business case when it’s just for compliance,” said Mal Postings, global head of mobility for Capgemini SA, which sponsored a media lunch at the conference. “I agree (RFID) is in its infancy at the moment.”

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