RFID technology: A roadmap to success
Updated: May 15, 2006
This article was originally published in Retailspeak magazine
To understand the clear gap between Radio Frequency Identification (RFID) aspiration and reality, one has to look at the technology’s development and growth. RFID, which has been in use since World War II, cannot be considered new by any standards. But only in recent years has it received much attention in business circles. In fact, RFID made a dramatic and forceful appearance in retail largely due to the work of the Auto-ID initiative. The technology was also driven forward by Wal-Mart, Tesco, and the US Department of Defense as they issued mandates to their suppliers, requiring all products to be tagged before shipping.
Initially, the media positioned RFID technology as the next technical revolution for the supply chain based on predictions by technical analysts. By mid 2003, the hype had given way to pragmatism and in a report published in June 2004, Gartner predicted that by 2006, RFID would hit the ‘trough of disillusionment’ of their ‘Hype Cycle.’ 1
In the report, some of the factors impeding RFID adoption are identified. These include:
| • | Unit cost of tags and the overall cost of RFID implementation. This is one of the greatest obstacles to RFID adoption in the retail sector. |
| • | Availability and standardization of RFID frequencies. Although there are some frequencies in the low and medium ranges that are commonly allotted for RFID use worldwide, there is no common agreement on the ultra high frequency (UHF) band (860−930 MHz) or microwave frequencies, which are either unavailable or which vary between countries. |
| • | Privacy issues are still making news. With consumer concerns—including the per¬ceived risk of privacy invasion and misuse of data by retailers—of critical importance. |
| • | Physical limitations. For example, radio waves are incapable of traveling easily through metals and liquids. |
The identification of these issues emphasizes that RFID, in its current guise, may not be suitable for every business scenario. On the other hand, there are occasions when the technology can work wonders and help organizations exceed their expected return on investment (ROI). The most important thing is to evaluate the technology for its suitability to specific business processes and operational requirements. This demands that enterprises assess the feasibility of RFID deployments in advance and chalk out a detailed RFID implementation roadmap. During this evaluation, they should involve partners who possess a sound understanding of their business, as well as of real-world RFID implementations.
In other words, RFID is no longer a technical solution to a business problem. Instead, it is a business solution that uses an emerging technology. Some of the business benefits of properly evaluated RFID deployments across the retail supply chain include:
| • | Optimized inventory management, preventing out-of-stocks and reducing excess inventory |
| • | Phenomenal savings on labor costs delivered through reduced manual supply chain and stock management processes |
| • | Real-time visibility of stock and enhanced responsiveness across the supply chain |
| • | Reduction of demand-supply cycles |
| • | Enhanced customer satisfaction |
| • | Reduction in shrinkage, theft, and counterfeit purchases |
Today the benefits of RFID are also being experienced in a variety of other industries besides retail and consumer packaged goods (CPG). These include the automotive, manufacturing, pharmaceutical, livestock, library, government, and military sectors. In 2004, we began to see a welcome change in the kinds of organizations offering RFID solutions. While the market was initially dominated by pure technology players, now there are companies that focus on industry-specific business solutions. These business-focused RFID specialists bring expertise in key industry practices and deliver sound business solutions for many of their large customers.
Critical success factors
Through extensive experience of retail RFID deployments, the following have been identified as critical success factors for RFID implementation:
| • | RFID implementations should be seen as a way to integrate a range of business processes in the long term, and not merely automatic data-gathering technology to replace bar codes. |
| • | Trading partners, including suppliers and customers, must be involved from day one to ensure the success of any RFID deployment. |
| • | Radio frequency site surveys should be conducted in the initial stages of any RFID implementation to study the impact of potential interference from wireless networks, short-range radios, and cordless phones. These can all negatively impact on the performance of RFID systems. |
| • | Potential long-term ROI for the solution should be evaluated at the outset. The expense associated with the initial pilot should be considered part of the research and development budget or innovation cost, rather than as IT spending. |
The impending spread of RFID technology is evident from its growth in the first quarter of 2005. By March, Wal-Mart had implemented RFID in 104 Wal-Mart stores, 36 SAM'S Club stores, and 3 distribution centers. Before the end of the year, Wal-Mart had deployed the technology in a further 600 stores and 12 distribution centers. Despite resistance from privacy activists who fear possible misuse of data, RFID adoption in Europe is not far behind.
German retailer Metro operates a well-established RFID program. This will soon be expanded from its current pallet tagging operations to incorporate carton and case tagging. UK retailer Marks & Spencer has been using RFID in its grocery trays for years and is now conducting trials with garments. The company plans to expand the current item-level tagging trial from 9 to 53 locations by spring 2006.
From a retailing perspective, RFID success at Wal-Mart, Metro, and Tesco has convinced the industry that the technology is capable of helping them track goods through the supply chain more effectively. It could ultimately fulfill every retailer's dream of having the right products in the right stores at the right time. But appropriate adoption of RFID not only contributes immensely to supply side operations. It also changes demand, ultimately leading to improved customer satisfaction.
Next-generation UHF RFID tags could further speed up industry adoption of the technology. With new uses for RFID constantly being discovered, it is finally seen as much more than a bar code replacement. With its increased acceptance across a range of industries, the gap between potential and actual implementation of RFID will be significantly reduced. The key to RFID technology success is the continuing partnership between technology vendors and solutions providers.
