RFID Tunes Into Supply Chains

Outlook: Retailers and their suppliers are testing radio frequency identification tags, but production apps and mature software are still years off.

By Carol Sliwa

August 18, 2003 12:00 PM ET

Computerworld - Everyone in the retail industry stopped and took notice when Wal-Mart Stores Inc. declared in June that it will urge its top 100 suppliers to deliver pallets and cases equipped with radio frequency identification (RFID) tags by 2005. Any directive issued by the world's largest retailer has the potential to drive sweeping adoption, and this particular one could spell major changes for supply chain management.

Wal-Mart thinks that the nascent technology, which can automatically identify a container's contents without requiring line-of-sight scanners, can help to reduce the costs associated with tracking inventory.

Given that Wal-Mart moved 2.5 billion cases through its distribution centers during one six-month period last year, it's not hard to imagine the savings that the company might realize by reducing the time and labor associated with inventory tracking.

One of the chief suppliers to the retail industry, Procter & Gamble Co., has another angle. The Cincinnati-based company estimates that 10% to 16% of its products may be out of stock at any moment. Reducing that number by even 10% or 20% could mean a revenue boost of between 1% and 3%, says Larry Kellam, director of business-to-business supply network innovation at the consumer goods maker. With over $40 billion in annual revenue, that would translate to more than $400 million in new revenue.

But neither suppliers nor retailers will realize much benefit until the technology overcomes a series of technical and engineering hurdles. For instance, the tags need to come down in price. To do that, manufacturers need orders for billions of tags, and they need to improve their manufacturing processes to support those volumes.

Tag readers also need to improve in both performance and price. In addition, the software infrastructure to handle RFID tag data must advance past the work-in-progress stage, and standards need to be established to enable different vendors' tags and readers to work together using a wide range of radio frequencies.

"It's one of the most overhyped technologies that we're talking about today," says Jeff Woods, an analyst at Stamford, Conn.-based Gartner Inc. "It's going to require a lot of creative thinking and hard work to get from vision to reality."

Next: RFID Tags Get Cheaper

Glossary

RADIO FREQUENCY IDENTIFICATION: A method of identifying unique items using radio waves. While lasers must see a bar code to read it, radio waves don't require line of sight and can pass through materials such as cardboard and plastic.

TRANSPONDER: A radio transmitter/receiver that's activated when it receives a predetermined signal. RFID tags are sometimes referred to as transponders.

PASSIVE TAG: An RFID tag that doesn't use a battery. The tag draws energy from an electromagnetic field created by the reader.

READER: A device that communicates with the RFID tag and passes digital information to a computer.

Source: Auto-ID Center

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