The corporate impact of real-time inventory tracking

Proliferation of RFID technology represents one of the most significant computing challenges (and opportunities) for CIOs over the next three years. You must be aware of the technology and begin thinking about how it will affect your operations.

By Tim Landgrave

What do cows, runners in the Boston Marathon, and designer clothes from United Colors of Benetton have in common? They're all being tracked with a 10-year-old technology called Radio Frequency Identification (RFID) that will dramatically revolutionize supply chain management for corporations over the next three years. With large retail chains such as Wal-Mart requiring major suppliers to support RFID technology by January 2005, many corporations will spend the next 12 to 18 months trying to figure out how to implement systems that allow them to use RFID technology to track their products from manufacturing through major distributors. I'll examine the origins of the RFID boom and discuss the systems implications for which CIOs should begin their planning now.

Radio waves of the future
RFID technology has many uses beyond the simple tracking of animals, people, and merchandise. RFID tags include smart memory and a radio transmitter. RFID receivers collect this information and identify the item based on the information stored in memory on the tag. Unlike bar codes that require the reader to be able to "see" a specific set of bars on the item, RFID readers can collect the information from certain distances, depending on the frequency of the transmitter. Low-frequency RFID transmitters require the reader to be within 1 foot. High-frequency transmitters emit a signal that readers can acquire within 3 feet of the item. And Ultrahigh Frequency (UHF) tags have a range between 10 and 20 feet. Major retailers such as Wal-Mart and Target are in the midst of pilots designed to test the UHF RFID technology as a replacement for their existing bar code systems.

Developing standards
Early adopters of RFID have all used their own proprietary implementations. But for the technology to prosper, it will be necessary for companies to agree on standard implementations of RFID. The Auto-ID Center, a consortium of vendors and customers interested in spurring adoption of RFID, is implementing a standard called the Electronic Product Code (EPC), which will make RFID easier to adopt and support for supply chain applications. Some of its members are already making huge commitments to the technology. For example, Gillette has committed to a 500-million tag purchase for its upcoming pilots and market rollouts, and United Colors of Benetton placed an order for 1.5-million tags for use in item tracking in its retail stores. The EPC technology is designed to replace the bar code as a unique identifier for an item and can carry more information about the item than a bar code.

Future benefits and applications
Consider almost any scenario in your organization where you need to use a bar code to track items that you send or receive, and you'll immediately realize the benefit of RFID tags over standard bar codes. The reduction in labor and simplification of automated tracking systems alone could justify the cost of an RFID implementation. But price is still the biggest barrier to adoption of RFID. With a current price of 50 cents per tag, the cost of tracking anything other than high-ticket, low-volume items is prohibitive. But the three major RFID manufacturers have all set their sights on delivering RFID tags for about 5 cents by mid-2004. At that price, manufacturers will begin slapping RFID tags on every pallet and case that leaves their warehouses. And smart distributors and retailers will take advantage of RFID for new and innovative inventory and supply chain applications.

One retailer is already experimenting with inventory control using RFID tags. By placing RFID readers on its store shelves, the retailer can identify low stock items, analyze traffic and purchase patterns, and identify potential theft of its products. In the near future, RFID readers at the checkout lanes will allow store personnel or the customer to simply move the products near the reader and have an accurate invoice without having to "scan" all of the items individually.

Barriers to adoption
New systems like these will have to be developed to handle the massive amount of new data points that can be collected, stored, and analyzed based on the flow of RFID-tagged items through a system. Over the next two years, developers will have to design new warehouse and inventory management systems to take advantage of the real-time nature of RFID tag information. And management will have to design, adopt, and implement policies that protect the privacy of individuals who purchase or consume their products. Matching the RFID tag information to individual identification mechanisms like charge cards and frequent buyer cards both maximizes the marketing opportunities for companies and creates a potential privacy policy nightmare. Nonetheless, you should consider doing your own RFID pilot in the next 18 months so that you're prepared when the adoption tidal wave hits in late 2004 or early 2005.

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