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MAKING THE CASE FOR THE EPC

The recent EPC Symposium held in Chicago's McCormick Place was similar to other conferences in having the usual array of educational sessions and the maze of vendors exhibiting their wares.Yet it was also far different from the garden-variety trade show in that there wasn't just a new product or program being unveiled, or a special keynote speaker on the agenda. What made this gathering special was

The recent EPC Symposium held in Chicago's McCormick Place was similar to other conferences in having the usual array of educational sessions and the maze of vendors exhibiting their wares.

Yet it was also far different from the garden-variety trade show in that there wasn't just a new product or program being unveiled, or a special keynote speaker on the agenda. What made this gathering special was that an entirely new technology paradigm -- one that could fundamentally change the way food retailers do business -- was making its debut.

While it is easy to engage in techno-hype in 2003, the Auto-ID Center, sponsor of the symposium, which concluded Sept. 17, believes the technology it has developed over the past four years is going to make a real difference to a wide range of businesses. Food retailers are certainly among them.

That technology actually represents a relatively straightforward collection of many existing technologies, including RFID (radio frequency identification), the Internet and data storage. Indeed, Sanjay Sarma, chairman of research, Auto-ID Center, based at MIT, Cambridge, Mass., made a point of saying that "it's not rocket science."

As detailed before in SN, the technology is based on a concept called the electronic product code, which is nothing more than 96 bits of information that can be used to identify any specific mass-produced item in the world -- for instance, not just cans of Coke, like the UPC, but any can of Coke. Instead of bar codes, tags containing the EPC (on a microchip) and an RF antenna are applied to objects such as products, cases or pallets; those tags are read by nearby readers via radio frequency signals; and the data are handed off to a series of computers linked by the Internet.

What's unique about this scenario, said Kevin Ashton, executive director of the Auto-ID Center, is not just its immense scale but the notion that by using tags in this way, you are allowing computers to interact with physical objects for the first time. In effect, the Auto-ID Center's vision is to turn all of the mass-produced objects in the world into a series of "wirelessly networkable microcomputers" that can communicate with the primary PCs and servers of the world, explained Ashton.

By enabling computers to communicate with objects automatically and without human intervention, those objects can be tracked very precisely and at all times, a practice that has enormous commercial implications.

Of course, to put tags on billions of items requires very cheap tags, around 5 cents a piece or less. Today, the tags are no less than 40 cents when produced in bulk. To generate even greater production that would drive the cost further down, a worldwide effort has been launched to develop standards for EPC technology.

That effort is being spearheaded by the new EPCglobal organization announced at the symposium by Mike Di Yeso, chief operating officer of the Uniform Code Council, Lawrenceville, N.J. (SN, Sept. 22, Page 61). The standards will be based on Version 1.0 of the EPC Network, which was unveiled at the symposium and slated to be posted on www.autoidcenter.org by the end of this month.

EPCglobal (originally AutoID Inc.), a joint venture between UCC and EAN International, Brussels, is the commercial and standards half of what will soon replace the Auto-ID Center; the other half is the Auto-ID Labs, which will continue the Center's research work. Auto-ID Center shuts down on Oct. 31. EPCglobal has started issuing EPC codes, said Di Yeso.

What perhaps gives the EPC more credibility than most new technologies is that it was developed in the ivory towers of MIT, which is effectively "giving it away for free," said Sarma at the symposium. It is now under the auspices of two nonprofit organizations, UCC and EAN International.

At the same time, the Center's work had the support of some of the biggest CPG, retail and technology companies in the world. Among the Auto-ID Center's 103 sponsors, who prior to the symposium were the only companies privy to the technology, the most active included Procter & Gamble and Gillette, who helped found the Center, and Wal-Mart, which provided the setting for the first major field tests of the technology, and has mandated tags on pallets and cases from its top 100 suppliers by 2005.

At the Symposium, the EPC's inventors, sponsors and initial users from around the world got together to make the case for the EPC. They spoke of its potential, especially in tracking pallets and cases -- the most widely seen first application of the technology. They also acknowledged the problems, from the practical (such as cost), to the technical (such as read capacity) to the societal (notably, consumer privacy worries -- see story, Page 46).

Many of the EPC pioneers have been suppliers like P&G and Gillette. On the retail side, besides Wal-Mart, the leaders have been European food retailers like Tesco and Metro Group, plus mass merchants like Target and drug chains like CVS.

