While the potential of RFID (radio frequency identification) remains enormous, food retailers -- Wal-Mart Stores notwithstanding -- are generally taking a cautious approach to the much-ballyhooed technology.
That's probably not a bad idea, considering the technical hurdles that still need to be overcome to make RFID a cost-effective tool for retailers and manufacturers.
Nonetheless, retailers are interested in learning more about RFID. No doubt, many will attend this week's EPCglobal U.S. Conference 2004 at the Baltimore Convention Center. The conference is the first to be held in the United States by EPCglobal, which is operated jointly by Uniform Code Council and EAN International -- the two major worldwide product identification standards bodies that are merging at year's end to form GC1.
EPCglobal is responsible for the standardization and commercialization of the EPC (Electronic Product Code). The EPC is the digital coding system that uses RFID technology as a new way to identify products, or indeed, any object, and gives retailers a possible successor to the bar code. The EPC identification for any specific item is housed in a microchip tucked inside a radio tag attached to the product. It "speaks" via radio waves to a nearby RFID reader.
With its sharp focus on supply chain efficiency, Wal-Mart was among the first to latch onto RFID as a sponsor of the Auto-ID Center at MIT. In June 2003, Wal-Mart put RFID on the map when its chief information officer, Linda Dillman, announced the company's plan to have its top 100 suppliers place RFID tags on pallets and cases. Wal-Mart's program was launched in April in the Dallas area, and will be fully under way by the beginning of 2005.
"We expect several [more] suppliers to begin shipping tagged cases and/or pallets in the next few weeks," Gus Whitcomb, Wal-Mart's director of corporate communications, told SN last week. "This gradual build-up will continue as we move closer to 2005. Most suppliers will actually be on board before Jan. 1."
Other large retailers have since announced similar plans -- notably Target, which has its own Dallas pilot in the works; Albertsons; and some European retailers, including Metro Group and Tesco.
Where does that leave everyone else?
Jeff Woods, principal analyst, Gartner, Stamford, Conn., who tracks RFID, observed that RFID users and would-be users are in for a reality check. "Over the next 18 months, people will realize that RFID can't begin to live up to the promises made for it," he said.
In the food industry, some retailers contacted by SN said they are beginning to lay plans for RFID, while others indicated a preference to wait in the wings.
At Hannaford Bros., Scarborough, Maine, "prerequisite work" is under way for an RFID test at the chain's South Portland, Maine, distribution center in mid-2005, revealed Bill Homa, chief information officer. Hannaford's parent, Delhaize, plans a "closed-loop" pilot in a DC in Belgium late in 2004, he added.
Unified Western Grocers, Commerce, Calif., is "beginning the analysis phase of an RFID pilot" slated to launch next year, said Gary Herman, Unified's vice president and CIO. "We are just beginning to explore the details of what we might test and the corresponding business case."
On the more conservative side is Wegmans Food Markets, Rochester, N.Y., a food retailer that is perhaps Wal-Mart's closest competitor in the implementation of data synchronization. "We are in the very early, exploratory phase [with RFID]," said Marianne Timmons, director of business to business for Wegmans. "We look forward to the potential that this technology offers our industry, but do not have a firm schedule of when we will become engaged or what an engagement might look like."
Wegmans, added Timmons, remains very focused on its data synchronization initiative, which will help it implement RFID/EPC down the road. "We believe that data synchronization is at the foundation of all e-commerce, including RFID/EPC," she averred.
Taking a similar view is Gene Puhrmann, CIO for Associated Grocers, Seattle. "We'll keep an eye on RFID over the next couple of years," he said. "We first need data synchronization in place." He called RFID "a good concept," but one that would be "slow to evolve."
Business Case Blues
While various claims have been made about the payback for RFID, according to Gartner's Woods, food and beverage manufacturers, such as those participating in Wal-Mart's RFID pilot in Dallas, are having difficulty finding a business case for the internal use of RFID. "This has been quite a shock to a number of them," he noted.
Wal-Mart, for its part, has regularly said over the past year that it was working with manufacturers to demonstrate the ways RFID would benefit them. Wal-Mart did not respond to specific questions about manufacturers' business case and its effect on the RFID program.
Mike Di Yeso, president and chief operating officer, UCC, acknowledged that manufacturers who have mainly engaged in "slap-and-ship" RFID programs have not been able to establish a business case. However, he pointed out, "If you integrate the technology into your supply chain, I guarantee there's a return on investment." Such integration would enable companies to track products throughout the supply chain and improve in-stock levels. "There are a host of opportunities," he added.
