[IP] RFID a retail revolution?
Begin forwarded message:
From: Dewayne Hendricks <dewayne@xxxxxxxxxxxxx>
Date: July 5, 2004 10:52:56 AM EDT
To: Dewayne-Net Technology List <dewayne-net@xxxxxxxxxxxxx>
Subject: [Dewayne-Net] RFID a retail revolution?
Reply-To: dewayne@xxxxxxxxxxxxx
RFID a retail revolution?
From Knowledge@Wharton
Special to CNET News.com
June 5, 2004, 4:00 AM PDT
Shoppers leaving Wal-Mart Stores these days are used to long check-out
lines. In a few years, however, those lines well might be history.
Wal-Mart is introducing radio frequency identification (RFID) tags to
its products--small devices that emit radio waves containing
information about product size, price, etc. Though this scenario is
still far in the future, such tags could let the world's largest
retailer add up the prices of purchased goods as shoppers leave the
store and deduct the tab directly from their accounts. Whether such
futuristic practices materialize or not, one thing is certain: RFID has
begun to acquire a buzz that positions it as the next revolution in the
world of retailing.
How real is this revolution? And what does it mean for retailers and
customers? Experts at Wharton and elsewhere say that RFID is a
potentially powerful technology that several organizations--including
retailers and government organizations--are seriously looking at
implementing to ramp up the efficiency of their supply chains. While
companies like Wal-Mart and Target have already announced plans to roll
out RFID programs, others are waiting in the wings.
Still, several hurdles remain. One big question is whether the benefits
will be immediate or be spread out years into the future. "There's a
bandwagon here and a lot of players say RFID is on the brink of having
a big impact," says Morris A. Cohen, co-director of Wharton's
Fishman-Davidson Center for Service and Operations Management. "But
before that, there are technical challenges to overcome."
Fans say that RFID technology promises to revolutionize the supply
chain through real-time item tracking. Its goal is to keep goods on the
shelves, garner more efficiency through better inventory management,
enhance safety through smart recalls and cut theft, known as "shrink"
among retailers. This is made possible by the fact that when RFID tags
emit radio waves, that information is absorbed by a reader, which can
then compile and share it with a company's enterprise software.
Suppliers can benefit from real-time inventory management that keeps
goods on the shelf. Consumers may not immediately see a lot of major
changes, but they would certainly benefit from better in-stock levels.
Wal-Mart's way
Wal-Mart, so far, has been the most aggressive in pushing RFID. Using
the clout that comes with $256 billion in annual sales, the company has
mandated that its top 100 suppliers use RFID tagging on cases and
pallets. Smaller suppliers need to be on the RFID bandwagon by the end
of 2006. On April 30, Wal-Mart announced its trials in the Dallas-area
were underway with eight of its leading edge suppliers--The Gillette
Company, Hewlett-Packard, Johnson & Johnson, Kimberly-Clark, Kraft
Foods, Nestle, Purina PetCare Company, The Procter & Gamble Company and
Unilever. Some of those suppliers were experimenting with RFID before
Wal-Mart issued its edict.
Cases and pallets of 21 products from the eight suppliers are being
shipped to Wal-Mart's Sanger, Texas, distribution center and then to
seven local supercenters.
A few weeks later, on May 18, Wal-Mart followed up with an update. "To
date, no glitches--only positive glimpses of what's to come," said
Linda Dillman, executive vice president and CIO for Wal-Mart Stores.
Here are a few scenarios that Wal-Mart says it would like to see
beginning in 2005 as it implements RFID on a wide scale. A case of a
product leaves a manufacturer and is tracked and instantly routed when
it reaches a Wal-Mart distribution center. There's no need to rip open
a case and inspect the contents because the RFID reader has already
identified the item. At the store, the goods are monitored in real-time
so there's no need for inventory. When the shelves are empty, RFID
readers alert workers to restock the shelves. If Wal-Mart's inventory
is depleted, a replenishment message is automatically sent to the
supplier.
"RFID could put more goods on the shelf," says William Cody, managing
director of Wharton's J.H. Baker Retailing Initiative. "It would
certainly be better than having a skeleton crew walking around filling
empty shelves. You could eliminate goods being lost in the back room."
Today, inventory processing requires line of sight for bar code
scanning. Bar codes aren't going to disappear, but they do have
disadvantages compared with RFID. Notably, bar codes introduce human
errors, can only encode limited and static information, don't offer
read/write capability and cannot read multiple codes.
