RFID: Hype or happening?

Considering the hype surrounding radio frequency identification (RFID) and the amount of attention it has received worldwide in recent months, it is surprising to note that the technology has been around for decades. Equally surprising is the fact that a single large US retailer has driven this sudden and massive enthusiasm for RFID.

Ever since Linda Dillman, Wal-Mart CIO, announced that the US retailer`s top 100 suppliers would be required to deliver goods using pallets containing RFID tags by January 2005, it has been billed as the next big thing to impact the business world. However, at the simplest level, RFID merely involves attaching various kinds of tags to pallets, cases or individual items to provide real-time communication within the supply chain on the status of the tagged items.

Although it is simple in essence, technology developers have seized the opportunity to identify a seemingly endless stream of applications for RFID aimed at improving supply chain efficiency and delivering quick returns.

RFID allows updated information to travel with the individual item as it passes through the supply chain - information that can be dynamically changed throughout the journey.

"The most important benefit of RFID tagging is efficiency in the supply chain, with the key benefit being the ability to ensure the right goods are delivered to the right place at the right time," says Mark Lilje, RangeGate MD. "This alone will mean huge savings."

"Executives who think RFID is just another hyped buzzword are simply not aware of the pace of RFID developments and their importance to the supply chain," says Johan Ackerman, Strategic Torque MD. "RFID offers fully automated, accurate, real-time tracking of every single product from manufacture to point of sale, meaning significant cuts in warehouse, distribution and inventory costs."

On the surface, RFID technology readily lends itself to tracking and counting raw materials, finished goods, containers, pallets and boxes, as well as carrying information such as price, origin, destination and expiry date. Potential applications in transport include electronic toll collection, traffic management and access control. The technology can also be used to automate goods dispatch and receiving, inventory control and sorting.

In retail, the development of "smart shelves" has been suggested as a possibility. "For example, if every tube of toothpaste has a tag, the shelf knows when there are only five tubes left," says Mark Dinning, Dell project analyst. "It can then alert the inventory system that it needs restocking. You could also programme the shelf to tell customers about related items when they select a product. The possibilities are enormous."

Given the wide range of exciting potential applications of RFID technology, it is easy to see why the recent renewed interest in it has gained such momentum so quickly. However, most of those responsible for fuelling the growing storm of enthusiasm have neglected to mention two significant obstacles to any practical and large-scale implementation of RFID, namely high tag costs and the lack of a single international standard.

"The potential benefits of the RFID tag are phenomenal," says Lilje. "However, those benefits are not yet a reality and it will be a while yet before they can be implemented cost-effectively."

Even the most enthusiastic supporters would have to admit that RFID tag prices are still very high. "Although everyone says the unit price will come down on volume, we have not found that to be true," says Lilje. "On an order of five million tags, the best price we could get was R5 a tag."

Andrew Fosbrook, Proscan MD, says tag costs depend largely on how they are encapsulated. "However, even without fancy encapsulation, a price of under R10 a tag is unlikely to be achieved at present." He says all the hype around low-cost tags is "rubbish".

Lilje says he cannot see any local players having any influence on the cost of RFID technology or being influential in driving it into the mainstream. "Only really big global players are in a position to make a real difference, because only they are able to drive volumes and standards as they did with the barcode," he observes. "Only once a standard had been accepted and lower costs were a reality did barcodes become universally accepted."

The cost of tags is, however, not the only expense that needs to be considered. Even if tags are able to achieve a lower cost through volume, the fact remains that the components of the supporting infrastructure are also all still rather pricey.

Although progress towards an international standard has been slow, it is hoped that the proposed EPC UHF Generation 2 standard supported by several large RFID technology manufacturers will be finalised and adopted by 2005. However, the Meta Group has noted that the electronic product code (EPC) standard embraced by Wal-Mart is currently incompatible with ISO standards being used in Europe.

The proposed EPC standard is being developed by EPCglobal, a joint venture by the standards bodies EAN International and the Uniform Code Council (UCC). The proposed definition meets requirements set by the US Department of Defence, Wal-Mart and other retailers.

