Barcodes, those familiar sets of lines on items from DVDs to refrigerators, eventually may go the way of the typewriter, the black-and-white television and the dodo. Radio Frequency Identification (RFID) technology promises to replace bar coding and make it easier for suppliers, distributors and retailers to track individual items.
Yet while the technology holds great promise, it is currently hampered by typical new-technology woes: high-priced components, a lack of functionality and consumer privacy concerns. None of these problems is insurmountable, but it will take time for the technology to take hold.
Born during World War II, RFID technology has been used in such functions as airport baggage routing and highway toll collection for more than a decade. This technology transfers data wirelessly from a minuscule transceiver (or “tag”) that can be attached to just about anything: a razor, a shipping container or even a living thing.
The tags transmit information to readers that track product movement through the supply chain. When coupled with associated software, RFID systems can automatically trigger actions, such as restocking a shelf depleted of products.
Confounding the Supply Chain
Automating such functions has become a prime focus for suppliers, distributors and retailers. Expanding markets, retailer consolidation and product customization are confounding the supply chain and making it more difficult to forecast demand. As a result, companies constantly are trying to make sure they have enough inventory to meet demand without carrying too much and increasing their own costs.
RFID potentially offers help because it rides on radio waves and doesn’t require the line-of-sight scanning used with barcodes. Since it can transmit information at ranges of up to 90 feet, RFID has the potential to offer companies more granular, accurate information about product availability.
Closer monitoring of product status could deliver significant paybacks to large companies. Tire manufacturer Michelin, for example, carries about US$1 billion in inventory at any time and thinks RFID may help it reduce that amount by $100 million.
Consumer packaged goods company Procter & Gamble spends between $50 million and $100 million per year reprocessing orders based on inaccurate shipment information, and RFID could help lower that number. Because of the benefits, market research firm IDC predicts RFID spending — on hardware, software and services — for the U.S. retail supply chain will grow from $91.5 million in 2003 to nearly $1.3 billion in 2008.
Promoting the Tech
Indeed, large suppliers and retailers already have begun promoting the technology. Each year, nearly 6 billion containers pass through Wal-Mart’s 108 distribution centers. To cut costs, the nation’s largest company plans to deploy RFID technology in its distribution centers in 2005. It has mandated that its top 100 suppliers deliver certain RFID tagged products in 2006 and have all of their products RFID-enabled by 2007. If they fail to meet those requirements, they could lose their shelf space.
Pharmaceuticals is another area in which RFID technology could have a dramatic impact. In February, the U.S. Food and Drug Administration recommended adoption of RFID as a common, reliable tracking technology to help protect against counterfeit prescription drugs.
The agency also noted that RFID technology potentially could help healthcare providers more accurately dispense medication. Market research firm Provizio estimated that 7,000 people die in American hospitals as the result of the 1.25 million reported adverse drug events — cases in which medical personnel provide patients with the wrong medication. “In addition, RFID could help health care providers prevent theft of medication, which is a significant problem among health care providers,” said Dr. Tim Rhodes, Provisio’s president.
Yet the technology faces a number of significant hurdles, starting with problems with the tags. Their quality can be poor: Because they are usually placed in high-impact environments, they function only 80 percent of the time. Some companies, such as Michelin, need tags that can survive a strenuous manufacturing process in which they are placed inside molded rubber and steel.
Also, first-generation tags are not too smart. “The vendors have been working on tags that will be more intelligent, but the standards-making process pushed back some RFID deployment dates from this summer to the end of 2004,” said Christopher Boone, program manager at IDC.
Tags currently cost between 25 and 50 cents, but vendors want pricing in the 5-cent range — ideally a penny per tag — before they will approve widespread deployments. So the market is stuck in a classic chicken-and-egg scenario: Users won’t buy the tags until the price goes down, but tag manufacturers can’t drive down the price until volume goes up.
What retailers do with the radio waves concerns privacy advocates. Consumers Against Supermarket Privacy Invasion and Numbering — or Caspian — is a consumer advocacy group that believes loyalty card programs pervert suppliers’ incentive programs, because they favor one group (those who use the cards) over another (those who do not use them).
The advocacy organization fears RFID technology could lead to surreptitious tracking of consumer purchases. “As a means to solicit customer feedback, Denny’s actually taped the conversations of patrons as they ate in their restaurants,” said Katherine Albrecht, Caspian founder and executive director. While the group is in favor of retailers and suppliers using RFID for back-office functions, it does not want individual items tagged and put on retailers’ shelves.
While RFID faces many hurdles, observers feel the technology will take root. “Because established companies, such as Wal-Mart, are backing RFID, it will be successful,” IDC’s Boone told TechNewsWorld. “Deployment may not occur as quickly as the big retailers would like, but I expect it will happen in the next few years.”