Columns

RFID on the march

• By Jack Vaughan
• December 1, 2003

Radio Frequency Identification (RFID) will rip through retail and merchandising IT operations like an invading army. Or, RFID will simmer on the back burner - and flame out after some modest improvements in bar-code scanning appear. Take your pick. Like any new technology, RFID is a gamble. How will you bet?

An RFID tag looks like a squiggly bobby pin. It is an integrated circuit that is programmed to broadcast information about its identity when it is energized by an RF field. Such a device is embedded in the Mobil Speedpass seen at American gas pumps. Middle-tier and back-end systems can churn, store and analyze identification data gathered from the RFID, and correlate this against other data.

Viewed this way, the RFID system is not really different from the bar-code scanner systems it seeks to displace; it is just using that marvelous new invention called radio. If past history holds, RFID systems will have to be significantly better than incumbent bar code systems if they are to replace them.

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What's the problem? The first thing a new technology must do is solve a problem. We turn to Kerry Clark, vice chairman, The Procter & Gamble (P&G) Co. to describe RFID's benefits here. Clark spoke at the recent Forrester Executive Strategy Forum in Boston, where RFID was a major topic.

He said technology like RFID will allow firms like P&G to effectively put a license plate on every SKU. That is good because "inventory is bad." "Nobody wants to be holding the inventory when the music stops," said Clark. Better tracking is needed.

Systems using RFID will improve inventory integrity, he asserted, while reducing out-of-stock problems. Lots of revenue is lost because things aren't there when we are ready to buy them. The store shelf will be able to monitor itself, he stated.

As big as merchandiser P&G is, there is one big retailer calling the shots in RFID. RFID is one of the more rare occasions when a big buyer drives the technology. In the RFID push, count Wal-Mart as a big driving force. Wal-Mart is a specialist in wringing cost out of the supply chain, and the company, for now, sees more of that in RFID than bar-code scanning.

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Lights, cameras, RFID. A lot has to go right for RFID. For this to work, chip costs must fall to less than five cents apiece and, finally, to one cent apiece before this decade's end. RFID systems, unlike bar-code scanning systems, do not require line-of-sight reading. Wal-Mart hopes that means they will require less "human interaction" (read: "labor") in order to work, but costs may creep up in other areas. Reportedly, initial tests have required a single store to run up to 58 servers to handle receiver data. Store workers have sometimes had to move products ultra-slowly through a store, so that readers could pick up the IDs. Fewer people walking more slowly may be a problem. As now planned, RFID messages will hold more data than today's bar codes - but the bar code format is due for an update shortly. Cost of integration to existing systems is also an issue.

With more data, roll-ups of real-time data will have to be selective, or they will overwhelm data and analytical systems. Thus, new development paradigms will have to take hold. At the Forrester event, Claus Heinrich, an executive board member of SAP, and an expert on logistics, told ADT that event-based models will have to replace more usual transaction-oriented development schemes.

Bar-code reading is cheap and established. RFID can only succeed if the price is right and the value is understood. We know Mobil Speedpasses work, so the major issues to confront are those of scalability.

Small, high-margin and easily pilfered items, such as razor blades or CDs, may be the first shelf items to get the RFID treatment. Larger-ticket, recallable items such as automobile tires will get the RFID tag. Backroom pallets could well precede the store products in the implementation sequence.

Advocates visualize a day when your shopping cart can be a smart shopping cart, reading your ID data and the data of your purchases, and that there need be no check-out counter at the store exit. The days are still distant when a sardine will tell you the little fishies have been too long out of the sea.

Of course, at some step on the way there will be controversy with RFID.

Today, when your order is bar-code scanned, and you've opted-in to a supermarket's identity system, the grocer knows that, yes, you buy prunes in bulk. DelMonte may pitch you a coupon to lure you away from Sun-Maid. Privacy advocates worry that, among other things, RF receiver trucks may one day motor through neighborhoods and prune boxes will signal to them that they are near-empty, initiating other events. Trendy merchandiser Benetton had to back off from an RFID pilot because of savvy consumer backlash. A British retailer that took pictures of consumers as they picked up RFID-tagged razor blades did not help the cause. Thus, there is a fair likelihood that regulation of the governmental variety will be part of the mix as RFID unfolds.