EPC MEETS WORLD

Michael Garry / Amanda Weekes / John Dawson

Up until this week, you could try out EPC technology in your warehouse or store, but you had to be a member of the club -- that is, a sponsor of the technology's creator, the Auto-ID Center, based at MIT, Cambridge, Mass. Cost of a user sponsorship: $300,000.

Some large retailers, notably Wal-Mart, Target, CVS, Home Depot, Metro Group and Tesco, as well as a number of large CPG companies, did become sponsors and began field-testing the RFID (radio frequency identification)-based technology, considered the eventual successor to the bar code. Yet starting today, the club opens its doors and everyone is welcome.

The Auto-ID Center is making its next-generation product identification and tracking technology, based on the EPC (electronic product code), available to the world. The official coming-out party is the EPC Symposium, taking place today through Wednesday at McCormick Place in Chicago.

The Symposium will provide an array of educational sessions detailing everything you ever wanted to know about the EPC, which is a 96-bit identification code encoded on a microchip, and the tags, readers and infrastructure surrounding it -- what is called the EPC Network, Version 1.0. Attendees will gain first-hand knowledge from researchers and field-test participants such as Tesco, Metro Group, P&G, Gillette, Johnson & Johnson and Chep, as well as view live demonstrations and new products from EPC-compliant technology vendors.

In a way, it's the Center's last hurrah, as it morphs into AutoID Inc., the standards and commercialization arm (under the auspices of the Uniform Code Council and EAN International), and Auto-ID Labs, for research. That process is expected to be completed at the end of October. "It's a transition from research to reality," said Kevin Ashton, executive director of the Auto-ID Center. "We are passing the torch to industry."

What does this mean for the food retail industry? It could very well mean a lot.

Though some retailers may be jaded by the hype that surrounded the Internet in the 1990s, the expectations surrounding the EPC could rival and even surpass that. Ashton called the EPC Symposium "an important moment in the history of computing," adding, "For 50 years, computers have relied on human beings to get their information. That's about to change. This event is all about computers sensing the world around them -- really for the first time."

Within that observation is a very important element that applies to food retailing. That is, since the advent of the bar code, retailers have relied on human beings to employ a scanner to read the codes, both in checking out consumers and tracking products through the supply chain. With RFID-based EPC tags placed on products, cases and pallets, the human being, in theory, can be taken out of the equation. Stationary readers, positioned within about seven feet of the tags, read them automatically, and channel the information to computers.

The most immediate application of EPC technology will be to tracking products through the supply chain, from the manufacturer's warehouse to the retailer's or wholesaler's distribution center and to the store. Tags will be applied to cases and pallets; Wal-Mart is mandating that its top 100 suppliers do so by January 2005. In-store applications, requiring item-level tagging, are expected to come later.

Food Marketing Institute, a major backer of the Auto-ID Center and its work, made a good case for the supply chain benefits of the technology in a primer called "Improving the Receiving Function Using the EPC and RFID." The primer noted that "the profitability of an entire DC, retail chain or single store can be directly related to the effectiveness of the person responsible for matching the physical goods delivered with the invoice accepted." In theory, by automatically tracking these goods, the EPC network can ensure the effectiveness of the process, reducing out-of-stocks, and driving down redundant safety stocks.

"You will know your inventory instantly, automatically and continuously," observed Pam Stegeman, vice president, supply chain and technology, Grocery Manufacturers of America. "It takes out the human element."

To be sure, retailers, while intrigued, remain cautious about the prospects suggested by the EPC. Most FMI member companies "are still in education/awareness mode," said Joy Nicholas, FMI's vice president of research and emerging technologies. "They want to become educated on what the EPC has to offer so they can have a discussion at their companies."

Jim Sheehan, strategic process leader, Shaw's Supermarkets, West Bridgewater, Mass., told SN the chain is indeed interested in "how the EPC would be implemented, the benefits, and how it would interface with the GTIN [global trade identification number] and UCCnet." Sheehan believes that the new technology offers "a tremendous payback on product flow through the supply chain." Shaw's has not announced its plans for EPC tests yet.

Waiting for Standards

In addition to developing the technology and testing it in the field, the Auto-ID Center has been committed to establishing standards that will eventually be adopted worldwide. The intent, noted Ted Mason, FMI's director, emerging technologies, is to avoid the kind of dual system that developed around the bar code, with different standards adopted by the UCC in North America and by EAN International in the rest of the world.

While some had hoped that standards would be ready for the Symposium, the Auto-ID Center has developed what are, in effect, specifications that can now "become a work item for standards groups around the world," explained Nicholas. One such group is ISO, the International Organization for Standardization, based in Geneva, Switzerland. FMI is the administrator of a workgroup, Automatic Data Capture 1 Technical Advisory Group (FMI-ADC1 TAG) that represents the United States in ISO's formation of global standards for RFID technology and applications.

The timetable for standards adoption remains unclear. Mason said it can take nine months to several years before standards are adopted. Nicholas said the release of specifications for Version 1.0 of the EPC network marks the beginning of its evolution. "Who knows how many standards will need to be adopted to bring the EPC network to a global reality?" she said.

In the absence of global standards, "don't expect all readers to be able to read tags from different vendors for some time," she added.

Yet other technologies, such as the bar code and magnetic-stripe readers, also went through a long evolution to their current state, Nicholas and Mason noted. In the meantime, Version 1.0 of the EPC network provides enough for retailers to get started, they said.

"Companies can start piloting applications for business processes where the EPC provides value, but that doesn't mean you can retrofit your entire warehouse tomorrow," she said. "There's enough to become educated about where you want to take it."