Beyond its original Jan. 1, 2005, goal, Wal-Mart has since announced plans to expand the Dallas-area test in 2005 and take the program to other geographical areas. However, given their current concerns, Woods said, manufacturers may not want to support a major rollout beyond the Dallas market, causing the project to slow down.
Pete Abell, senior partner, ePC Group, Boston, agreed that product tagging will slow down as technical issues are resolved. However, he said Wal-Mart will probably continue installing readers in its DCs and stores.
Woods stated the difficulty for manufacturers is that tag costs remain too high, and manufacturers are responsible for footing the bill. He rejected the notion that the industry is "on the cusp" of a low-cost tag. Instead, he projected that tag costs, which are currently about 40 cents per tag, will drop to 20 cents per tag over the next five years -- and possibly diminish further after that.
Di Yeso said he remains optimistic that "if we continue to knock down the issues that prevent adoption [of RFID technology], the cost of the tag will take care of itself. That is, the volume will be there to drive cost down."
Lower tag costs would also require tag technology to be unhindered by patents, and thus be "royalty-free" -- a prospect Woods considers unlikely. Di Yeso countered that EPCglobal's objective is to provide RFID systems that are royalty-free. If that proves difficult, the organization would then attempt to "design around the patents," or resort to a royalty that is "reasonable and non-discriminatory," he said.
Another key issue is the need for 100% tag-read rates, which have proven elusive because of RF interference problems caused by liquids and metals.Abell said he's heard reports of 5% to 20% tag failure rates. He expects it to take around five years to fully solve all of the technical issues, adding that the bar code went through a similar maturation in the 1970s.
Di Yeso noted that interference problems mainly affect readability of individual items, or of cases nested inside other cases on a pallet. Tags on a pallet or on a single case have exhibited read rates of nearly 100%, meeting the requirements of today's pilots, he pointed out.
Another issue that is slowing down RFID implementation is the absence of new tag and reader standards, expected to be ratified later thus year (see story, this page). "People are waiting for standards to be ratified, and tags and readers based on those standards to be available," explained Abell.
What could prove to be a winning proposition for Wal-Mart, Woods said, is applying RFID to scan-based trading, which streamlines replenishment by basing it on scanning of products at the checkout.
If Wal-Mart were to achieve a major RFID win with scan-based trading, and shared the rewards with manufacturers, that could offset manufacturers' losses, he noted.
Wal-Mart has not referred to scan-based trading in its announcements.
EPC Standards Update
EPCglobal, responsible for the standardization of the Electronic Product Code and associated RFID technologies, is making strides on the standards front, said Mike Di Yeso, president and chief operating officer of Lawrenceville, N.J.-based Uniform Code Council. UCC is a co-parent of EPCglobal.
Last year, EPCglobal released its first standard for RFID technology, UHF (ultra high frequency) Generation 1, for Class 0 and Class 1 tags and readers. EPCglobal is currently accepting comments about the new standard, Generation 2, for Class 1 tags and readers, according to Di Yeso.
He stated that Generation 2 is expected to be ratified by the EPCglobal board by early November. It would take another three or four months before tags and readers based on the new standard appeared in the marketplace, he added.
In other developments:
EPCglobal has completed initial interoperability testing as part of a developing hardware certification program. The testing focused on the Generation 1 (Class 0 and Class 1) readers, tags and printer/encoder configurations. Di Yeso said that, so far, 11 suppliers of tags and readers have demonstrated that their products are interoperable and can be used interchangeably.
Over the next three to six months, EPCglobal will roll out a formal certification program, including compliance standards and performance testing, revealed Di Yeso. The program aims to support EPC-compliant systems to accelerate adoption.
More than 300 companies have become subscribers to EPCglobal, thereby receiving manager ID numbers. These numbers will be used in EPC codes to identify the manufacturer of a product; the code will also contain numbers identifying a product class and a unique instance of the product.
At the EPCglobal U.S. Conference 2004 this week, the EPCglobal Network, which is the computer network responsible for providing access to a unique product's attributes and movement over the Internet, will be demonstrated. Thus far, only the ONS (Object Name Service) part of the network has been developed. "Part of our 2005 plan is to build out other elements of the network," explained Di Yeso.
On Sept. 1, Chris Adcock became president of EPCglobal. Prior to his appointment, Adcock was general manager of Gillette's Nordic region.