LESS LABOR, LESS INVENTORY

Dick Cantwell, vice president, Gillette, and chairman of the Auto-ID Center's board of overseers, pointed out at the symposium the major benefits that manufacturers like Gillette have found through tests of EPC tags on pallets and cases: first, lower labor costs from the elimination of manual counting or bar-code scanning as well as label printing; and second, less inventory to maintain in-stock conditions, that is, less safety stock. By cutting down on the manual check-in/check-out process, he added, manufacturers and distributors can reduce errors in fulfillment as well as theft.

Cantwell also pointed out that EPC tags will give law enforcement a way to prevent purveyors of counterfeit product from plying their trade at places like flea markets. "[Law enforcement] will be able to authenticate products right on the spot," he said. Authentication could also help ensure correct production and administering of drug products, he added.

Donna Slyster, chief information officer, Chep, which has tested tags on 250,000 of its rental pallets in Florida, said it normally takes seven seconds on average to scan a bar code. "Those seven seconds add up," she said, affecting productivity.

Steve Rehling, director of information technology, P&G, noted that one of the chief aims of EPC technology is to enable consumers to get a product "where and when they need it" -- that is, prevent out-of-stocks -- and to offer greater value, "which is compromised in the supply chain." EPC systems address these issues by offering instant and continuous visibility across the supply chain to manufacturers and their suppliers, "so that we can make better decisions about what material is needed and where and in what quantity." He said P&G, via an application of EPC across plants, distribution centers and stores, is targeting a "50% reduction in inventory."

Several of the manufacturers at the symposium expressed the belief that the efficiencies produced by EPC applications will help to significantly cut down on the problem of invoice deductions taken by retailers when they don't get shipped what they ordered. "If we re-engineer the shipping/receipt process such that the retailer would accept a product if the EPC infrastructure verified that we shipped what we said we shipped, that would eliminate deductions," said Rehling. He added that such a scenario would require careful agreements among trading partners.

In speaking of tag costs, EPC experts often observe that not all tags are the same, and some could justify a higher cost because of their greater capabilities. One application that may prove helpful to food retailers and manufacturers is temperature tracking by placing a temperature sensor on a tag. "A guy driving an ice cream truck would love a tag like that, even if it cost $3," said Lyle Ginsburg, partner, Accenture, which has produced seven white papers available at the Auto-ID Center Web site. Another food-related "extra" capability would be date-of-expiration tracking.

Ginsburg also pointed out that certain products, at the case and pallet but especially at the item level, can better justify a costlier tag. These include many products not usually carried by food retailers -- consumer electronics and apparel -- as well as some carried by supermarkets, such as pharmaceuticals, health and beauty items, and electronic media (DVDs and CDs).

Tesco, the largest food retailer in the United Kingdom, has launched two new RFID tag programs, said John F. Clarke, the chain's director of global technology and architecture. Clarke said that on Sept. 8, London-based Tesco had launched a test of RFID-tagged pallets delivered from a distribution center to two stores. In addition, he said, Tesco recently started putting tags on DVDs in two other stores for in-store inventory tracking. He said that by allowing employees to instantly know in-stock availability of DVDs, the tags were saving about 23 hours of labor per week in each store.

Another major European food retailer, Metro Group, based in Dusseldorf, Germany, has been testing EPC technology, along with other applications, at its new Future Store opened in April in Rheinberg, Germany. Speaking at the symposium, Dr. Gerd Wolfram, project manager for Metro Group's Future Store initiative, said the store is testing RFID tags on pallets and cases for all dry goods, as well as on "smart shelves" at the item level for items like Pantene shampoo and Gillette Mach 3 razors.

Tagged products leaving a DC in Essen, Germany, are read and tracked via a system from SAP as they enter the Future Store and are placed on shelves, said Wolfram. At the store level, Metro is trying to eliminate misplaced items and out-of-stocks.

Wolfram advised that the EPC technology has not been easy to install and that Metro remains concerned about standards and quality of tags, readers and software. "But we will overcome these obstacles," he said.

Given all of these options, even after standards are established for the EPC, users of the technology, including retailers and manufacturers, will need to "do their own research and engineering to fill in the nooks and crannies" at their organizations, said Sarma. Consumers also stand to benefit directly from the EPC, observers noted. Esther Dyson, chairman of EDventure Holdings and a well-known author and commentator on emerging technologies, pointed out that tags could make warranties easier to use. An aging population, she said, would gain from medicine cabinets set up to ensure drug compliance and prevent inadvertent interactions. Tags would also help someone like her who is "always losing my socks" and "help me look for the right shoes." These benefits could help to balance concerns about privacy, observers said.

