Supply chains get smarter with RFID

Supply chains get smarter with RFID

First used in WWII to spot friend or foe aircraft, radio frequency identification (RFID) technology radios are poised to take off in a business-to-business context.

Many proponents say the technology — which captures a bevy of information by transmitting and responding via radio frequency — will significantly alter the supply chain, manufacturing and retail worlds.

Back in WWII, the tags and reader were essentially the size of a large container. Today, the tags — which range from simple, passive ones to more complex processing functionality — could be measured as a mere dot and could hold roughly 250 characters, director of supply chain strategies for Microsoft Business Solutions (MBS), Bjarne Schon, said.

“Now we are capable of producing tags small enough and sufficiently inexpensive [although prices still have to come down],” he said.

A basic system consists of an antenna or coil, a transceiver (with decoder), and a transponder (RF tag), which is electronically programmed with unique information, according to AIM (the association for automatic identification and data capture technologies).

Climbing the high-tech ladder, the advanced version is powered by an internal battery.

IDC and Gartner have both slated RFID as one of the Top 10 technologies to track this year. While Australian figures aren’t available, IDC expects RFID spending in the US retail supply chain to grow from $US91.5 million in 2003 to about $US1.3 billion in 2008.

IDC Australia’s mobile and wireless analyst, Warren Chaisatien, said many Australian companies were playing a lead role in global RFID developments and the country was well placed to be an innovator in this space.

But while RFID would dominate vendor agendas and headlines, he said real opportunity for 2004 would remain limited.

“RFID has already gained ground, but not in revenue or vendor opportunities — it’s more in market awareness,” he said.

There would be little revenue in Australia until 2005.

So is there a reseller play? The bulk of the spending was in hardware, stemming from the RFID tags, infrastructure and systems integration, Chaisatien said.

Resellers can look for selling opportunities in the hardware, software, consultation and maintenance process.

“From a reseller perspective, as the market gains momentum in terms of practical usage, there will be more obvious selling opportunities,” he said.

Until then, it’s imperative solutions are kept simple so companies can implement RFID without changing company processes, Schon said.

“Resellers can profit from the emerging market, but from a software perspective, we’re trying to make it out-of-the-box as much as possible,” he said. “If we can make the complex simple, then we will succeed.”

IBM’s practice leader for wireless technology, Will Duckworth, said resellers could resell chips and add value by creating tags.

IBM is working with Phillips — and its army of resellers — to develop the tags, and to uncover the applicable business models as the market matures.

And improving supply chain efficiency was just the tip of the iceberg, Schon said. Leading the charge in the Denmark-based RFID pilot project involving KiMs, a mid-size manufacturer of snacks, he said the technological uses were mind boggling.

“It’s really only the imagination that sets the limits on how and what you can use it for,” he said.

At KiMs, RFID was used in the areas of demand planning, event management, trading partner collaboration and hands-free warehouse management.

Today, the tracking technology is used for a host of applications including electronic road tolls, access to secure buildings, anti-car theft systems, ski lift access, library books tracking, and asset tracking.

“It’s being used all of the time — at amusement parks [in wristbands] to track attendance, in cars to ensure the right key has been put into the ignition — and people aren’t even aware of it,” Schon said. “People shouldn’t be scared about it — it’s already here.”

How does it work? Combining miniscule microchips with radio frequency technology (connected to miniature antennae), RFID brings intelligence into the picture. Tagged items react to a reader and offer real-time product data. The microchips contain an Electronic Product Code (EPC), which can provide unique product identifiers.

“Real-time product data delivered by RFID is expected to drastically improve businesses’ planning, forecasting and replenishment process and significantly enhance marketers’ ability to predict and respond to buyer behaviour,” Chaisatien said.

The touted benefits of capturing data included enhanced quality assurance, boosted productivity and major cost savings, he said. Indeed, the merchandise gets chatty, Schon said.

“I have a vision where you’re walking down the aisles of the warehouse, and the items are virtually screaming at you that they’ve passed the expiry date and are getting old,” he said.

This is an ideal function considering there’s a lack of overall visibility in the supply chain — and a key challenge for mid-market companies like KiMs.

There are more than 39 million mid-market companies globally — an ideal place to install RFID technology, he said.

Big bucks and Big Brother

But the technology, still considered expensive, will take a few years to reach a business-to-consumer context.

It should become widely adopted once industry has had time to sort out privacy and security issues, MBS Australia’s lead product manage, Ross Dembecki, said.

“Microsoft recognises that for people to benefit from this technology, they must be confident that the inform-ation in tags or associated with tags will not be detected or used inappropriately,” he said.

“In short, it must be trustworthy. It is already possible to put in place safety measures such as killing the send information function when an item leaves a store.”

Indeed, the technology has sounded alarm bells for privacy groups that categorise it as intrusive technology which threatens privacy and civil liberties.

According to Consumers Against Supermarket Privacy Invasion and Numbering (CASPIAN), some issues include concerns over the hidden placement of tags and hidden readers, worries about massive data aggregation (tying the tags into a database), and individual tracking and profiling.

Microsoft’s Dembecki acknowledges the risks.

“It’s one thing tracking a location,” he said. “But if there is a tag that can send and receive information in every consumer item, how can we protect ourselves from infringements of privacy, or even illegal collection of data? Imagine a thief with a scanner checking for the house with the best merchandise.”

