RFID Utopia?

Oct 30, 2004 (01:10 AM EDT)

Read the Original Article at

It's expensive, the ROI is hard to realize, and most businesses don't have to do it, so why move forward with radio frequency identification (RFID)?

The Wal-Mart deadline looms large for the giant retailer's top 100 suppliers who must affix RFID tags to all pallets and cases bound for Wal-Mart's Texas distribution centers by January. Wal-Mart suppliers like Jack Link's Beef Jerky, however, face no imminent RFID deadlines. Nevertheless the midsized, Minong, Wisc.-based manufacturer of snack goods is moving ahead with RFID implementation.

"We are starting small scale," says Karl Paepke, vice president of operations for Jack Link's. "We now tag cases and pallets of one item, our one-pound bag of beef jerky, that we sell to Wal-Mart. This is fairly simple. The biggest difference is the label. Instead of the standard bar code we affix a label that contains an RFID chip."

Only one piece of new hardware is required, an RFID label printer that costs about $4,000, a little more than twice the price of standard bar-code printers. The modest, up-front investment, however, is only the tip of the iceberg.

The Costs Add Up

First of all, the tags themselves are still somewhat pricey. "The tags cost at least 20 cents each, as opposed to mere pennies for standard labels," says Christine Overby, analyst with Forrester Research in Cambridge, Mass. "This can be significant, even for small to medium-sized manufacturers, if you ship in large volume."

Then there is the business case, or lack thereof. "Slap and ship, by itself, won't give you much benefit," says Judah Phillips, analyst with the Yankee Group in Boston. "To get any real benefit from RFID, most companies need to do things that may not even be possible given current constraints." Phillips says only about half of the companies currently implementing RFID can justify the cost.

Increased Visibility and Risk-Avoidance

At Jack Link's, Paepke thinks the business case is clear. "RFID will put more intelligence into our enterprise," he says. The benefit, however, is not in "slap and ship." Rather it's in increased visibility into the company's internal supply chain. "We plan to RFID tag raw materials coming in so we can track the manufacturing process all the way to the pallet leaving the dock door."

Among other things this would give the company the ability to do a fast, "surgical" recall of products if necessary. "We have never had to do a recall," says Paepke, "but this kind of granular tracking would make it possible for us to immediately locate the specific cases and pallets that needed to come back."

Benefits Not Yet Attainable

Paepke also says RFID holds the promise of better integration with Wal-Mart's supply chain. "In Wal-Mart's RFID Utopia," says Paepke, "they will share data that we can pipe into our demand planning software."

This isn't yet possible. Currently suppliers can log into the Retail Link Web site to get some information on how their products are moving at Wal-Mart, but this is a far cry from the machine-to-machine communication envisioned in "RFID Utopia."

Another Cost to Consider

And the road to Utopia requires more than a new label printer. Jack Link's has hired consulting and integration firms, along with Microsoft Business Solutions to take RFID beyond the "slap and ship" phase. In particular, Microsoft is using Jack Link's as a test site for new RFID middleware that won't be generally available until late 2005 at the earliest.

The right middleware, in fact, is essential to getting more bang for your RFID buck. "It is all about putting context to the RFID signal," says Phillips. "This means you have to store RFID data, possibly associate it with some metadata, and certainly integrate it with back-end data, and application systems such as ERP."

Vendors OATSystems, RedPrarie, and Manhattan Associates, to name a few, all offer some form of RFID middleware for the enterprise. The software Microsoft is now making available to Jack Link's will target small to midsized businesses. Microsoft plans to bundle this software with its own ERP offerings, Navision, Great Plains, and Axapta.

Early Adopter Pain

Exactly how all this new hardware and software will best fit together with existing systems is still very much in doubt, which is one reason Phillips says adopting a wait-and-see policy is a sensible strategy. "You can always outsource RFID tagging to a 3PL [third-party logistics] partner," he says. "However, don't do this just to avoid thinking about RFID. Be prepared to migrate to an architecture that allows you to reap the benefits of RFID when the technology is more mature."

In some ways the nascent RFID market is like the early days of networking. "You have a lot of new hardware devices at the periphery," explains Gene Alvarez, analyst with the Meta Group in Stamford, Conn. "These all need software support and remote management. The standards for this are still being developed, similar to what happened with modems and routers back about 15 years ago." In other words, the case for taking it slow on RFID is strong.

First Mover Advantage

There's still one reason, or fact really, that could trump all this common sense. All agree that it's only a matter of time before Wal-Mart will extend the RFID mandate to all its suppliers. The word on the street says the early adopters will receive preferential treatment from the king of retail.

"You become more strategically aligned with Wal-Mart if you adopt RFID before your competitors," says Overby, "and it is very safe to say that you will get some kind of 'support' from Wal-Mart."

She adds that this is primarily relevant to suppliers who see Wal-Mart as part of their growth strategy, but how many suppliers want to claim Wal-Mart is not, and never will be, a part of their growth strategy?

Jack Link's hasn't secured any promises yet of preferential treatment, but Paepke does say, "We are certainly hopeful that RFID compliance will mean we sell more product to Wal-Mart."

Mark Leon has been reporting on business and technology for the last eight years.