Defense Dept. orders its suppliers to use RFID tags by 2005

Computerworld - The U.S. Department of Defense will require all of its suppliers to use passive radio frequency identification tags (RFID) on all cases and pallets by January 2005, a mandate whose impact will likely dwarf a similar policy that Wal-Mart Stores Inc. imposed on its top 100 suppliers in June (see story).
Analysts said the Defense Department and Wal-Mart projects would impose "massive" infrastructure costs on supply chains over the next two years, with little return for suppliers.
The new policy will cover practically everything purchased by the U.S. military -- from beans to bullets and from toothpaste to tank parts -- or roughly 45 million line items, according to Alan Estevez, assistant deputy undersecretary for supply chain integration.
Estevez couldn't estimate the number of suppliers affected by the policy document, signed last week by Michael Wynne, the acting undersecretary of Defense for logistics. But the Defense Logistics Agency -- which bought an estimated $24 billion worth of goods last year -- has 23,642 suppliers, according to DLA spokeswoman Dawn Dearden.
Estevez said he believes the Pentagon's policy mandate will help jump-start the RFID industry, which had already gotten a boost from the Wal-Mart decision this summer. He also said that while the 18-month timetable is ambitious, the department believes it's doable. It plans to use the Electronic Product Code (EPC) that Wal-Mart will deploy, Estevez said.
EPC is under development by the Uniform Code Council, a standards body, and EPCglobal, a new organization that the UCC will formally launch in November.
The department wants the "lowest possible price" for the tags its suppliers will use, Estevez said. Wal-Mart has a goal of 5 cents per tag, and Enu Waktola, a Texas Instruments Inc. marketing manager, said the economies of scale the Defense Department brings to the RFID market will drive down prices.
Besides requiring suppliers to use passive RFID tags on cases and pallets, the department has also instituted a formal policy to use active RFID tags to track all of the 20- and 40-foot shipping containers it uses, Estevez said. Savi Technology Inc. is already supplying active RFID tags and container tracking systems to the department under a series of contracts valued at $280 million. The latest of the contracts was announced in February.
Savi currently tracks 270,000 cargo containers transporting military supplies through 400 locations in 40 countries.
Passive RFID systems use low-powered radio transmitters to "read" information on a data chip equipped with an embedded antenna within a range of 10 feet. Active tags have built-in minitransmitters and can be read within a range of 300 to 400 feet. The data tags in each system store much more information -- 128 bytes -- than bar codes, which can store only 1.1 bytes. RFID systems can read cases stacked underneath one another on a pallet, making it easier to conduct an inventory than with a bar code system, which require scanners to be in the line of sight of the bar code.
Wynne, in his policy memo, said the Defense Department plans to use RFID tags to "improve our business functions and facilitate all aspects of the DoD supply chain." The agency also envisions using RFID tags "to improve data quality management, asset visibility and maintenance of materiel," he said.
Jim Cotterman, a logistics analyst at the Logistics Management Institute, a nonprofit consulting organization in McLean, Va., that works closely with the Defense Department, said portable RFID readers installed in a combat zone could provide a commander with "much better visibility" into supplies stacked in a forward depot. That would make it easier to locate a needed item quickly.
Kara Romanow, an analyst at AMR Research Inc. in Boston, said the Defense Department and Wal-Mart deadlines are highly impractical. RFID "is not going to happen" by 2005, she said, citing impediments on both the hardware and software sides. RFID chips today have a 20% failure rate and can't stand the kind of environmental extremes the Defense Department faces. EPC is also still in its early stages of development, Romanow said.
Mike Liard, an analyst at Venture Development Corp. in Natick, Mass., said suppliers will have to make massive investments in infrastructure to support the coming mandates, with little return "aside from meeting the mandate." Hardware costs for RFID readers and networks in just one warehouse could run as high as $100,000, he said, adding that suppliers would also have to integrate RFID into their existing information systems. He couldn't estimate how much that would cost.
Vinnie Luciano, marketing vice president for mobile computing at Symbol Technologies Inc. in Holtsville, N.Y., said the Defense Department would have to invest "somewhere between tens of millions and hundreds of millions" in RFID hardware and networks to support the new policy.


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