Symposium speakers involved in testing the technology reported that it functions well but there are still kinks to work out, as would be expected at this stage. Chris Desrosier, Gillette's director of retail customer development, Auto-ID, said that in a test at a Gillette distribution center near its Boston headquarters, which started with cases of Venus razor cartridges, the company learned "where the tags had to be placed."

Because tags on metal and liquid products are more difficult to read, they have to be carefully placed, observers said. What was done in the field tests conducted with several CPG companies and Wal-Mart, as well as by Gillette at its DC, is a technique called aggregation, said Silvio Albano, project manager, field test action group, at the Auto-ID Center. In aggregation, cases are read individually as they are loaded on a pallet, and then tied to that specific pallet, rather than being read all together on the pallet, as would otherwise be done.

Paul Rieger, associate director, P&G, said that in some P&G tests, between 2% and 10% of tags were found to be inactive. "We need 99.9% read rate on the tags, but this is part of the growth curve," he said.

Mr. Bar Code's Redemption

Most people would be satisfied with playing a critical role three decades ago in the development of the Universal Product Code, one of the most important technology standards in the world. But not Alan Haberman.

Haberman, the former president and chief executive officer of Boston-based First National Stores (later acquired by Pic and Pay, Cleveland), served as the leader of the Symbol Selection subcommittee that brought forth the linear bar code, or UPC, as the standard for product identification in April 1973.

While acknowledging the huge impact the bar code has had since then, "we failed -- our vision was too narrow," he said at the recent EPC Symposium in Chicago. "We said you had to have hard savings at the checkout. We were afraid to attack the systems savings."

Haberman, 75, now feels redemption is coming in the form of the electronic product code, the new digital product-identification standard that he also played a significant role in developing as one of the driving forces behind the creation of the Auto-ID Center, based at MIT, Cambridge, Mass.

Haberman, referred to as the "father of the bar code and the EPC" by Kevin Ashton, executive director, Auto-ID Center, was called upon at the symposium to formally launch the EPC Network. He proceeded to give an impassioned presentation that recalled the halcyon days of the early 1970s when the bar code was born, and he championed the coming of the EPC.

"If you were able to know where every one of the items you dealt with were at any moment, what condition they were in, where they were going next, whether they accomplished their job -- how would you change your business?" he asked. The EPC, he said, would impact businesses in this way, forcing the "system savings" the UPC did not address. "You are going to use the power of computing to change the way you do things and get rid of the waste."

Regarding the challenges that remain for the adoption of the EPC, such as handling the volumes of data it will produce and addressing concerns of consumers and the government, Haberman said they would all be addressed because they were all "part of the institutional memory of the UCC and EAN."

The Three Pillars of Privacy

Recognizing that consumer privacy may be the one issue that could cripple the electronic product code before it ever gets off the ground, its developer, the Auto-ID Center, Cambridge, Mass., has spent considerable time and effort studying the issue.

Kevin Ashton, the Center's executive director, said that while formal recommendations on privacy will come later this year, they will encompass at least three key elements: notice (consumers will know the tag is there); choice (they can have the tag turned off before leaving the store); and control (their identity will not be linked to a product unless they want it to be).

Sanjay Sarma, chairman of research, Auto-ID Center, noted that even if the tags are not turned off, they could also be encrypted to protect privacy.

Esther Dyson, chairman of EDventure Holdings and a noted technology commentator, argued that even a comprehensive privacy policy, by itself, may not be sufficient. "You have to be sure consumers understand it," she said. "They have to understand that they have a choice."

Dyson pointed out in a keynote address at the recent EPC Symposium that the larger privacy issue concerns who owns the massive amount of data that will be generated in the EPC system. "Who controls it? How do you transfer control? What happens to the data when the consumer takes it home?" she asked. She suggested that both businesses and consumers "own" the data, so it will be necessary to "negotiate a deal" between them. "Make that easy for the consumer, and you won't have any problem," she said.

Elliot Maxwell, chairman of the policy advisory council, Auto-ID Center, warned that inactivity on this issue "is not an option." Otherwise, the government and the press will "control the dialog." He urged EPC users to "involve consumers, and offer a mechanism for responding to their concerns."

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