TechWeb

RFID: Hold The Revolution, Pass The Incremental Change

Mar 30, 2007 (08:03 PM EDT)

Read the Original Article at http://www.informationweek.com/news/showArticle.jhtml?articleID=198701582


Waiting for an RFID revolution? Better sit tight.

Five years after proponents began insisting that radio frequency identification would dramatically change the way companies track goods in the supply chain, it remains a niche technology held back by the cost of RFID tags and the difficulties its pioneers--think Wal-Mart--have had pulling in a critical mass of partners.

Still, there are plenty of reasons companies keep paying attention to RFID. Using the technology across a broad swath of products in a supply chain looks impractical today, but businesses are succeeding with RFID when they focus on solving a specific business problem, particularly when it can be done as a "closed loop"--meaning without help from multiple partners.

Wal-Mart is a prime example. Just 600, or about 3%, of its suppliers have started using RFID since the retailer announced its famous supply chain "mandate" four years ago. The slow uptake is prompting Wal-Mart to drastically scale back its plans for the technology in distribution centers, since so many cases and pallets still arrive stamped with bar codes. Instead, Wal-Mart is focusing on its stores, says Carolyn Walton, VP of IT. There, it can work with goods from the suppliers that do tag to find ways to reduce out-of-stock situations and, more recently, to drive sales promotions.

In two years, Wal-Mart has expanded its RFID use from 100 to 1,000 stores. Readers typically are located at loading dock entrances, at entrances leading from back rooms to sales floors, and at trash compactors where boxes are destroyed. Data is collected when product moves, including at the cash register, allowing Wal-Mart to generate printouts for employees to prioritize restocking duties. Suppliers can link into Wal-Mart's system over the Web to check exactly where their products are, and Wal-Mart also is starting to give employees handheld RFID readers that beep based on proximity to specified products, making them easier to find.

One Wal-Mart supplier, consumer goods company Kimberly-Clark, is about to expand to more products a pilot that used RFID to monitor promotions of its Depend adult diapers. The company created fully stocked promotional displays of Depend and put RFID tags on the displays before shipping them to Wal-Mart and Target, another RFID pioneer. Using software OATSystems developed with Kimberly-Clark's input--and which the vendor began selling last week--the consumer goods company could see on a color-coded dashboard how many stores received the product in the stockroom and how many put it on the store floor.

That setup helps Kimberly-Clark know if the displays are on the floor at the same time its ads run. "We back up promotion displays with TV advertising, so you spend a lot of money trying to get consumer awareness of them," says Mike O'Shea, director of corporate AutoID/RFID strategies. The feedback wasn't good: Kimberly-Clark learned that just 56% of stores executed the promotion on time, and those that were late reported lower sales. It used the information to work with the retailers and has since been able to increase on-time execution of Depend store promotions to 75%.

It's these types of focused applications that will work for RFID, O'Shea says. Although no one was naming names, last week's RFID World conference was rife with talk of Wal-Mart suppliers that have spent considerable money on RFID, are collecting loads of data, yet haven't figured out what to do with it. "They got caught up in the hype of the technology and lost focus," says O'Shea. "You will get those wins, and we've proved that."

During a speech at the RFID World conference, Robert Willett, CIO and international CEO of retailer Best Buy, said RFID is "the single most important thing that's ever happened in the supply chain." Best Buy has used RFID in only a few test projects--to reduce out-of-stock movie and game DVDs, for instance--but the results have been clear: 18% higher sales in departments with RFID-tagged DVDs. Out-of-stocks are a big problem with hot-selling movies, since their popularity peaks in a matter of weeks.

NOT SO FAST
In June 2005, DHL Worldwide Express declared it was building the IT infrastructure to put RFID tags on every package it ships by 2015. The plan was to improve shipment controls, cut costs, and reduce data collection. DHL has reconsidered that lofty goal and target date. "We shouldn't have put a stake in the ground," says Bob Berg, DHL's senior program manager for RFID.

DHL still sees plenty of opportunity in RFID, but it's taking a more measured approach, and it's not tying its efforts to a particular year, Berg says. DHL determined it would cost $1 billion for such an ambitious endeavor, and even after careful study, it hasn't identified how RFID could improve its operations.

DHL offers RFID tag "slap and ship" services in Europe, primarily to the suppliers of retailer Metro. Goods are sent from a supplier's warehouse to a DHL center, where tags are put on pallets and cases before shipping to Metro's distribution centers. DHL would like to expand the service to the United States. DHL also is starting to market a service that uses RFID to monitor the temperature of cold perishables, such as seafood. So far, it hasn't had many nibbles from would-be customers.

The most-generic RFID tags cost around 10 cents, less than half what they cost five years ago. That's progress. The latest generation of chips, which came out last year and are called Gen2, brought standards and better functionality, and in recent months manufacturers have been delivering readers that are smaller, more mobile, and more accurate. More progress.

But Moore's Law isn't working fast enough for businesses to speed up their RFID use. Consumer goods companies always talk about 5-cent tags as a price that would open up broader uses, yet many tag makers, in hopes of spurring a volume market, are losing money trying to provide tags in the 8-cent range, says Raghu Das, CEO of RFID research firm IDTechEx. "On the retail side, very few of the solution providers have made money," he says. "A lot are looking elsewhere for business."

ABI Research expects growth in supply chain management use, predicting last year's market of $350 million will reach $2.1 billion in 2011. Given the pace of uptake so far, it takes guts to make enthusiastic predictions about RFID. But judging from the experiences of some early users, the technology has a lot more to show us--if we're willing to take it slow.