Industry Insight: RFID: Promise & Reality

Where we are and where we're going.

Potentially, RFID will reduce out of stocks, eliminate manual inventory, and identify and reduce points of shrinkage. If you are involved with pharmaceuticals, it should be able to authenticate products against counterfeiting. Also, it should be able to improve the response to product recalls by knowing exactly where an item or case is throughout the supply chain.

But that is all theory, and we are not there yet. UPC Global, for example, is still working on final protocols that impact pilot testing and deployment. This means we won't have RFID compliant readers until the end of 2004 and won't be able to test them until early 2005.
As a result, there are few retailers that have plans for deploying RFID yet, and those that are in the early stages of planning or piloting still need to figure out how the technology will work within their own environments and how it will impact their current business processes.

In Perspective
Most of the discussion about RFID focuses on the technology. The focus has been on tags, readers, servers managing the readers, and middleware making sense of the data. Yes, you have to learn how the technology works, but this is not where you should start your planning process. The question you should be asking is, if I had access to near real-time data within my organization and from suppliers, what would I do with it?

Instead of thinking about how to keep up with the competition, start thinking about what you are going to do with the data. Then you will start to see where the potential value is to your organization.

Three Stages
Basically RFID is deployed in stages. The first stage is trying to get it to work within four walls, making sure, for example, the tags and readers work within the distribution center. It involves making sure the RFID system connects and functions between the retailer and at least one supplier category. This is where most organizations are today.

The next stage is to connect the RFID system to the broader retailer supply network and different supply chains. This stage is interesting, because I don't think there is a business case yet to make the data available across the supply chain. I think distinct channels of information will eventually be created, partly because retailers don't want their internal data going out to everyone.

The final stage is item-level tagging and the ability to identify any object, anywhere, at any time, and there is no business case for it right now. I don't need to know where this chair is or where it is going or where it has been. Our challenge right now is to build a business case for the first stage.

Timeline & Forecast
By the end of this year, we will see the first generation of RFID tags available and expect the average cost to be about 50 cents. We may hear that if retailers buy in volume they can get them for 20 to 30 cents, but overall prices for pilots will be higher.

All of the top 100 Wal-Mart suppliers plus 37 volunteers will be in compliance with the Wal-Mart mandate on schedule. This means these companies will be shipping thousands of cases with RFID tags to pre-distribution centers in the Dallas/Ft. Worth area. They will only be tagging certain products that make the most sense today — fast-moving good or high-margin goods or a combination of the two.

By 2006, more retailers will be deploying RFID. By 2007, we think Wal-Mart will be close to 100 percent RFID compliant with its suppliers. It doesn't mean that all pallets and cases going to Wal-Mart will be tagged, but all suppliers will be tagging some of their goods.
By 2008, we think RFID readers will be deployed throughout the supply chain. Most of the pallets and cases will be tagged. Item level tagging may start at this time with high-end retailers.

What that means in terms of IT spending on the deployment and system integration layer is about $1.3 billion for United States based companies on RFID in 2008. Tag costs will be down to about five cents.

But this cost figure is on the low side, because it does not factor in the cost of business process transformation or re-engineering. There will be substantial additional spending in these areas as well.

Even in 2008 we won't be ready for item level tagging. Retailers will have to upgrade all stores and put readers in the aisles and on the shelves. this will be costly to do, and don't think this will happen over night.

Privacy Concerns
Consumer privacy remains a top-of-mind concern. Shoppers need to know what you can and cannot do with RFID technology, especially in the retail environment. Retailers need to educate consumers through signage and other methods.

But at the end of the day, I think shoppers have very little interest in RFID. What we have to do is simply tell shoppers what we are doing, make it clear, frequent and easy to find. Then, when they hear other views in the press, they can put it into context.

Consumer privacy advocates are worried about what information is going to be embedded in the tags and once the shoppers leave the stores what others can find out about the individual by scanning them.

There shouldn't be any information on a tag that links to a consumer's personal information. Legislators are starting to put together laws surrounding RFID technology and these will include consumer's rights amendments, which will safeguard and ease the concerns of shoppers in the coming RFID age.