ITEM-LEVEL TEST OF EPC SET TO START

Michael Garry / Additional reporting by Christine Blank

MIAMI -- Phase three of a retail field test of the MIT-developed electronic product code is set to begin, according to an executive at Procter & Gamble, a participant in the test.

Speaking at the Logicon 2003 logistics and supply chain management conference, C. Larry Kellam, director, supply network innovation, for Cincinnati-based P&G, said the field test would begin during "the next 30 days" at a Wal-Mart store in Broken Arrow, Okla., near Tulsa, where the first two phases of the test took place at a Wal-Mart and Sam's club. Logicon 2003 was held March 11 to 14 at the JW Marriott Hotel here.

Wal-Mart did not respond to requests for comment.

Whereas the first two phases of the test focused on applying RFID (radio frequency identification)-based EPC tags to pallets and cases, respectively, the third and final phase would address item-level applications of the technology, said Kellam. Other manufacturer participants in the new field test include Unilever, Coca-Cola, Gillette, Kimberly Clark and Johnson & Johnson.

Kellam said that in phase three, EPC tags, which contain a 96-bit microchip with product ID information and an antenna, will be applied to such P&G items as Pantene shampoo and Cover Girl cosmetics.

Using tag readers, the system will recognize when items are taken off "smart shelves" at stores, triggering a replenishment signal up the supply chain to the manufacturer, Kellam explained. The system "models movement off the shelf," he said, helping address product availability and prevent out-of-stocks.

EPC technology, developed by the Auto-ID Center at MIT, Cambridge, Mass., uses tags, readers and Web-based servers to identify, track and develop a historical record of every item that enters the supply chain. Observers say it could one day replace the bar code as the primary identifier of consumer goods.

While tests to date have been confined to Auto-ID sponsors, a symposium in September at Chicago's McCormick Place will unveil the technology to the open market. A series of case studies on the business benefits of the technology are available at the Auto-ID Center's Web site, www.autoidcenter.org/howtoadopt_business.asp.

Kellam predicted that EPC tags priced at five cents each will have "limited availability" late in 2003. He said tags would need to drop to five cents to meet P&G's requirements for pallets and "high-value" items, and would need to cost a penny to be applied to less expensive items.

During a panel discussion this month at the National Association of Chain Drug Store's Distribution & Logistics Conference in Orlando, Fla., Simon Ellis, supply chain futurist with Unilever, said readers now run about $1,000 each, but are headed toward $500, and tags remain about 20 cents each. Gillette, which announced it would purchase 500 million tags this year, said its price per tag was at 10 cents or less.

In December, P&G hosted an EPC Forum that brought retailers and manufacturers together to discuss potential applications, which mostly centered on supply chain areas like inventory management, warehouse management, out-of-stocks and anti-theft, Kellam said. "The EPC is going to happen, and it will revolutionize the supply chain as we know it," he said. "We expect retailers to drive it with initial applications as early as 2004."

At the NACDS conference, Chris Desrosiers, director of retail customer development at Gillette, agreed that retailers will drive the technology, though it has been initially tested by manufacturers. Desrosiers also pointed out that some chains, such as Wal-Mart and Target, have dedicated staff working on RFID technology, which is helping fuel collaboration with suppliers. Ellis noted that many of the benefits of the technology "accrue to the retailer."

Gillette announced in January plans to test EPC technology in stores and packaging facilities this year. "Once we get our distribution center pilot up and running efficiently, our goal is to link with retail partners at the DC level," Desrosiers said, adding that Gillette hopes to have results of its supplier/retailer DC test by the end of this year or early next year.

In a pallet test with mixed product at Gillette, an RFID reader evaluated the product mix in "seconds," Desrosiers said. However, a "smart shelf" test, which Gillette conducted with Tesco in the United Kingdom (and soon in the Wal-Mart field test) to reduce theft and improve ordering, hit a few snags because of "real world adjustments" and tying the technology into Tesco's surveillance system, Desrosiers said.

Also at the NACDS conference, Roberta Teran, logistics manager for P&G, said that in tests P&G has so far conducted on EPC technology, "The savings are significantly more than we had predicted." In one P&G case study, Teran said the technology helped to have "the right product in the right place at the right time. There was less swing in demand." Kellam told SN that P&G is aware of the privacy issues raised by EPC technology. "Consumers don't want to be tied to a product, but that's not what the EPC is about," he said, adding that P&G is working on the privacy concerns and would do nothing to "violate consumer trust."

The NACDS panelists addressed the privacy concerns of one audience member. Ellis said neither manufacturers nor retailers will use the technology for tracking which products a particular customer buys. "The tag will have a kill switch in it. Once you leave the store, no one knows what you bought," he said.