AUTO-ID TESTS LEADING TO FUTURE SUPPLY CHAIN

Michael Garry

ST. PETERSBURG, Fla. -- At just about any conference these days related to technology in retailing, the subject of radio frequency identification, particularly as it is being developed by the Auto-ID Center at MIT, Cambridge, Mass., is addressed.

Indeed, when it comes to any thinking about the "store of the future," the "warehouse of the future," or just the "supply chain of the future," Auto-ID technology invariably takes center stage.

Auto-ID technology is based on what is called the electronic product code, or EPC, which consists of a microchip containing 96 bits of information describing, not just a type of item, such a two-liter bottle of Coke -- as a bar code does -- but a unique item, this particular two-liter bottle of Coke.

The EPC is housed on a small tag that also contains a tiny antenna with which to transmit the coded information to a reader, which in turns transfers the information to local servers and on through the Internet to central data repositories. Auto-ID Center efforts are focused on standardizing the tags and readers, and driving down their costs.

Tags can be applied to individual items or to larger entities like cases and pallets. The ability to track multiple items, cases and pallets simultaneously, and without a line of sight, throughout the supply chain has pundits predicting a revolutionary change in product identification and handling that could one day make the bar code obsolete.

There has been a flurry of retail activity around Auto-ID in recent months. In Germany, Metro AG reportedly opened a "Future Store" last week where it is testing Auto-ID tags on some products, on shelves and at the checkout (See Page 122). Wal-Mart Stores is in the final stage of a field test in Broken Arrow, Okla., where it is testing item-level tags, according to Procter & Gamble, a participant in the test. CVS and Tesco in the U.K. are planning store tests this year.

CPG manufacturers like P&G and Gillette have been actively pursuing tests. In addition, case studies documenting benefits of the technology are available on the Auto-ID Center's Web site, www.autoidcenter.org (under How to Adopt). A major EPC Symposium is scheduled to be held by the Auto-ID Center in Chicago Sept. 15 to 17.

At the Grocery Manufacturers of America's 2003 IS/LD Conference here last month, a panel discussion addressed some of the latest Auto-ID tests.

One panel member, Jack DeAlmo, vice president, store replenishment and inventory management, CVS, Woonsocket, R.I., said CVS, a member of the Auto-ID Center, updated the chain's plans to pilot an item-based application of Auto-ID tags in two stores, focusing on prescription vials. "The costs are greater in pharmacy than CPG so we didn't have to wait for a 5-cent tag" to test at the item level," he said. "The pharmacy is a logical place for the early adoption of Auto-ID."

DeAlmo said the test would focus on the "speed of delivery of prescriptions to customers. It allows us to track the actual customer prescription." At a conference earlier this year, he said the test would aim at cutting down on theft, reducing fulfillment costs and identifying when customers do not pick up prescriptions.

In addition, he said, CVS will collaborate with pharmaceutical suppliers in areas of common concern, such as out-of-dates, recalls and inventory. "Half of my inventory is tied up in partial bottles sitting on the shelf," he said. "We dispense one dose and sit on 60 to 70 pills for the next few years."

DeAlmo said CVS plans to eventually test the tags on the totes used to bring products to stores from CVS distribution centers.

DeAlmo said at the GMA conference that in the store test tags would be deactivated before the customer left the store, reflecting CVS' concerns about consumer privacy. "You have to think through consumers' concerns even in a small pilot," he said. He noted that CVS joined the Auto-ID Center in part to help educate the industry on privacy issues. On the other hand, he said the tags could be used with prescriptions in a "smart medicine cabinet" at consumers' homes to help patients comply with taking their medications.

Another panelist at the GMA conference, Diane Kandis, vice president, business services, commercial systems, Gillette, updated the test her company is doing with Tesco in the U.K. Gillette made news earlier this year when it announced it would purchase 500 million RFID tags this year and start putting them on razor blade cases and pallets.

She said the Tesco test, also focused on razor blades, aimed at preventing shrink by setting up "smart shelves" and working in concert with CCTV technology. It would also seek to enhance "on-shelf availability." She said that Gillette is also tracking products as they enter and leave its DCs, and is seeking to partner with more trading partners on tests.

A third panelist, Tom Torre, EPC project manager, B2B supply chain, P&G, said P&G is following its work with the Wal-Mart field tests with internal pilots and business case studies. He said that the field tests showed the challenges to be overcome, such as interference that takes place between Auto-ID technology and other RF systems. But overall, he said the field tests demonstrated that "the technology works."

Torre noted that the cost of the tags needs to drop to 5 cents "for broad adoption with cases and pallets" by manufacturers. But he said that in the right quantities, it was realistic for tag prices to get to that level.