Finding a business case for RFID

While local experts in radio frequency identification (RFID) technologies agree the coming of the RFID age is inevitable and now is the time to start preparing, few companies seem to know how to prepare for RFID, nor whether they should even be considering the technology at all.

So what is RFID? Broadly speaking, an RFID system typically consists of a fixed or mobile radio-enabled device that communicates with or reads a tag or label, which is embedded with a single chip processor and an antenna.

The main advantage of an RFID system is that it provides a unique identifier for items and enables the collection of real-time data. RFID tags also do not require special orientation, can be read simultaneously, are less susceptible to damage, are reusable, and information is not static.

In the supply chain context, for example, large volumes of data that is automatically collected using RFID technologies (as opposed to manually scanned bar coding data) can be delivered in real-time, which means decisions no longer need to be made on the basis of historic information. Such systems will also ensure correct stock rotation by guaranteeing that the first-in, first-out principle is accurately applied.

Much has been made of the mandates set by Wal-Mart and US Department of Defence to their supply chains to implement RFID, and pilot implementations of RFID systems by Metro, Tesco and Marks and Spencer. But where does SA stand?

When it comes to the use of RFID-based systems in retail, including supply chain management, SA is said to lag by around two years, with item-level tagging still around seven years away, as it is for the rest of the world. (In some high-value items like fashion, though, item level tagging is being used.) However, in some niche and closed loop applications such as personnel and equipment tracking in mines and electronic vehicle identification, local companies are well advanced and even look set to take a leading role.

"SA`s RFID implementations are currently almost all around smaller niche applications, because tags and readers are not being produced and sold in big enough volumes yet," says Barry Baetu, Harmonic Computer Services MD.

Examples of successful local small-scale and closed loop applications include a collaborative effort between ProScan Systems, Microsoft and Cisco Systems that provided RFID-based access control at this year`s annual conference of the SAPICS supply chain organisation in June and a dairy monitoring facility from Saco Systems.

Apart from such examples, the fact is that SA does not have many actual implementations based on this technology. Everyone is talking about RFID, but very few are actually investing in RFID-based systems. Not yet, anyway.

Proscan MD Andrew Fosbrook says 2005 and 2006 will see the start of the first proper pilot implementations of RFID-based systems. The JD Group and Hi-Fi Corporation are on record as saying they have RFID pilots planned to start next year, but few others seem likely to join them soon.

Jaco Visser, RFID solutions leader at IBM Global Services SA, agrees that so far there has been very little actual implementation. "Things are happening, but those projects that are under way are mostly closed loop solutions and do not span across business processes."

For South African organisations, the main driver for supply chain implementations will be a reduction in handling costs.

Eon de Koker, CEO, Techsolutions

Visser cites as an example an asset management solution for which IBM sourced the hardware and handled the backend systems integration for the South African division of a multinational fuel company. "The solution uses RFID technology to verify and locate assets, but this is still a standalone system and is only in its pilot phase."

In the IBM project, regulatory compliance is the major driver for the parent company, but for South African organisations "the main driver for supply chain implementations will be a reduction in handling costs", says Eon de Koker, CEO of Pretoria-based RFID solutions company, Techsolutions.

Despite the lack of major RFID-based systems in retail and other sectors in SA, the technologies are beginning to evolve and a wide range of organisations in many different industries are said to be interested in the potential of RFID to deliver greater process efficiencies. However, local experts agree RFID may not be the right technology for everyone.

What, then, should local business be focusing on to make decisions around RFID? Surprisingly, tag costs, hardware interoperability, standards and commitment throughout the supply chain do not seem to be as important as establishing a solid and unique business case for each industry, organisation and application.

"The biggest initial barrier to adoption of RFID technologies was the cost of RFID tags and readers, but cost is becoming less of a barrier as a direct benefit from high volume projects overseas," confirms De Koker. As cost barriers fall, the need to establish a firm business case with predictable returns has become the most logical area of focus.

The Gartner research group endorses this common wisdom. Gartner is positive about RFID technology and says it will be one of the most strategic technologies in the next decade, but warns against using moves by the likes of Wal-Mart as a justification for exploring RFID.

Gartner advises organisations to be realistic about the technology and not fall into the trap of basing RFID business cases on the successes of others.