A recent Meta Data report says RFID tags cover a wide range of frequencies, protocols, form factors and applications. Bruce Hudson, Meta analyst, says users should understand the technologies and build their solutions based on the requirements of business processes.

Choosing the correct tag is as important as it is complex. Tag manufacturers point out that there are a number of considerations, including frequency range, ability to write information to the tag, range performance, size, environmental conditions and standards compliance. These considerations will determine whether an active, semi-passive, or passive tag is the most appropriate, which in turn determines the over-riding factor of cost. Active and semi-passive tags are used for tracking high-value goods that need to be scanned over long ranges, but they are too expensive for use on low-cost items.

Hudson also points out that RFID is not a substitute for good store planning. He observes that it cannot make a bad process good, it can only make a good process more effective.

The high volume of data generated by tags is potentially a major problem. "Business Connexion has been involved in several RFID projects to ensure the data flow generated by the tags integrates into implementing company`s back-end ERP, CRM and other systems," explains Andy Brauer, Business Connexion CTO. "Systems and data integration is an important part of RFID that is often forgotten."

Although integration companies have a role to play, software vendors are also beginning to tailor their offerings to meet the new demands of automatic data collection through RFID. Earlier this year, business intelligence software developer SAS Institute announced that the latest version of its software could be configured to accept, analyse and deliver value from RFID data.

In a similar move, Sun Microsystems also recently announced its Sun Java System RFID software aimed at simplifying the integration of RFID data into enterprise information systems, and reducing the complexity of managing the massive amount of data generated by RFID systems.

Despite the fact that the potential of RFID may have been overstated in certain instances given the far from insignificant obstacles and challenges such as high tag costs, there is some evidence that the technology is being deployed successfully.

In the real world, some RFID-enabled systems have overcome the pitfalls and are delivering on some of the promises to cut costs, improve customer service, reduce labour, increase accuracy and improve production.

The key benefit of RFID is the ability to ensure the rights goods are delivered to the right place at the right time

Mark Lilje, MD, RangeGate.

It should be noted that many of the successful implementations of RFID have been so-called "closed loop" implementations. "Where an organisation deploys this technology internally, it is able to reap all the benefits of RFID tracking with the benefit of being able to re-use tags and without the complication of compliance to outside standards," says Fosbrook.

The use of tags at item level appears quite some time away, but there are ways retailers can use tags at other levels to reduce labour, provide item visibility, and increase efficiency and profitability. For example, a customer of RFID technology manufacturer, Intermec, has succeeded in implementing a system that automatically identifies incoming trailers when they drive through the gates at its service centres.

The identification information is transferred by wireless LAN from an RFID reader at the gates to the yard management system, which automatically updates the company`s shipment tracking system. Outgoing trucks are automatically identified and logged out of the service centre. Intermec says productivity has improved significantly since the system was implemented.

Due to the high cost of tags, currently RFID appears to be feasible only for higher value items, pallets and containers where there is the opportunity to get maximum use of tags. "The use of RFID for vehicle tracking is already a reality because the cost per transaction is down to cents," says Lilje. "Although the more expensive active tags are necessary for vehicle tracking, they are re-used many times over their five-year lifespan."

JSE-listed Reunert company Saco Systems recently signed a deal with UK-based Intellident to supply RFID solutions in southern Africa. "RFID has so much to offer in terms of efficiency and customer care," says Des Oliver, Saco marketing director.

Saco Systems is the sole southern African distributor of Intellident`s library solution - designed to replace barcode-based library management systems with low-cost RFID tags.

Fosbrook says the over-arching driver for RFID is its potential to improve the efficiency of supply chains. "However, South African supply chains are far less connected to networks than they are in other countries, which could be a unique driver for RFID," hypothesises Fosbrook. "Because there is no store of information on central servers accessed via networks, the RFID tag could have a more important role to play locally than elsewhere in the world."

Chris Dewe, Prism consumer devices channel manager, would agree with regard to the contactless payment solutions Prism has been developing using RFID technology deployed on a mobile phone SIM card.

