GEARING UP FOR THE EPC

MICHAEL GARRY

Radio frequency identification (RFID) technology, which uses radio waves as a communication vehicle for information about products, has been around for years, and has found some applications in retail. But in the future this technology, linked to the Internet, could play a transformational role in the retail industry and elsewhere.

That future vision, supported by retailers such as Wal-Mart, Target, Tesco, Metro AG, CVS and Home Depot, along with a slew of CPG manufacturers and technology vendors, is being created by that bastion of technological know-how, the Massachusetts Institute of Technology, at its three-year-old Auto-ID Center, in Cambridge, Mass. MIT now shares the work with two other universities, Cambridge University, Cambridge, England, and University of Adelaide, Adelaide, Australia. Plans are under way to establish labs in China and Japan.

Representatives of the not-for-profit Auto-ID Center, such as Executive Director Kevin Ashton, who hails from Procter & Gamble, have been making the rounds of trade shows for the last few years, spreading the gospel about a future open-standards-based supply chain in which each individual physical product -- every can of Coke, every tub of Dannon yogurt -- will be uniquely identified by microchip-based RFID tags containing a 96-bit EPC (electronic product code) and an RF transmitter. Consultant Ken Fobes, president of Business Strategy Group, Ponte Vedra Beach, Fla., believes that this will turn out to be a "disruptive technology" that "will revolutionize the industry like the bar code."

Unlike the familiar UPC (uniform product code) bar code, which identifies a type of product, 12-ounce cans of Coke, say, and looks up its price, the EPC identifies a particular 12-ounce can of Coke, and, via Web-based link, looks up any number of characteristics of that can, such as when it was made and shipped, what lot it came from, its expiration date, along with other pertinent information.

Moreover, readers strategically positioned throughout the supply chain can track that can's progress as it makes its way from the manufacturer to the distributor to the store and even to the consumer's house and recycling bin. Other benefits include efficiencies in inventory management, replenishment and receiving as well as reductions in out-of-stocks and shrink, observers say.

More exotic applications, such as instantaneous checkout at the supermarket, are also envisioned; in fact, a Latin American retailer is said to be testing such a scenario. Others include instant product recalls, tracking of expiration dates, and even automated microwave cooking and in-home replenishment. Indeed, Fobes said that for Auto-ID to really take off, it needs to benefit the consumer as well.

While retail is still far from realizing this vision, first steps are being made, including plans for a major symposium next year, major field tests involving Wal-Mart and Chep, and, beginning next week, the release of business-case white papers. Given the way the bar code revolutionized retail in the 1970s, observers say it behooves retail executives in the 21st century to pay attention to -- and even support the development of -- this new technology.

As with most things technological, cost will be a key factor. Certainly, the cost of the tag needs to drop considerably for the EPC to have a shot at widespread adoption in the food industry, observers agree.

To be applied to individual products, the cost needs to be down to about a penny from its current level of about 50 cents, said Fobes. Until then, "it will be used mostly in DCs and manufacturing plants," he said. MIT researchers say a 5-cent tag is not too far off, though others question that prediction.

More than even cost, simple resistance to change will play a part in the EPC's adoption. "Because the Auto-ID Center has worked openly and cooperatively with many companies and suppliers around the world, we think the technology will be ready, so it will be a matter of bringing the industry to the table," said Joy Nicholas, vice president of research and emerging technologies, the Food Marketing Institute, Washington. "It will be much like the UPC and scanners, for which the adoption process was difficult."

Nicholas predicts that "some version of the EPC infrastructure will be available by the end of next year" as well as applications for receiving and distribution now being tested. "Many more applications using EPC will be developed over the next few years, which is why more retailers should get involved today," she said. Fobes also sees the tags being used to track products through the supply chain in the next few years.

Meanwhile, as curiosity about the EPC builds in the food business, industry groups are starting to ramp up. FMI, for example, has joined forces with other associations to form the EPC Alliance, which is serving a communications and educational role.

Nicholas is co-chairman of the alliance, along with Pam Stegeman, vice president of industry affairs, Grocery Manufacturers of America, Washington. "FMI's role is that of a liaison between the Auto-ID Center and the food retailing industry," said Nicholas.

FMI is also helping to plan what will be the first big coming-out party for the Auto-ID Center's work in retail, a joint industry symposium scheduled for October 8-10, 2003, in Chicago.

At that event, the Auto-ID Center plans to release all "documents, data and specifications" on the EPC that have been developed to that point, along with final results of a field test that has been under way in Tulsa, Okla., since October 2001. "We hope companies start testing and adopting applications using EPC technology on their own after the symposium," said Nicholas.