"South African organisations have justifiably been delaying until developed markets find their feet. There is no way local retailers can run ahead of the likes of Wal-Mart in the US, but they should not wait any longer because the cost of delay may be more than risk of going ahead," warns Alwyn Hoffman, CIO of Pretoria-based RFID technology company, iPico Identification.

Hoffman leads the chorus of local RFID players in emphasising the importance of local companies finding out as much about RFID as possible and using overseas case studies to avoid the pitfalls. "Perceptions in the local market are often more constraining than technology," comments Roger Lilley, business development manager for Philips SA.

"Local companies must not allow anything to stop them from understanding the technology and its potential. They should be preparing themselves in terms of knowledge and strategy so they will be ready to act when the time is right," advises Visser.

In addition to benefiting from the experience of their foreign counterparts, Hoffman points out that local companies will also benefit from the overseas investments in customising tags for specific applications in various industries.

Local organisations should not wait any longer, because the cost of delay may be more than the risk of going ahead.

Alwyn Hoffman, CIO, iPico

Lilley agrees. "A good place for local companies to start is to investigate international industry standards for RFID, such as the ISO standards that tend to be written around industry-specific applications such as item tracking and access control. There is no need to reinvent the wheel."

"By benefiting from overseas implementations in terms of learning curves and reduced prices, South African companies should be in a good position to leapfrog ahead, unencumbered by legacy systems," says De Koker.

Although there are many lessons to be learned from overseas implementations, SA has done some pioneering of its own, notably in the mining, automotive, access control and payment solutions sectors.

"There may be no big retailers to drive RFID locally, but there are still exciting things being done in SA in diverse areas such as student access control systems at several universities and Johannesburg Metro`s use of the Mifare chip from Philips in its contactless public transport payment system," says Lilley.

In the South African mining industry, collaboration of several mines, equipment manufacturers and iPico led to the official launch earlier this year of an RFID solution capable of working in the harsh mining environment.

The solution uses iPico`s iP-X communication protocol and dual-frequency RFID technology to track mine workers as well as lighting, rescue, gas detection and first aid equipment, thereby ensuring 100% shift clearances and a marked increase in asset retention.

The SA-developed dual-frequency technology operates at two frequencies to provide resistance to interference from liquid and metals, a typical challenge involved in using UHF RFID to track people for time and attendance applications.

The iPico iP-X protocol has also enjoyed exposure in the UK, where it was used by British retailer Marks and Spencer for its RFID-based stock management pilot. Unlike the existing standards from ISO and the EPC Global generation two (Gen2) specification, iP-X can support high speed reads and readers cause less interference.

"The maximum speed at which an RFID system based on EPC specifications can read a tag is around 60km an hour, whereas iP-X can handle speeds up to 300km an hour," says Hoffman.

The pilot at Marks and Spencer is recognised for having achieved fast, accurate and efficient stock control, thereby improving efficiency in the supply chain to "ensure an increase in sales through availability", says De Koker.

"Wherever EPC standard tags cannot be used for applications such as vehicle tracking, there is an opportunity for iPico`s iP-X technology that uses a tag-talk-only approach instead of the reader-talk-first method enshrined in the EPC standard," explains Hoffman.

Hoffman says rather than any one standard dominating, it is likely that individual industries will standardise on the RFID technologies that support that industry`s requirements.

Perceptions in the local market are often more constraining than technology.

Roger Lilley, business development manager, Philips SA

Naturally, iPico is hoping iP-X will become a standard for high-speed applications such as electronic vehicle identification (EVI). Hoffman says at least one provincial government is interested in implementing an RFID-based vehicle licensing and crime prevention system. "Such a system has been under discussion for the past five years and testing was started two years ago," Hoffman confirms.

Apart from niche applications such as mine safety and EVI, asset tracking appears likely to be another prominent forerunner of large-scale retail adoption in SA.

De Koker says asset management is unquestionably one of the strongest business cases for RFID. By tagging returnable transport items, companies can optimise the utilisation of operation assets such as pallets, crates and lugs while tracking the goods they carry. "Electronic article surveillance fulfils the dual purpose of tracking and protecting assets, whereas EVI has multiple applications such as licensing, tracking, toll payment and parking access," he explains. According to Lilley, the public sector and some larger enterprises have already implemented RFID-based IT equipment and vehicle monitoring and tracking systems based on strong business cases.

