Radio Frequency Identification (RFID) is in the limelight. Judging by the developments taking place in RFID technology and the interest it has ignited, RFID seems set to change the course of the industry, particularly in the supply chain area. As with any new technology, several issues must be addressed before large-scale adoption is considered. While these issues will be resolved in due time, understand that RFID presents opportunities that can be leveraged today. For an enterprise wishing to capitalize on the opportunities that RFID presents, I recommend that it start using the technology today and, at the same time, work to develop a long-term strategy. Let's look at the what, why, where, and when of RFID.
What RFID is
At a high level, RFID is an e-tagging technology that can be used to provide electronic identity to any object. Electronic information about an object is stored in RFID chips embedded or attached to the object. Using an RFID reader, the electronic identity (code in the form of several bits of data) can be read wirelessly using radio waves. This is where it differs from other e-tagging technologies like barcode scanning, which uses optical recognition. Because it uses radio waves, no line of sight is required and RFID tags embedded inside an object can be sensed. Further, an RFID reader can read multiple RFID tags simultaneously, which is not possible using barcodes. An RFID reader at the gate of a warehouse, for example, can immediately sense all the RFID-tagged objects within a container as soon as the container passes by the gate. RFID tags can either be passive (cheap and work without any battery) or active (costly, yet have an embedded power source). Further, the electronic identification stored in a tag can either be fixed or dynamically updatable.
The range of sensing RFID tags from an RFID reader can vary from a few centimeters to a few meters depending on the frequency of operation and the type of tags. RFID tags are very rugged and come in several form factors. The RFIDs can even be embedded in a piece of paper or in a form that can be permanently tagged to a shirt. In large volumes, RFID tags can be very cheap. By 2005, the cost of passive RFID tags is expected to fall below 5 cents per unit.
Why RFID technology is so critical to an enterprise
The ability to bring otherwise passive objects online can have several benefits to businesses, especially those in the supply chain, retail, and consumer-packaged goods market. RFID technology can be used to effectively integrate the physical assets (inventory, equipment, infrastructure) with the overall IT infrastructure. Besides increasing the accuracy and flexibility of operation, the integration of physical assets to the IT infrastructure can provide a real-time view of demand, enabling a true "sense and respond" enterprise.
The applications of RFID are plenty and run across many industry segments. Examples include fleet management, theft and counterfeiting protection, inventory and asset management, warehouse automation, hazardous material management, packaging, security and access control, advertising and promotion, and smart card payment systems. The ROI for RFID can be seen in terms of increased efficiencies, reduction in losses due to better counting and handling, improved inventory management, theft prevention, enhanced CRM, superior quality control, and reduced stock-outs.
Where the technology is headed
RFID technology adoption can be seen happening in two stages. In the short to medium term, RFID tag costs will not have dropped enough to apply the technology for item-level tagging. According to estimates by Forrester Research, it is only after the year 2007 that RFID costs will have fallen to the 1-cent level, and item tagging will have become economically viable on a large scale. At these price levels, new market opportunities will open, especially in sectors such as apparel, manufacturing, delivery, and pharmaceuticals. In the meantime, item-level tagging may be used in relatively high-cost items. RFIDs are currently available from around 28 cents (passive) to over $20 for rugged, high-performance tags. At that price level, you can expect that RFID tagging in the short to medium term will be used in container, case, or pallet applications.
Initial RFID trials have raised several technological challenges that must be addressed for larger adoption. In the next few years, RFID technology will evolve toward addressing issues, such as tag costs, large-scale production, accuracy of sensing, improved read-write performance, reader costs, and interoperability. Privacy is also an issue that has received media attention. Recently, publicity has surrounded potential privacy breaches because of the RFID tags embedded in objects that consumers wear or use. In early July this year, Wal-Mart dropped its item-level RFID pilot. The primary reason was complaints from privacy advocates.
One of the major problems with large-scale RFID adoption is the lack of standardization across many fronts, ranging from the different data formats used, to interoperability between RFID readers and tags from different vendors, to interference problems between RFID products from different manufacturers. To overcome such problems, several standardization activities have started. The key standardization bodies that are working on these issues include the American National Standards Institute, the International Organization for Standardization, Global Tag (a joint initiative of EAN International and the Uniform Code Council), and MIT's AIDC. Recently, the Uniform Code Council and MIT's Auto-ID center inked a deal to commercialize the electronic product code (EPC) platform. The EPC platform is very important to large-scale adoption of passive, low-cost RFID. EPC provides a standardized mechanism for assigning an electronic product code (and, optionally, a wealth of other information) to individual items of a particular model or make. The EPC standardization should also enable development of low-cost packaged software necessary for RFID adoption in item-level tagging.
When we may see large-scale RFID adoption
Large-scale adoption of RFID rests on several factors, such as lowering of tag and reader costs, RFID standardization, addressing of RFID privacy concerns, integrated support for RFIDs in all popular enterprise software (ERP, SCM, CRM), and commitment for RFID adoption from leading supply chain vendors and influential marketers like Wal-Mart. Progress is happening, and the point to be emphasized is that RFID pilots and rollouts can begin today. The success will depend on choosing the right application area. In the short to medium term, the focus should be on your supply chain areas. Within the supply chain itself, logistics and warehouse operations may be more suitable candidates in the short term compared to inventory management. Item-level tagging or smart shelf applications, though not suitable today, should start becoming popular within a few years. Forrester estimates indicate that tag costs may reach 5 cents with over a billion chip production capacities by 2004. EPC will also have sufficiently matured by that time. This would make the technology suitable for item-level tagging of several products. After 2007, it will be feasible to apply item-level tagging across all items in a retail store environment.
Cheaper RFID solutions on the horizon
The cost of RFID solutions is much more than the cost of tags and readers. A large part of an RFID solution's cost lies in the software infrastructure and the enterprise application integration. Even in the supply chain market, a key application area of RFID technology currently, the cost of solutions is higher today because most are customized. However, the cost of the RFID solutions is expected to fall in the next couple of years as supply chain vendors begin integrating this technology into their product portfolio.
Puneet Gupta is with SETLabs, Infosys technologies, where he leads the pervasive IT initiative. He specializes in mobile and wireless technologies with a focus on application mobile/wireless technologies for business innovation. He can be reached at firstname.lastname@example.org.