Are You Ready for RFID?

Radio frequency identification technology is suddenly one of the most talked-about trends in technology’s post-bubble era — thanks to nudging and interest from large retailers and the federal government.

Originally developed during World War II to help anti-aircraft gunners discern friend from foe, RFID is now being enlisted to help manufacturers and retailers track products from factories to store shelves.

The systems have two components: tags and readers. The tags are paper-thin, one-inch radio transponders attached to pallets, cases, and eventually individual items. The other components are readers, which are panels about the size of a pizza box that receive and translate signals and shuttle data back to a network.

Retailers believe RFID will eventually replace bar codes, vastly improve the efficiency of their supply chains, and cut down on theft and loss. Other business sectors are also looking at RFID tags and readers for a variety of tasks.

Hospitals see the technology as a way to manage medicinal inventories and keep track of equipment. Fire departments envision a system that gives commanders instant information about their team members’ locations.

Until very recently, most IT departments recognized RFID’s potential, but they also saw several problems that were likely to conspire in delaying wide-spread adoption for another three to five years. But now engineers are feverishly working to address the issues, such as signal interference, lack of standards, and the high cost of the tags.

Page 2: Throwing Down the Gauntlet

Throwing Down the Gauntlet

Which company is responsible for the RFID rush? The answer may surprise you. It’s not based in the world’s technology capital, California, Washington, or even New York.

It’s in Arkansas, the headquarters of retail giant Wal-Mart. While the front of the store is filled with grinning, blue-vested Wal-Mart employees greeting shoppers, out back in the storerooms and loading docks, the world’s largest retailer is now using automated inventory with RFID — and is insisting that suppliers and IT vendors follow.

The company could spend up to $3 billion over the next few years in converting its internal tracking systems to RFID. But some analysts already feel it’s worth it, figuring Wal-Mart could save up to $8 billion a year from the investment.

Wal-Mart recently told its top 100 suppliers they would have to feature RFID on all cases and pallets of goods delivered to Wal-Mart by 2005, with smaller suppliers getting an extra year to comply. Faced with banishment from thousands of stores, suppliers are scrambling to honor the mandate.

“Three or four months ago if you asked me if RFID was ready, I would have been very cautious,” says Jamshed Dubash, who leads a 20-person RFID team at razor giant Gillette. “But this gauntlet that Wal-Mart has thrown down has made it very apparent that they’re moving forward with this, and we have to [as well, in order] to share in the benefits.”

Dubash reports Gillette will make Wal-Mart’s deadline with its deployment. The company is currently piloting an RFID system in its 400,000-square-foot Northeast distribution center in Devens, Mass.

Gillette believes RFID will avert problems such as incomplete orders, misplaced products, and theft, which industry-wide costs up to an estimated $40 billion a year. And once the tracking reaches individual products, the information will help suppliers make better decisions about displays and inventory levels.

Proctor & Gamble has toured Gillette’s warehouse to learn about RFID, an “unheard of” event for the two rivals. But like the Internet, the more suppliers and retailers that adopt RFID, the lower the implementation costs.

For example, the cost of tags has fallen from a few dollars per tag to about 10 cents per tag. Still, industry-watchers say the tags need to be around a penny each to make economic sense. Several companies are currently working on the transmitters, including Philips Semiconductor, Intermec, and a division of Tyco.

Outside the retail world, the federal government also sees RFID as a way of saving money. It is telling its suppliers to ready RFID systems as well.

Page 3: IT Heavy Hitters

IT Heavy Hitters

Wal-Mart’s edict insures that at least 100 large companies, mostly in consumer package goods, will be buying and implementing systems. Out of the hypothetical realm, large technology companies are examining ways to be part of these lucrative projects.

IBM , through its consulting arm, has established an RFID service to assess the needs of its customers, such as Kimberly Clark, and help them choose vendors and implement an RFID system.

“Our customers that supply Wal-Mart are asking us what to use, how to use it,” says Jan Walbridge, an IBM spokeswoman.

IBM is in a good position on RFID consulting because of its acquisition of PriceWaterhouseCoopers, Walbridge adds. Several team members there had experience in the field.

Besides Big Blue, Sun Microsystems will open a testing center in Dallas next month. Because Sun’s facility will be built on the same technology as Wal-Mart’s, suppliers can test their RFID systems to be sure they meet Wal-Mart’s RFID specifications. The company says customers will also be able to test RFID technology in conjunction with Sun’s Java Enterprise Software.

Acsis, a supply chain and business process automation firm for companies using SAP’s Enterprise Resource Planning (ERP) software, has expanded its RFID lab to help Wal-Mart suppliers guarantee compliance as well.

And chipmaker Intel is collaborating with ThingMagic, a privately held research and development company, to produce RFID readers.

In addition to tags and readers, implementation, and testing, large-scale adoption of RFID could generate huge volumes of new data that must be captured, stored, and analyzed, a potential bonanza for hardware, software, and storage vendors.

Remaining Challenges

Still, RFID is not without its problems — problems that must be overcome if the technology is going to spread to companies outside of Wal-Mart’s considerable orbit.

ThingMagic’s Bernd Schoner reports range and interference as two remaining two issues. Currently, the tags can’t be more than six or eight feet away from the readers to connect. Also, metal and packaging can block or corrupt the signal, according to Schoner.

Like any emerging technology, standards need to be established so that regardless of the vendor, any company’s tags can be read by any customer’s reader. International spectrum issues will also need to be addressed in order to avoid compatibility problems for companies shipping overseas.

“This is happening; it’s well on its way,” says Gillette’s Dubash. “For people who are not there already, they will be scrambling big-time. That means there are huge opportunities for people to start companies that solve some of these problems.”

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