Without standardization and interoperability, retailers are reluctant to put in major orders for EPC equipment, noted Nicholas. "It's still a chicken and egg situation."

That situation for the short term will prevent demand from being sufficient to drive costs of the technology down, noted Nicholas, though demand will be driven by other industries besides the food industry, she added. The Auto-ID Center has posted numerous white papers supporting a return on investment in the technology, and cost is not considered an impediment to piloting the technology for some companies, she said.

Matt Ream, senior manager, Zebra Technologies, Vernon Hills, Ill., a supplier of RFID tag printing systems, puts the cost of EPC tags currently at "between 40 cents and $1.50 a piece." For supply chain applications, "you can get a return" on the investment, he said.

The other issue looming over retail adoption of EPC technology is consumer privacy. "Privacy is a very sensitive issue and retailers do take it very seriously," said Nicholas. "But since the food industry will be focused initially on supply chain applications," privacy related to item-level RPC is "not dictating what we're doing today," she said.

Yet at the store level, privacy concerns were enough to pull back a test planned by Wal-Mart and Gillette for a store in Massachusetts (SN, Aug. 11, 2003, Page 1).

"When it gets to the consumer level, we need to make consumers comfortable with it," said GMA's Stegeman, "and make sure they see the benefits they will receive."

Reacting to Wal-Mart

On the manufacturer side, Wal-Mart's announcement at the Retail Systems show in June that it expects its top 100 suppliers to start applying tags to cases and pallets by January 2005 (SN, June 16, 2003, Page 1) has those suppliers "going crazy" trying to meet the deadline, said Pete Abell, co-founder of the EPC Group, Boston.

Manufacturers, as well as retailers who sell private-label products, will need the Auto ID Inc. to issue EPC codes for products, cases and pallets, as the UCC does for bar codes. However, Abell doesn't expect that to happen until the end of this year or the first part of next. (Auto ID Inc. was unavailable for comment last week.) "It's lucky the [Wal-Mart] deadline is 2005, so there's time to get it together," he said.

GMA's Stegeman pointed out that retailers are asking suppliers to engage in data synchronization via UCCnet sooner -- by 2004. Thus, GMA is putting a greater priority on data synchronization, which, in any event, Stegeman said is a foundation piece for EPC. "Until companies easily exchange information about products, pricing and promotions, all other initiatives, like EPC, will be slowed considerably."

In the end, noted Stegeman, the success of the EPC may rest on non-technical issues like trust between trading partners. "If we don't trust each other to share the information, we won't get the benefits," she said. "There's data right now that doesn't get shared."

MARKS & SPENCER'S BIG PROJECT

One of the largest implementations of RFID (radio frequency identification) technology in the world today is taking place in the United Kingdom: Over the next three years, London-based Marks & Spencer is applying 3.5 million RFID tags to the trays holding its prepared-foods products.

While not an implementation of the EPC (electronic product code) technology being unveiled this week at the EPC Symposium (see main story), the Marks & Spencer project serves as an impressive template of what can be accomplished at retail with RFID tracking technology, observers agreed.

At the Retail Systems show in June, executives from Marks & Spencer and its supporting vendors gave a presentation on the implementation, which was launched in early 2002. The project will be completed by 2005, they said.

"RFID will roll out to all of our depots early next year, and we will be tackling the store end after that," said Chris Izzard, business technology manager for Gist Limited, a supply management company that worked with Marks & Spencer. The chain also worked with Intellident, Manchester, U.K.

Noted Keith Mahoney, Marks & Spencer's food logistics controller, "The first phase of the project has been concluded, and we are already beginning to see measurable improvements in our supply chain efficiency."

In addition, in July Marks & Spencer announced plans to launch a large project to put RFID tags on clothing.

For the fresh-foods project, Marks & Spencer purchased 3.5 million tags from Dallas-based Texas Instrument's TI RFID division, said Bill Allen, marketing communications manager for the division. The 13.56 megahertz tags are embedded in plastic trays used by the chain, he added. The initial cost for the tags is 75 cents each. Not finding read distance to be an issue, the company decided to use 13.56 megahertz tags because there are already some standards in place for that frequency.

The RFID technology provides Marks & Spencer with cost and speed advantages in shipping and tracking its fresh products, the executives said. The Texas Instrument tags can reduce the time it takes to read multiple trays on carts and dollies (trollies) by 80% compared to bar codes; up to 25 trays can be scanned accurately with a single reading in five seconds, compared to 29 seconds with bar codes, they said.

"We could see that by implementing RFID, what we do at the moment in terms of reading each bar-code label could be significantly improved in terms of time, and efficiency and reduction in labor costs, so that was a key driver for us," said Izzard. In addition, easier tracking of fresh foods is expected to reduce the waste of spoiled goods.

The Marks & Spencer implementation coincided with its conversion from the old "Imperial" measurements (the British name for feet and inches) to the European metric standard. The switch to metric trays will greatly improve vehicle utilization, executives said, noting that 1,008 of the metric trays can be carried in a trailer, compared with 756 units previously. The new trays are being produced largely by recycling the old trays.

Izzard said that Marks & Spencer is aware that RFID tag standards are evolving, and wants to keep up. "We don't want to put in information now that cuts off our capability to build in these standards as they evolve down the road," he said. "We will be supporting the development of standards, and maybe help to drive them. But we couldn't allow the lack of them to stop us from moving forward with the implementation of our project."

Amanda Weekes and John Dawson