))) Raising The RFID Profile

Despite concerns cited by privacy groups, radio frequency identification technology is turning up in everything from football stadiums to livestock.

Brad Smith
December 15, 2003

Radio frequency identification technology is like the actor who struggles for years until he is finally "discovered" and becomes a star. RFID burst onto the scene this year, getting nods as a world changing technology, even though it has been toiling for decades.

What got everyone so excited about RFID in the last few months is the double-barreled salvo that will make the technology an everyday experience for many companies. The U.S. Department of Defense, probably the world's largest logistics concern, and Wal-Mart, the world's largest retailer, both decided that RFID will be central to their supply systems.

Those two decisions are going to make RFID-despite the fretting by privacy groups-as ubiquitous as sand in a dust storm. RFID tags, which already cost as little as $3 each and can be the size of a grain of sand, will drop in price to a few pennies and still create $4 billion in sales in five years or less.

RFID tags will start replacing those familiar barcodes, or Universal Product Codes, in 2004 as suppliers race to meet a Jan. 1, 2005, deadline set by the DOD and Wal-Mart. Initially the tags will show up on cases and pallets-not individual items-but the latter is in the future.

Big Impact

You can get a sense of the impact of the DOD's decision when you consider that 24,000 different companies supply 45 million different products to the agency. The DOD policy, enunciated in October, requires all of its suppliers to put passive RFID tags on the smallest part of a part, case or pallet by the start of 2005. The agency is going to hold a summit for its suppliers in February to talk about its implementation strategy.

Wal-Mart's decision may not be as broad but promises to have a major impact on all consumer products. The retail giant has told its top 100 suppliers it will require RFID tags on pallets and cases on the same date. That undoubtedly will have a domino effect by forcing other suppliers to follow suit.

The DOD and Wal-Mart are not the only ones adopting RFID. Other companies backing the technology are Gillette, Philip Morris, Procter & Gamble, Coca-Cola and the British supermarket chain Tesco. These companies are all interested in RFID's efficiencies for supply chain management, but there are a number of other uses for the technology.

Among the alternatives are mobile payment systems, something Texas Instruments has brought to the masses with its implementation of the MobileExxon Speedpass, as well as American Express' pilot of RFID in Phoenix this year. RFID also has been used for years to tag farm animals or pets, as well as to open car doors. Bill Allen, marketing communications manager for TI's RFID Systems, says it even is used to increase the safety of coal miners in Britain by signaling when the miners have all left a train.

The variety of uses goes on and on- bookstores or libraries tracking books, governments planting them in money to prevent counterfeiting, doctors implanting them under a patient's skin to store medical records in case of an emergency, the Boston Marathon using it to track runner times.

There also are potential uses that have brought strong responses from privacy groups worried that it would give businesses or governments too much information about people and their movements. Some retailers, Benetton among them, canceled plans to put RFID tags on clothing because privacy groups feared the tags would peak into the private lives of buyers.

No Single Standard

RFID tags, referred to as transponders in the industry, come in a variety of shapes and sizes and use various radio frequencies. There isn't any single global standard and some of the longest existing systems are proprietary. One of the leading specifications for RFID was formulated through the Auto-ID Center, a collaboration of about 100 companies and several universities based at the Massachusetts Institute of Technology. The center ceased in October, handing its work over to EPCglobal Inc., a joint venture of EAN (European Article Numbering) International and the Uniform Code Council.

There are two basic RFID tags, the passive ones that Wal-Mart and the DOD have initially mandated, and active tags that have a power source.

Passive tags contain an electronic product code or serial number, which is picked up by a reading device as it goes by. Suppliers and retailers will have to create huge databases to store these EPCs and use them. Wal-Mart's plans call for use of a 96-bit EPC and tags that transmit in the 868 MHz to 956 MHz bands.

Because they usually have battery power, active tags contain more information and don't have to wait for a reader to communicate.

Ian McPherson, principal analyst with the Wireless Data Research Group, says Wal-Mart's mandate is the kind of "triggering event" that doesn't happen a lot for technologies. Wal-Mart's influence forces nearly every company involved in the supply chain to adopt RFID.

"It will bring RFID from what was a niche application in a fragmented market much more rapidly into an open system that spans the consumer retail and packaging space, as well as some vertical markets," says McPherson, the principal author of a massive, 150-page study delineating the industry and its players.

Wal-Mart's advocacy also will raise RFID's profile and force IT departments to integrate it into legacy back-end systems. Global services companies such as Accenture will have to make it part of their portfolio.

"Wal-Mart is going to push every other retailer to use it," McPherson says. "Others will wait to see what problems there are and how quickly they will be resolved. There are a lot of moving parts. Retailers will have their own trials to test where it works and where it doesn't and they'll ride on Wal-Mart's coat tails."

Among the large retailers looking into RFID is Best Buy, which plans to launch a pilot program in 2004.

Cost Cutting

Why is Wal-Mart so interested? Because of the savings. A New York investment research house, Sanford Bernstein & Co., has estimated Wal-Mart could save $8.4 billion a year once RFID is fully deployed, a number that is more than many Fortune 500 company revenues. The savings includes a 15 percent reduction in labor costs for scanning bar codes, monitoring on-shelf availability, stopping error and fraud, and improved efficiencies and visibility of products and their transportation.

Mike Wills, vice president for Intermec's RFID sector, says other companies can find a quick ROI using the technology. Intermec was one of the vendors at a November meeting Wal-Mart held to explain the technology to its suppliers. Wills says the companies he talked with wanted to know not only how to comply with Wal-Mart's mandate but also how to ring some savings out of the implementation.

Wills says there is a quick ROI for companies involved in inventory control, asset tracking and "work in process." Most of the ROI will be through productivity gains, such as moving goods more quickly through a supply chain.

ROI also depends on what level of data collection a company already has.

"With a customer that has zero data collection and we took them to RFID the ROI would be measured in single digit months, probably six months or less," Wills says. "To someone with a mature auto-ID system it still is attractive but it is longer."

As mentioned, there are a lot of uses for RFID outside of the supply chain. The MobileExxon Speedpass has more than 7 million customers after nearly four years, says TI's Allen. That includes not only 7,000 gas stations but also Stop & Shop stores and McDonald's restaurants.

The Seattle Seahawks this fall started using TI's RFID system with a PowerPay key fob that members of the NFL team's club seats can use to buy concessions. One-third of the club seat holders use the system to apply payments to their credit or check card.

"We have seen literally hundreds of different applications using RFID," says Allen. "It has created new markets and new ways of doing things. There are 20-to-30 million livestock being tracked by RFID transponders. It's close to being a ubiquitous anti-theft method for autos. It's used to track salmon in Australia and Penguins in Antarctica."

TI has sold 300 million RFID transponders, Allen says, which is about one-third the number expected to be sold over the next year because of Wal-Mart's mandate.

RFID also is being used in homeland security. Intermec is involved with U.S. Department of Homeland Security in a project called NEXUS, which provides RFID cards for frequent travelers across the Canada-U.S. border. Users hold the card in front of a reader at a border crossing and the user photo and other information is flashed onto a computer screen inside the booth. The inspector verifies the photo and waves the car through in five seconds or less. More than 50,000 people have enrolled in the program.

The same kind of system is used at a number of U.S. military bases to aid traffic flow after someone has cleared the main security gate.

Analyst McPherson says privacy concerns will slow some implementations of RFID, such as putting sensors on all items on a store shelf or embedding them in clothing. The industry will be cautious about putting RFID into consumer areas, he says. But there's a lot of room for RFID before that happens.