))) The Buzz About Emerging RFID

Mark R. Frantz
March 31, 2003

The day when consumers routinely roll a full cart of merchandise though POS and a couple seconds later their bill is printed and a signature is requested is still many years away. In the meantime, according to Target CIO Paul Singer, “RFID (radio-frequency identification) is something that will be happening in the near-term future.”

It’s a good bet that RFID tags for merchandise are going to happen. They work like electronic bar codes that get read without the labor of scanning and that identify and track each item rather than merely identifying the SKU.

The Case for RFID

Many smart retail executives are creating business cases now for migrating to RFID starting in 2004 because the first companies to implement them will get the lion’s share of the benefits. The MIT Auto-ID Center’s executive director Kevin Ashton says there will be severe penalties for companies that lag in implementing RFID. The new approach entails an ongoing learning curve, so the companies that get there early and keep going will be widening the gap between themselves and lagging competitors for years.

When CIO of Wal-Mart, prior to becoming president and CEO of Sam’s Club, Kevin Turner explained, “This isn’t about being the only one to use an emerging technology, it’s about being the first. That’s Wal-Mart’s competitive advantage.”

Costs Plummeting

Cost has been the chief reason RFID has not exploded in retail and consumer goods in the past, but major breakthroughs in tag costs are now emerging.

A few years ago, each RFID tag cost a few dollars. According to Texas Instrument’s Bill Allen, raw RFID tags now cost below 50 cents, but a finished label with a tag embedded can be $1.

Tom Torre, a manager in Procter & Gamble’s Business-to-Business Supply Chain Innovation Group, notes that P&G’s business case for RFID indicates a good ROI at five cents a tag for pallets and cases and at about one cent a tag for it’s full range of products.

Much higher costs per tag work for some products, particularly those with higher prices, higher theft rates, and confusing assortments for consumers. These include items like razor blades, alcoholic beverages, apparel, footwear, pharmaceuticals, beauty aids and electronics. One retail leader undeterred by the current cost of tags is Prada. The company uses clear RFID hangtags in its NYC Epicenter store that enhance the store’s widely lauded high-tech/high-service design (See RIS News, September, 2002).

Real-World Testing

Business cases now being tested in real-world, million-dollar-plus pilots at 10-20 large retail and consumer goods companies indicate that the companies at the forefront believe RFID is a very good bet. Gillette has declined to reveal the tag cost of their market-stunning half-billion-tag agreement with Alien Technology, but sources indicate the 10-cent threshold “has been reached.”

Low-cost tags are made of a chip and an antenna. Alien Technology claims to have a breakthrough in manufacturing costs for tag chips using its “Fluidic Self Assembly” process to print chips onto rolls of film. Alien is teaming with Avery Dennison for RFID chip production.

Flint Ink is another RFID player that is refining a way to use conductive “smart” ink on packages and products with the ink serving as the RFID antenna. This could become a breakthrough.

Savings To Mount

RFID’s mega-dollar gains will come from retailers’ increased ability to stay in-stock on the store shelf, as well as substantial reductions in theft and counterfeiting. Even rapidly replenished retailers like grocers are out of stock 6-12 percent of the time. RFID tag readers on shelves will auto-alert store staff to replenish products.

Theft in the supply chain is a $200- billion loss in the consumer goods and retail supply chain; counterfeiting is a $500-billion loss. RFID can document evidence at each step in the supply chain establishing accountability for missing cases. In stores, RFID tags act as security tags and can alert store staff to potential consumer theft at the shelves. RFID also simplifies identification of counterfeit merchandise throughout the supply chain.

Field Tests Show Benefits

Retailers in the USA and Europe are testing RFID to find what the real-world gains are for their business cases and how to avoid pitfalls. The UK’s Tesco is pilot testing item-level RFID shelf readers in pilot stores using Gillette products. Gillette expects initial results to be ready by the third quarter.

A Wal-Mart spokesman confirms that the chain is testing RFID in “several distribution centers” to “validate systems for supply chain” and “define where we take cost out.” So far, Wal-Mart’s results have “encouraged us to keep testing.”

In the Gillette razor blades pilot, RFID shelf readers know what’s in stock and auto-alert staff when to restock. The RFID monitoring system also knows what’s in the store’s back room and transmits auto-replenishment orders for the store. If a consumer picks three or more packs of razor blades (thefts rarely involve just one or two packs), the system audibly thanks the consumer for buying several packs and simultaneously alerts store security of a potential theft. The system is also capable of relaying a digital image of the suspected thief. Executives believe legit consumers will like being thanked, while prospective thieves will realize they are detected and not commit the theft.

Marks and Spencer in the UK has used RFID on 3.5 million plastic trays for speeding food through their supply chain. It reportedly achieved an 80 percent labor cost reduction.

According to Torre, P&G will pilot item-level RFID in 2003 with a few retailers and will implement RFID on pallets and cases at its own suppliers and DCs in 2004. For P&G — and numerous retailers — the ROI is now evident from “improved in-stocks that raise sales, productivity gains by eliminating scanning, lower deductions, more accurate real-time visibility that reduces theft and decreased scrap and obsolesce, especially from better visibility that reduces inventory.”

MIT Auto-ID Lab’s Ashton says the retail business cases emerging now are overwhelmingly positive for retailers even within their own internal operations, particularly for products complicated for customers to find, such as apparel and products that have high theft levels, including theft out the back of the store.

In some form, expect to see RFID emerging at a retailer near you.