It may be "the oldest new technology," in the words of IDC analyst Christopher Boone, but the combination of RFID (radio frequency identification) tags with electronic product codes could change the way manufacturers and retailers manage their supply chains, according to analysts, vendors, and attendees at IDC's RFID Update conference in Boston on Monday.
For years RFID technology has been used in access cards and transponders for automated highway toll collection, Boone said. What is new about RFID technology, and what is attracting the interest of supply managers and privacy advocates, is the ability to track products across the supply chain more efficiently than the venerable bar code.
RFID technology will allow supply managers to track products without a direct line of sight to a particular product, saving labor and equipment costs, said Lyle Ginsburg, managing partner for technology innovation with Accenture Ltd. A chip and an antenna are integrated into a tag that is placed onto a shipping pallet or individual item. A separate device called a reader senses the chip and records identifying data as the products move through a gateway or checkpoint.
Right now, the retail industry is eyeing a pilot project launched by Wal-Mart Stores Inc. to require merchandise bound for one of its three Texas distribution centers in the Dallas-Fort Worth area to carry an RFID tag with an electronic product code (EPC). Suppliers need only to track shipments of pallets or cases of merchandise to meet Wal-Mart's 2005 requirements, Boone said.
The real growth in the RFID market won't occur until manufacturers are comfortable with tracking individual items, around 2008 by current IDC predictions, Boone said.
German supermarket company Metro AG is testing item-level RFID technology at its "Future Store" in Rheinberg, Germany, but most companies aren't even close to deploying RFID on individual items. For this to happen on a wider scale, the cost of an RFID tag will need to drop to about US$0.05, from about $0.50 today, Boone said.
Cost is a major hurdle for companies considering RFID/EPC adoption today, Ginsburg said. Many of the industries that would benefit from this technology are high-volume businesses that operate on very low margins, and even $0.05 a tag can be a tough sell to chief financial officers at low-margin companies, he said.
Michelin North America Inc. started to investigate RFID technology after rival tire company Bridgestone Corp. was forced to recall millions of faulty tires in August of 2000, said Pat King, global electronics strategist for Michelin. It has developed a method of placing an RFID tag on a tire that can withstand strenuous manufacturing and distribution processes, but no one has requested the RFID tires yet because of the extra cost, he said.