Cohen explains the difference between current inventory management and
RFID enabled systems this way: In current systems, you may know there
are 10 items on the shelf, and that information is compiled in an
enterprise planning software system. With RFID, you know there are 10
items, their age, lot number, expiration date and warehouse origin.
"It's like knowing there are 1,000 people in a city," says Cohen. "With
RFID, you know their names."
Most of the benefits from RFID at present will be tied to the supply
chain and within three- to five-years electronic tags carrying product
specific codes should be common, according to EPCglobal, the
organization creating standards for the electronic product codes
carried on RFID tags.
Despite all the promise surrounding RFID, there are hurdles to be
overcome. Collectively, these developments serve as an RFID reality
check. "We're not going to see broad-scale deployments overnight even
with Wal-Mart's announcement," says Chris Boone, an IDC analyst,
speaking at a National Press Club roundtable earlier this spring.
Among the key issues yet to be resolved:
Cost of tags
Depending on whom you talk to, RFID tags cost anywhere from 20 cents to
a dollar. To be cost effective, the price of tags needs to fall to 5
cents or so. It's a chicken-and-egg conundrum: If tags were less
expensive, there would be more pilots. If more companies were forging
ahead with RFID installations, tags would be cheaper.
Meanwhile, big players such as Philips Electronics and Texas
Instruments are waiting until the next generation of RFID tags enters
the market. Smaller players such as Alien Technology currently dominate
tag manufacturing. The price of tags is no small issue. Forrester
Research estimates RFID tags represent 80% of implementation costs. "If
Wal-Mart and Target can prove the economics, more and more companies
will follow and bring the costs down," says Cody.
Cohen says the importance of tag costs largely depends on the value of
the item being tracked. For example, a $3 million Department of Defense
missile can still get a benefit even if an RFID tag costs $100 or more.
A can of cola needs a tag with a lower price point, say a penny.
Standards in flux
Wal-Mart's mandate requires suppliers to use "Class 0," which are
factory programmable only, or "Class 1" tags that can be programmed by
the retailer or supplier. EPCglobal is currently working with
manufacturers on "Class 2" standards, which will carry more memory and
data. Given that Class 2 tags are expected to be more flexible and
useful overall, potential suppliers are holding out until those
standards are set.
For now, Wal-Mart is accepting earlier versions of RFID tags, but
analysts fully expect it to adopt the next-generation technology as
quickly as possible. In an April report that recapped interviews with
41 technology providers and Wal-Mart suppliers, Forrester analyst
Christine Spivey Overby noted that some of Wal-Mart's suppliers and
vendors expect the RFID infrastructure being installed today to be
ripped out for more-advanced technology a year later. Overby predicts
that less than 25 percent of Wal-Mart's top suppliers will be prepared
to roll out RFID in their supply chains by Jan. 1.
That estimate was cut from 60 percent just a few months earlier. The
biggest reason: no compelling business case to rush. "Even the obvious
benefits--like preventing shrinkage and automating receipt--are out of
reach," wrote Overby. Apart from the costs of the tags, suppliers may
find that they don't have the technology infrastructure to absorb the
data provided by RFID and use it accordingly.
Slap-and-ship approach
Given the large investment necessary to implement RFID and garner
benefits from it, Overby recommends Wal-Mart suppliers adopt a "slap
and ship" approach. This technique looks at Wal-Mart's mandate as a
cost of doing business. The technique: Slap RFID tags on pallets and
cases and send them to Wal-Mart as required. The problem is that the
supplier to Wal-Mart garners little benefit, but can learn the
technology and wait for it to develop further.
To be sure, manufacturers supplying products to retailers that require
RFID in the supply chain will have to use it in some form--even in a
slap-and-ship format. But being an early adopter may be costly. Cody
says there may be more benefits in being a fast follower. The logic:
Allow other companies to figure out intricacies such as where to place
tags and readers and how to work around the physics of radio waves.
RFID signals have trouble penetrating liquid and metal. Some companies
have also found it hard to place RFID tags on frozen goods, though
fixing them on paper is relatively simple.
Meanwhile, there's little experience in the field when it comes to
integrating multiple RFID systems from various partners in the supply
chain, notes Overby. To be sure, there will be kinks, but Cohen says
RFID has potential to deliver big benefits. "A lot still needs to be
done, but the potential is great," he says.
Archives at: <http://Wireless.Com/Dewayne-Net>
Weblog at: <http://weblog.warpspeed.com>
-------------------------------------
You are subscribed as roessler@xxxxxxxxxxxxxxxxxx
To manage your subscription, go to
http://v2.listbox.com/member/?listname=ip
Archives at: http://www.interesting-people.org/archives/interesting-people/