"There is an air of inevitability surrounding RFID, which is a technology that will wait for no one," asserts De Koker. Taking this and other opinions collectively, the message is clear: SA needs to prepare for RFID and need to adopt a phased, well-informed and pragmatic approach.

RFID advocates say education around the technology is important because organisations need to understand how it works, as well as be clear about its strengths and weaknesses before attempting to build a business case. "A strong business case almost guarantees that the costs of well thought-out RFID implementations will be recouped within a year," says Hoffman.

Gartner says despite the many past disappointments about RFID, several types of business cases are well suited to the use of RFID. Identifying such projects involves looking for places in a business where traditional data collection technologies have failed to capture reliable enough information to manage the process, and determine if RFID can overcome these issues.

In other words, Gartner supports the idea that strategic business cases for RFID use will focus on new ways to collect data about processes and sees the most promising use of RFID in processes where other data collection technologies have failed.

In terms of strategy for South African business, Hoffman advises buying only hardware that can handle multiple RFID protocols. "Involving at least one experienced player in your RFID solution team is also essential, because experience can save up to 50% of the cost of an implementation," he claims. Warehouse management systems must also be able to cope with the requirements of RFID and change management systems are necessary to deal with its impact.

RFID is looming as an important technology for the first time since its birth decades ago. This development is due to advances in the technology as well as storage and analysis systems for the data collected by RFID systems.

Although RFID appears to be coming of age, experts say there are many years left in bar coding. Much media coverage of RFID has indicated that it will replace bar coding, but this view has its naysayers, including Gartner.

One Gartner report goes as far as stating that even if RFID costs the same, bar coding would still be the superior technology for certain data collecting processes.

Baetu, Fosbrook and Hoffman agree that in the medium-term, RFID and bar coding are likely to coexist in hybrid data collection systems, especially with the introduction of new bar code printing methods and persistent challenges to RFID such as canned goods.

"The easiest way to phase in RFID will be a mixture of human readable labels, bar codes and RFID," says De Koker.

Gartner again supports this view, saying much of the enthusiasm for RFID tagging projects came from a fundamental misunderstanding of the technology. As these RFID projects continue and companies come to realise the exceptional costs associated with RFID, Gartner predicts many will turn to traditional data collection methods and augment their processes with RFID only when necessary.

Although RFID costs are continually falling, SAP Africa`s retail solution manager Brandon Shaban says much of South African industry is waiting for costs to further decrease, indicating that the cost of RFID tags and readers is still an issue.

Visser agrees and predicts that in the end it will come down to a volumes game, or the cost implications of having multi-protocol or multi-frequency readers. However, De Koker says he expects RFID reader prices to drop in the next year due to increased volumes and manufacturers moving production to China. While there are many viable business cases at the current pricing levels, for many organisations it is merely a case of waiting until the price is right.

Hoffman reiterates that although organisations need not necessarily have to rush into implementing RFID, they should start planning now, because RFID implementations usually take between six and 12 months from start to finish.

"For most SAP retail customers, RFID is part of their business strategy because they realise that they will be left behind if a business case is identified and embraced by their competitors and they are unable to respond quickly," says Shaban.

An essential part of the planning phase, says Baetu, is consulting companies that have the knowledge and experience required to give accurate advice on RFID technologies, business cases, solutions and equipment. "At present, I would say only four local companies qualify."

Fosbrook concurs that experience and complete solution capability are essential.

In the absence of any group like Wal-Mart that is big enough to drive RFID adoption, Visser suggests that South African organisations set up industry forums tasked with identifying cross-boundary applications of RFID and agreeing on standards as soon as possible.

A Gartner report concludes that RFID is a fundamentally strategic approach that will take years to mature, saying it took 20 years for businesses to begin using bar code data effectively. The research company says although it will not take as long for RFID to become mainstream, it will still take some time because the early adoption of RFID requires a risk profile that many businesses don`t have.

Gartner predicts there will be some expensive failures by 2007, but says some companies will figure out effective business cases. As the local experts point out, it is these business cases that companies in emerging markets like SA will be able to use to leapfrog into mass adoption of RFID.