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RFID: It's no supply chain saviour - not yet anyway
Challenges for the smart tags outweigh the promise...

By Danny Bradbury

Published: Wednesday 08 September 2004

For retailers, stock control is a challenging task made even harder by the need to extract intelligent information from inventory management systems. So it's no wonder that RFID promised to revolutionise supply chain management of the FMCG market. But as Danny Bradbury discovers, wireless smart tags have some significant hurdles to jump first.

If you thought RFID was going to change the world, think again. According to some vendors, the devices will revolutionise the supply chain, enabling goods to be tracked in real time and inventories to be honed with laser precision. But the underlying architecture needed to support the smart tags has been poorly understood and inadequately implemented. This is why Meta Group announced back in April that half of all RFID pilot projects had been abandoned as failures.

Passive RFID tags, which are the most common kind at present, consist of a tiny memory circuit and antenna that can be printed onto a label. They are designed to hold a single unique ID number, and emerging standards for RFID data have the capacity for more numbers than existing bar-code standards which only track categories of products.

According to Christophe Lessmoellmann, director of business development for the supply chain at SAP, a palette of products passing through a number of distribution centres to its end destination can be tracked using a single ID and tag, unlike existing systems that may use many different labels. "That creates other benefits, such as seamless tracking between companies, the reduction of warehouse theft and reducing the amount of work that must be done for confirming product details," he explains. With RFID, companies won't have to scan each and every bar code using line-of-sight readers.

Some customers see potential in RFID. Tesco has been trying the technology, as has Marks and Spencer, which has been playing with item-level tagging after an initial trial starting last October. Executives have said the small paper tags enable the company to keep an accurate track of its inventory, rather than trying to deduce the amount of specific clothing items in its stores.

Perhaps the most discussed project due to its sheer size is Wal-Mart in the US, which has been trialling RFID in its Texas stores, and which has placed a deadline of next January on all suppliers to use RFID tags within its supply chain.

However, Wal-Mart has already admitted that several suppliers have been unable to meet interim deadlines for RFID deployment, raising questions about the problems associated with the technology.

These exist at two levels. Firstly, physical infrastructure is an issue, according to AMR analyst Kara Romanow. "The reliability of chips is a dirty secret that is finally getting attention. Tags are only functioning at 80 per cent success rates," she says, adding that antennas sometimes separate from their tags, and that even when the tags stay intact, tag readers are not always reliable. She cites the inability to read tags through metal or liquids (think of all those metal clothes racks in retail outlets) and interference from nylon conveyor belts.

Then there is the cost of the tags, which John Love, head of business consulting at supply chain software vendor G-Log, says still runs to up to 25p each. They will come down to single figures, but this won't happen overnight, he argues.

Physical problems and device costs aside, there are other more significant issues with RFID. Integrating the technology into the supply chain involves data management challenges. David Smith, UK leader for RFID at Cap Gemini Ernst & Young, said: "You are getting massive loads of data, and databases will have an issue dealing with it."

Because RFID gives you the chance to store data about individual items and palettes of items, the possibilities are endless. You might store information in your database about when a particular package of beef was packed, which cow it came from, which farm it was from and where it was slaughtered, for example. Such data could be provided in real time across the supply chain as palettes roll into the warehouse or items roll off the shelves.

Modelling this data will be a huge technical challenge on its own, and writing applications to understand and use this item- or even palette-level information is another issue that companies have to deal with.

AMR's Romanow argues: "It's hard to reverse-engineer this into an existing application. Even when the technical capability is there, companies have to learn how to use that data to gain a return on investment." Failure to do this up front could result in a 'slap and ship' deployment that puts the physical infrastructure in place but fails to enhance the business with it.

Some vendors such as SAP and Oracle are beginning to offer RFID technology built into their products, and this will have the advantage of making data handling faster, but it won't solve everyone's problems. Supply chains are heterogeneous, and Romanow points out that when applications have to deal with each other in sync, compatibility problems will arise as individual pieces of software are upgraded.

To solve some of these problems, Matt Ream, senior product manager for RFID systems at Zebra, which produces RFID printing products, suggests middleware as a potential solution. "Data filtering is being introduced at the reader level. Because it's a firehose you have to cope with it somewhere," he says. "It can also be done at the middleware level or have smarts in the database."

Middleware would also solve some of the integration problems but Romanow thinks that RFID middleware will be a short-to mid-term solution, holding the fort until more vendors can better integrate standardised RFID into their own products.

The other issue is privacy. Some worry that RFID may provide vendors with too much information about customers' habits, making it easy for supermarkets to track purchases at an individual product level, for example. If the tags could be scanned beyond their current range of just a few feet, some worry that they could be used to track people's movements.

Privacy is the last of companies' worries, though. Making RFID work is a big enough challenge for most at this point, and until that happens, business challenges such as customer confidence will be on the back burner.