In an effort to allay some of the fears, EAN Australia — the group continuing the standards work started in 1998 by the MIT-backed Auto-ID research Centre — was creating a code of practice for RFID in the retail sector, similar to the work done in the area of scanning technology, e-technology and development standards manager, Fiona Wilson, said.

“We want to reassure consumers there’s no need to fear the technology,” she said.

Chaisatien said market education could help alleviate concerns.

“Privacy concerns are not new,” Chaisatien said. “Already suppliers can know our habits — mobile phone carriers know where you are — so consumer concern is exaggerated. Big Brother is already watching.”

But, Wilson said, action at the consumer level wouldn’t pick up for another four to five years when low-cost RFID became more of a reality.

The Auto-ID Centre (which had more than 100 sponsors from four conti-nents — Australia opened its centre in early 2002 at the University of Adelaide) officially closed in 2003, but the work is continuing under the auspices of the EAN, which is a joint venture with EPCglobal.

The operation would continue to research new facets of the technology and applications, Wilson said.

EPC Australia is set to launch in March, she said. It was putting the final touches on the business plans.

Beyond supply chain management, consumer packaged goods, logistics and asset tracking, Wilson said RFID could move into defence, automotive, steel, timber and electrical sectors.

While some standards were developed a year ago — lightweight RFID protocols were etched out and some for software — the industry needs to ensure open standards.

“This is the first time we’ve created global standards,” she said. “Traditionally it’s been proprietary.”

The organisation was continuing to work on rolling out a network that gave trading partners a number, a security code and access to a database, which set data standards and opened up the entire world to use RFID, Wilson said.

IBM’s Duckworth said that while tag standards were defined, the infrastructure behind the readers and back-end systems needed to evolve.

Testing the waters

And while the debate over international standards and privacy woes was topping the charts, there were other RFID challenges including radio frequency interference and emission power, and a lack of clear return on investment leading to supplier resistance, Chaisatien said.

Duckworth said the real challenge was convincing customers the technology was applicable to their business processes.

“Is it suitable to the environment, and how do you build a business case,” he said.

As the market began to find its footing, many vendors were jumping in, Chaisatien said.

“IDC expects 2004 to be a year filled with RFID experiments and end-user education,” he said.

IBM Australia, for example, was conducting more than a dozen local pilot projects. And while specific details weren’t readily available, Chaisatien said likely areas were in dairy farming (to test milk samples) and at cattle stations (to track individual cows).

Australian retail and supermarket chains including Coles and Woolworths would also adopt the technology by 2007, he said. A Perth-based company, RFID Race Timing Systems, had hatched a timing system for marathon runners.

Government was another likely fit, Chaisatien said, looking to the recent US Department of Defense initiative — which requests its suppliers use RFID tags in order to more securely track assets and logistics by 2005 — as a good barometer.

Australia and Canada were both monitoring this initiative, he said.

Duckworth said embedding tags in documents was particularly enticing to the government space.

IBM is involved in government pilot projects.

On the security front, Star City had added RFID tags in more than 70,000 uniforms in a bid to stop theft, Microsoft’s Dembecki said.

In addition to the pilot project with KiMs, Microsoft has entered the ring and added RFID-capabilities to its Microsoft Axapta Warehouse Management solution.

Planning for what Microsoft claims is a dramatic increase in the adoption of RFID-enabled technology, the strategy involves expanding its pilot work this year and pumping out RFID-enabled releases of Microsoft’s Axapta and Microsoft Business Solutions’-Navision in 2005.

In 2006, expect to see an RFID-friendly release of Microsoft Retail Management System.

Oracle and SAP had also announced plans to RFID-enable technology, said Chaisatien.

Oracle added RFID support to its warehouse management software while SAP is also adding RFID capabilities to its existing enterprise software applications.

Indeed, the push is on, Chaisatien said.

Many vendors were working to meet Wal-Mart’s demands of having its top 100 suppliers start attaching RFID chips to shipments of merchandise by 2005, he said. By 2006, the company wanted the rest of its suppliers (about 25,000) to jump on the RFID bandwagon.

“We see vendors setting up offices all around Wal-Mart,” Duckworth said.

Wal-Mart began testing the technology by selling RFID-embedded Gillette razors. In the UK, Mark & Spencer and Tesco are conducting similar trials.

“We see a tremendous opportunity with RFID — and not just because there’s a lot of hype with Wal-Mart, Tesco and the Department of Defense, but because there’s so many areas in the supply chain, and beyond, where it can be used,” Schon said.

IBM’s Duckworth said the company was well positioned to capture a chunk of the market considering it had a broad range of solutions, a meaty services business and a strong reseller base.

Technological work remains

Multi-writable RFID tags would start to be deployed on a larger scale, Schon said. “This is a super efficient way of ensuring data control,” he said.

The technology existed today but it remained cost prohibitive, he said. This meant the tags were mainly read-only.

The market could expect to see tagging move beyond the palette or carton level down to the single item — this would evolve as prices came down, Duckworth said.

“Today we could tag every grain of rice in the world, but the real problem is the cost at the moment,” he said. “But as tag prices come down, there will be more applications becoming more feasible.”

Development work looking at larger memory capacity was also underway, Duckworth said, which would ensure faster processing.

Intelligent RFID tags that could measure temperature and moisture throughout the supply chain would also pop up, Schon said.

But don’t look for the technology to replace barcodes anytime soon, according to information from AIM: “RFID will continue to grow in its established niches where barcode or other optical technologies are not effective. If some standards commonality is achieved — whereby RFID equipment from different manufacturers can be used interchangeably — the market will very likely grow exponentially.”

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