"Contactless payment is a revolutionary and important means of payment that can be deployed using the mobile handset, which is the most ubiquitous personal device, even in Africa," says Dewe. "This payment method is ideally suited to situations involving mass movement, and requiring ease and speed of use such as payment for public transport and other services."

The multifunction SIM card is perhaps one of the most exciting applications of RFID technology. "Once the infrastructure is in place, we have developed the technology that will enable users to transfer funds with a cellphone transaction and then record a payment using RFID."

RFID evangelists are predicting the demise of the barcode, but although manufacturers in the data collection industry agree the change will come, they say it will not happen overnight.

Lilje agrees that eventually the tag will replace the barcode, but says this will not happen before RFID achieves the same standardisation and low cost.

"The technology is awesome, the applications you can wrap around it are phenomenal, but only once a standard is in place and the volumes and price are right will RFID tags become economical to use in the place of barcodes," emphasises Lilje. "Mobile terminal suppliers are already RFID-enabled, so we will be ready for the change when it comes."

Once RFID tags have overcome the cost and standard barrier, they offer certain advantages over the barcode, being more ideally suited to dirty, oily or wet environments. RFID tags can also carry larger amounts of data than barcodes and are virtually impossible to copy or counterfeit.

The RFID tag is superior when it comes to speed. The tag can be read and communicate back in milliseconds and, under ideal conditions, RFID systems can also read multiple tags at once.

However, most analysts and commentators seem to agree that the best approach will be a hybrid one in which RFID and barcode tracking co-exist. "RFID is merely an extension of barcodes and should rather been seen as complementary, not competitive," says Fosbrook. "I foresee tremendous interest by retailers in using RFID in conjunction with barcodes."

A CSC White Paper agrees with Fosbrook, saying large-scale deployments of RFID in the supply chain are likely to feature hybrid solutions, concluding that the challenge for organisations is to apply the right process and the right technology to solve specific business problems.

As amazing as some claim RFID technology to be, it is important not to lose sight of the challenges involved in RFID implementation over and above the high cost of tags and the lack of a single standard.

First, radio waves are subject to interference or noise, which can lead to inaccurate data. Also, signals can block each other if more than one tag attempts to communicate with a reader at the same time.

The presence of metal and water affects the performance of RFID, probably the single biggest reason why the popular example of a trolley of supermarket goods being scanned at the checkout counter is really an impossible pipedream.

All the hype around low-cost tags is rubbish.

Andrew Fosbrook, MD, Proscan.

Lilje is doubtful whether any South African companies will be willing to take on the risks and costs involved in replacing barcode-based systems with RFID in the short-term. "Only the big players who are dealing in the hundreds of millions of tags have the volumes to make RFID affordable."

He points out that even Wal-Mart has backed down from an earlier position of wanting item-level RFID tagging to its current pallet and container-based project, where a tag will be used many times over its lifespan.

Locally the consensus seems to be that any organisation considering using RFID technology should choose a manufacturer that is active in the worldwide RFID standards community, and has a policy of developing products that meet existing and emerging standards to ensure inter-operability and protect investments.

Kevin Simpson, Safmarine Computer Services marketing director, advises organisations to find a good RFID implementation partner. "Organisations should ensure their partners have skills in the key areas of RFID tagging and IT systems to take advantage of this new flow of information," says Simpson. "They should also understand the business advantages of RFID as well as how internal processes can be changed to make the technology pay for itself."

Many recent RFID headlines have declared the technology has come of age, but given the facts behind the media and industry hype, it would probably be more accurate to say although the technology is over 60 years old, it is far from mature in terms of its application in the modern supply chain scenario.

Hudson observes that as retail supply chains move toward implementation of the EPC-compliant RFID tags championed by the likes of Wal-Mart, users are discovering that the technology and the market are still immature. He concludes users should expect significant shifts in pricing, technology and the vendor landscape during the next 24 to 36 months.

While conceding RFID technology has been proven to be practical in certain applications, the Meta Group recommends that enterprises considering RFID should begin by educating themselves about the real capabilities of the technology to avoid misapplying it. They should also consider the variable tag costs as well as the infrastructure and application development costs before implementing any RFID trials.