In addition, in May, FMI was selected to be the administrator of a workgroup, Automatic Data Capture 1 Technical Advisory Group (ADC1 TAG), representing the United States in the formation of global standards for RFID technology and applications by ISO (International Organization for Standardization), noted Ted Mason, director, emerging technology, FMI. (More information can be found at www.auto-id-fmi.org. Nicholas said that FMI hopes to see international standards for the EPC set by October 2003 when the joint industry symposium takes place.

To date, the Tulsa field test has assessed the functionality of the EPC tags and readers as applied to pallets of paper towels shipped from P&G to a Sam's Club outlet, said Bill Wertz, spokesman for Wal-Mart, Bentonville, Ark. After the tags were read, the data contained in them were transmitted via the Web to servers at the Auto-ID Center at MIT. The test also assessed the performance of the Web-based components of the system, including the Object Naming Service (ONS), Physical Markup Language (PML) and Savant (see story, Page 20.)

That phase having been completed, the field test has moved on to testing the tags on cases from multiple manufacturers coming into the same Sam's Club plus one conventional Wal-Mart store also in Tulsa, according to Wertz. The final phase will test the tags on individual items. "We realize this technology has the potential to bring costs down, which is what we're all about," he said.

By reading EPC tags on pallets, chains like Wal-Mart can automate and expedite the receiving process, compared to the traditional way of receiving whereby pallets are individually scanned by associates, noted Wertz. The other advantage is the information contained in the tag. "This gives you where a product's been, where it's been manufactured, if it's been on the truck for 17 hours," he said.

The pallet test, said Wertz, proved that "the RFID readers work, the connections work," he said. But Wal-Mart is not prepared to employ the technology widely until the cost and size of the tags come down, he added.

Another test of Auto-ID technology is being conducted by Orlando, Fla.-based Chep, the pallet provider. Chep has begun an RFID test of 250,000 pallets at two of its four distribution centers in Florida that will continue through the end of the year. In the test, which includes 2,000 local retail "drop spots" (stores and DCs) as well as 34 local manufacturer locations, two RFID tags are placed in the top "lead boards" of each pallet, said Deb Spicer, vice president of corporate communications for Chep. She declined to name the participants.

RFID readers at the two Chep DCs, in Davenport and Lakeland, Fla., will record the time of each pallet's departure and the time of its return to calculate total "cycle time" for the pallet, Spicer said. That will enable Chep to assess the "variability in the pallet pool" in terms of cycle time and pallet damage to determine potential cost savings and incentives for customers, she said.

New White Papers

To support adoption of EPC technology, two major consulting firms, PricewaterhouseCoopers, New York, and Accenture, New York, are preparing to release free white papers that document the business case for using the technology in retail and CPG manufacturing. Two white papers from PwC will be released next week and posted on www.autoidcenter.org and www.pwcconsulting.com. One white paper, and possibly a second, will be issued by Accenture in the late fall.

One of PwC's white papers will focus on applying Auto-ID technology at the distribution center while the other will focus on "improving product availability at retail," said Anthony Bigornia, manager of the Auto-ID initiative for PwC. They are both intended to serve as "a foundation to move forward to do specific business cases for individual companies."

Both PwC white papers "develop near-term adoption strategies for the technology through a series of business cases with leading players in the industry," said Mike Schultz, principal consultant, PwC. The studies incorporate interviews with more than 20 retailers, manufacturers and suppliers as well as "insights from the [Tulsa] field test," he said.

In assessing the benefits of the Auto-ID technology, the PwC studies attempt to take into account the change in the cost of the technology as it becomes adopted over time, Bigornia said. It also compares the impact of applying it to different collections of products, from the pallet to the item.

Accenture is releasing a cross-industry white paper next month, but a CPG manufacturer paper, and possibly a retail paper, will come in late fall, after they have been seen by sponsors of the Auto-ID Center, said Jeff Smith, managing partner of innovation and technology research for Accenture's consumer goods and services practice. Smith, who was involved in the ECR (Efficient Consumer Response) initiative in the 1990s, said that the Auto-ID technology "could be a bigger deal than ECR."

Smith said the Accenture papers will focus on demand planning, especially dealing with uncertainty in the supply chain. "RFID dramatically increases information accuracy and certainty," he said. Future retail white papers will address assortment optimization and in-store execution, while manufacturer papers will look at distribution/transportation and in-plant execution.

One of the major issues yet to be addressed by the technology community is that of network overload, Smith noted. "There will be an exponential increase in the number of physical transactions loaded onto the Web network," he said. "But do we have adequate processes, storage and pipeline speed?" Fobes noted that there is a problem of "data running into each other." The Auto-ID Center has addressed that concern with software called Savant (see story, Page 20).

