RFID: A Balanced Perspective

by David C. Allais

With so much publicity surrounding radio frequency identification (RFID), you may wonder how it will impact your business, if at all. Like any new emerging technology it’s important to get perspective on what may or may not be relevant for your operation and not be caught up in the wave of propaganda.

An RFID tag is simply a microchip attached to an antenna. This RFID tag is a data carrier analogous to a printed bar code or to the magnetic stripe on your credit card. Unlike bar codes, RFID does not require a line of sight because tags are read by radio waves rather than by reflected light.

From its beginning in the 1970s, RFID has established its value in a broad range of applications including toll collection from moving vehicles, access control, theft prevention (automobiles and retail merchandise), tracking cargo containers, managing returnable assets such as beer kegs and monitoring manufacturing work-in-process.

The catch-all term RFID embraces considerable variety including active or passive tags, read-only or read-write, and four widely separated radio frequencies. Tags can range in size from tiny capsules for injection under an animal’s skin to large active tags for fast-moving rail cars. The distance at which an RFID tag can be read depends on tag type, antenna configuration and RF power. The smallest passive tags require near contact while larger active tags may be read from a distance of over 100 feet.

RFID in logistics and retail
In 1999, the Massachusetts Institute of Technology (MIT) solicited financial support from major corporations for research into future technology applicable to logistics and retail.

The MIT Auto ID Center conducted the research and developed the concept of “The Integrated Item Intelligent World.” The group envisions that, in time, every manufactured item will carry a unique RFID tag. Because the tags are unique, each serialized item can be tracked from the point of manufacture, through distribution, within the retail store, and finally to the consumer. The MIT group also proposed a hierarchy of database servers communicating through the Internet to manage and provide access to the vast amount of information collected from RFID tags.

Wal-Mart has assumed a dominant role in accelerating the MIT concepts. Initially, Wal-Mart intended to have its suppliers place RFID tags directly on retail items, but has since backed off to require only the tagging of pallets and cartons. As of a Jan. 1, 2005 deadline, Wal-Mart’s 100 largest suppliers are tagging shipments to three of its Texas distribution centers. Target Corporation and other major retailers have announced their own RFID initiatives.

The MIT project was handed off to EPCglobal, an organization affiliated with the Uniform Code Council, a not-for-profit standards organization that manages UPC bar codes and numbering. EPC stands for Electronic Product Code and embraces a specific set of RFID specifications and data structures for use in the retail supply chain.

Independently, but sharing characteristics with EPC, the U.S. Department of Defense is developing its own RFID standards, and DOD suppliers are being required to apply RFID tags to goods shipped to military warehouses.

A recent Google search of “RFID” produced 6,940,000 hits. Recent articles featuring RFID have appeared in the Wall Street Journal, Business Week, Fortune, Forbes, Information Week, Computerworld and Modern Materials Handling. Leading bar code equipment suppliers, system integrators and consultants eager to sell RFID products (RFID terminals, tag printers, individual tags, etc.) and services have joined the promotional frenzy.

Reservations and concerns
The MIT group projected that the cost of an RFID tag will drop to five cents in several years. Currently, each EPC tag costs between 20 cents and 80 cents depending on quantity and sub-type. In contrast, bar codes range from free (if part of a pre-printed package) to as much as 2 cents for a large adhesive label. Tag cost is the most often cited impediment to the rapid deployment of RFID.

Wal-Mart has said it will not pay for the cost of RFID tagging, but rather that suppliers should search for internal operational benefits to obtain a return on investment. “Many suppliers to Wal-Mart and The Department of Defense have privately complained that RFID is an added expense with no foreseeable return on investment,” says Steve Halliday, a consultant with High Tech Aid (www.hightechaid.com). As a consequence, most suppliers that must tag shipments have adopted a free-standing slap and ship technique.

There are more subtle and basic reservations about RFID than the cost of tags, equipment and labor. One client of the Gartner Group (a respected business consultancy), considered to be a “best-in-class bar code user” spent considerable time and money piloting RFID technology since the mid-1990s, long before the current hype began. According to Gartner, “This organization has tested RFID in almost every process in its business. It has concluded that there is nothing it can do with RFID that it can’t do faster, and more accurately, with bar coding. It concluded that, for its processes, even if RFID costs the same as bar coding, bar code would still be the superior technology. This doesn’t have anything to do with the cost or maturity of the technology – it involves the suitability of RFID for different data collection processes.”

Linda Dillman, a Wal-Mart vice president, was asked in a mid-2004 interview why Wal-Mart is working with such an experimental technology. She responded, “Because we’re not afraid to test things. Wal-Mart believes that, if it is to stay on the leading edge of logistics and technology, it needs to try technologies that will fail, and the company has no problem with that.” On the other hand, while the Gartner Group believes RFID has significant long-term potential, it has warned its clients to “prepare for disillusionment.”

There are excellent, effective applications for RFID. Will its application to inventory flowing through the supply chain become one of these? If so, how soon? The jury is still out.

How will RFID impact the industrial distributor?
In the near term, the most likely requirement for RFID will come from one of your customers. If you are selling to the Department of Defense, you may be required to affix either an EPC or Unique Identification Number (UID) RFID tag to each carton. Similarly, if one of your customers is a major retailer, you may need to attach EPC tags. These customer mandates involve applying the RFID tag, verifying that the applied tag can be read, and transmitting associated data to your customer via EDI, XML or other specified methodology.

When the need arises to tag shipments to a customer, you could turn to companies that are eager to sell you tags and equipment or consultants who peddle advice. However, I would suggest first contacting your warehouse management system provider (if you have one) or the provider of your enterprise software if you do not. These system partners can evaluate your customer’s RFID requirement and propose a cost-effective solution integrated with your warehouse and shipping systems.

For some industrial distributors, there may be good niche applications for RFID where bar code does not provide the best solution. Consider returnable pallets, totes, containers, or reels on which a bar code label would be subject to handling damage or environmental degradation. Another application might be where valuable tools in a rental or consignment pool are subject to grease, dirt or abrasion. Again, for these potentially beneficial niche applications, I suggest contacting your regular system provider.

As to the broader question of when RFID may be suitable for mainstream inventory tracking in industrial distribution, we may reflect on the history of bar coding. The adoption of the UPC bar code standard by grocery retailers in April 1973 set the stage for broad usage. A good 10 years elapsed before a critical mass of supermarkets was scanning these bar codes and some more years before UPC was used by other types of retail establishments. In 1982, the Department of Defense began requiring its suppliers to apply bar codes. Similarly, in 1984 the Automotive Industry Action Group standardized the bar code and label formats required of automotive component suppliers. These non-retail initiatives forced the spread of bar code beyond the retail store.

It wasn’t until the early 1990s, 20 years after UPC was born, that operational use of bar code in industrial distribution began to provide an acceptable return on investment. Will RFID become justified for primary warehouse tasks of the industrial distributor by 2025? The answer depends on how slowly or how quickly RFID becomes effective in the mass market retail supply chain. c

David C. Allais, Ph.D, is founder and president of PathGuide Technologies Inc., a privately held software developer specializing in real-time warehouse management systems for wholesale distributors. An internationally recognized expert in bar code technology and automatic identification specifications and standards, he serves on the GSC committee of the Uniform Code Council (UCC) and has authored five bar code symbologies. Reach him at PathGuide (888) 627-9797 or davida@pathguide.com.

This article originally appeared in the March 2005 issue of Progressive Distributor. Copyright 2005.