At least one member of the technology community agrees with Smith. That's Rick Schultz, vice president, industry marketing, for data warehousing provider Teradata, Duluth, Ga., a division of NCR. "It's really important for us to get a view of how fast this market will emerge," he said. While the collection of market-basket point-of-sale data represented a tenfold leap in the amount of data that retailers collected, he said RFID data would represent another tenfold increase.

WHAT IS AN EPC?

The building block of Auto-ID technology is the Electronic Product Code, or EPC.

Like the bar code, the EPC consists of information, but instead of it being in the form of readable lines and spaces, it's in the form of digital bits (zeroes and ones) encoded on a microchip. The chip contains a total of 96 bits of information. Also like the bar code, the EPC identifies a manufacturer, product, version and serial number, but the EPC uses an extra set of digits to identify individual items -- a single can of Coke, for example. Ninety-six bits is reported to be enough to identify literally trillions of individual items.

The EPC chip is part of what is called the "smart tag" that will attach to a product; the tag also contains a tiny antenna, which can pick up a radio wave from a tag reader and transmit back key information lodged in the chip. The reader passes the information to a local computer.

This is where the Auto-ID system gets really interesting, going well beyond current RFID systems. The local computer transmits the EPC data to the Internet, where much more information about the product is available, helping to keep the size and cost of the tags down. That information can then be retrieved from cyberspace to provide whatever anyone needs to know about that product.

For this to happen, the Auto-ID Center created a few more systems. One is the Object Naming Service (ONS), which, like the Internet's Domain Name System, tells the local computer where to find information about any object that carries an EPC code, pinpointing a Web or server address (URL). Another is Product Markup Language (PML), which is the language for describing physical objects on the Internet, similar to HyperText Markup Language (HTML).

More recently, the Auto-ID Center created a software technology called Savant to prevent overloading of corporate and public networks. Savant uses distributed computers across stores, headquarters and warehouses rather than one central computer to manage the flow of information.

RFID IN RETAIL TODAY

The Auto-ID Center is hardly the first organization to use RFID (radio frequency identification) technology. Indeed, in retail, a number of RFID implementations, separate from the work of the Auto-ID Center, are taking place.

One of the more well-known RFID applications is the Exxon Mobil SpeedPass system, by which more than 5.5 million consumers can pay for gas at the pump and purchase items in the convenience outlet by waving a key "fob" attachment over a reader, which processes the transaction and charges it to the shopper's credit card. That application is going to be tested this fall at several stores in the Boston area by Stop & Shop Supermarket Co., Quincy, Mass., which will also allow shoppers to pay via their debit cards.

Stop & Shop will issue its own key fob devices, but existing Exxon Mobil devices will also be accommodated. New England has the highest density of existing Speedpass users in the U.S., said Curt Avallone, vice president of marketing, Stop & Shop. The devices contain an RFID tag that transmits an identification and security code to the reader. The technology is made by Texas Instruments, Dallas. Bill Allen, e-marketing manager, Texas Instruments, said that the Speedpass devices afford the consumer greater security than a conventional credit card, on which name and credit card information is visible.

Stop & Shop loyalty customers will also earn discounts automatically as they use the device to pay for purchases at the checkout. Transactions will be processed through the Exxon Mobil Speedpass system but loyalty card information stays with Stop & Shop.

Convenience is the motivation behind the test, said Avallone. In addition to speeding up checkout, women shoppers will be able to shop without their pocketbooks, which often "anchor them to the shopping cart," he noted.

Stop & Shop's arrangement with Exxon Mobil is that the Speedpass system is exclusive to Ahold USA, Stop & Shop's parent, and competing stores can't use the technology, said Avallone. McDonald's is offering the Speedpass service in Chicago.

RFID tags from Intermec, Seattle, another maker of RFID technology, have been employed by Movie Gallery, Dothan, Ala., a video rental chain, in a one-store test. According to Kim Warne, manager RFID market development, ADT, Boca Raton, Fla., videocassettes in the test store have been equipped with Intermec tags and electronic article surveillance tags from ADT. The system allows associates to do monthly physical inventory counts in 45 minutes rather than eight hours, she said. In addition, a reader in the return box automatically reads returned videos and registers them into the store's inventory.

RFID tags from Checkpoint Systems, Thorofare, N.J., have been installed in libraries across the U.S. for self-checkout of books, said Dave Shoemaker,group vice president. Checkpoint has also developed a low-cost, chipless RFID tag that it is ready to be implemented in inventory control applications, he said.