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RFID round-up: Still in the trough

Despite its clear benefits in stock tracking and the success of early, isolated pilot tests in tracking high-value assets, RFID technology is still spinning its wheels as ongoing high costs and unclear return on investment continue to keep once-enthusiastic customers away in droves.

feature It may not have the change-the-world appeal of a major Wal-mart or Coles roll-out, but the introduction of RFID (radio frequency identification) technology by New Zealand kiwifruit processor EastPack has this year claimed the prize as Australasia's first commercial roll out of the technology.

kiwifruit

(Credit: Green sliced kiwi by Rob Owen-Wahl, Royalty free)

Working with supply chain specialist group GS1, the firm — which processes and exports over 12 million trays of fruit from New Zealand growers annually — is using RFID to track every pallet that passes through logistics operations that include 42 cool stores and the industry's largest kiwifruit pack house. Those facilities produce pallets of fruit that are sorted by type, size, grade and harvest date, allowing it to keep up with frequently-changing orders.

To minimise wastage, the oldest kiwifruit must be shipped first — but it had become difficult to tell old from new as constant juggling of pallets quickly split up lots all over the warehousing facilities. For this year's harvest, however, RFID tags on each pallet — paired with a dot-based location system that can locate pallets within 20cm anywhere in the storage facilities — have changed all that.

EastPack now traces each pallet through its facilities, quickly locating batches of a particular quality and age so they can be sent to their destinations quickly and without costly packing errors. Efficiency is sky-rocketing, ancillary costs are on the way down, and EastPack expects the improved efficiency that RFID enables will deliver manifold benefits in the long term.

Pushing, not pulling
Improvements in stock handling efficiency have been the major drawing point for RFID technology, basically a souped-up barcode that can be read from a distance — even inside boxes or other containers — using wireless signals. Pet owners who have microchipped their cats or dogs are already using similar technology, and various pilot projects have looked at the use of RFID tags for tracking everything from locomotives to drink cans and livestock.

Businesses are starting to see where they can fit RFID into their current supply chains, rather than thinking that it's going to take over everything.

GS1's Sue Schmid

Because RFID allows scanning inside of shipping boxes and containers, its potential for use in streamlining logistics operations was considerable enough to convince even Wal-mart, the granddaddy of all retailers, to push its major suppliers towards RFID in 2003. Despite early findings that the technology cut stock-outs by 16 per cent and reduced manual ordering by 10 per cent, just a few years later Wal-mart had fallen far short of its initial targets.

The company's effort, however, has more recently begun showing signs of life again, with RFID now in place at wholesalers accounting for around three quarters of its sales. To encourage RFID investments by recalcitrant suppliers, Wal-Mart subsidiary Sam's Club is now taking a different tack by charging suppliers US$2 per pallet it receives without an RFID tag. Financial incentives, the company clearly believes, will encourage RFID take-up where top-down edicts failed in the past — but long-term results are still up in the air.

Successful RFID trials to date have bred great enthusiasm for the technology. After several years of testing, for example, the Defence Materiel Organisation (DMO) — which regularly shuffles more than $4 billion worth of military assets around the world — began trialling RFID to track pallets of equipment as it moves between various Australian Defence Force deployments. Those trials were so successful that the DMO is now expanding its scope and looking into ways more intelligent sensor tags can be used for other purposes — such as monitoring container humidity and raising the alarm when a crate of munitions is unexpectedly opened.

Looking beyond retail
Poor mass-market understanding of RFID's true target markets hasn't helped the situation any, says Sue Schmid, general manager of standards development with GS1 Australia, the local arm of a global electronic logistics exchange that promotes RFID amongst its many means of data capture.

GS1 manages Australia's participation in the global Electronic Product Code (EPC) standard, which controls methods for numbering products using RFID tags. That the two efforts now coexist under the same roof, speaks volumes for the extent to which RFID has become less of a game changer and just another method for data exchange.

"You can't write RFID off," Schmid says, "but businesses are starting to see where they can fit RFID into their current supply chains, rather than thinking that it's going to take over everything. There are some things you can't tag, and there are some things you can't barcode. [Over the years] some of the challenges of [RFID] have come forward, and the reality is that the two will live in harmony for a long time to come."

One of the biggest obstacles to RFID has been to change popular perception that it is exclusively relevant to the fast-moving consumer goods (FMCG) industry, which has in reality struggled to justify spending 20¢ or more per tag on items that may only be worth a few dollars each.

Those applications which are gaining the most traction are focused on high-value, time or security-sensitive items: tracking donor blood supplies at hospitals and luggage at airports, fighting counterfeiters at this month's Beijing Olympic Games, or using sticky "RFID dust" for monitoring access to secure areas, to tracking prisoners in the ACT.

RFID is even being used to monitor the temperature and humidity of construction concrete being used in the foundation of New York City's new Freedom Tower. This last application will rely on Identec Solutions' iQ32 Temperature Tracking Tags, 20,000 of which will be inserted into poured walls or concrete slabs so construction crew can monitor their hardening over time.

RFID's sparse ecosystem
Such is the challenge facing RFID: it's helping those that need it, but not every industry needs it yet. Despite its clear benefits in stock tracking — and the success of early, isolated pilot tests in tracking high-value assets like livestock and pallets — the technology is still spinning its wheels as ongoing high costs and unclear return on investment (ROI) continue to keep once-enthusiastic customers away in droves.

Gartner's John Davison
(Credit: Gartner)

Such factors have kept RFID languishing in the dreaded "trough of disillusionment", and persistently high tag prices — which at around 20¢ each are still well above the "magic" 5¢ mark — will keep it out of the mainstream for at least five years, Gartner managing vice president John Davison suggests.

"We're getting there, but still a long way from the 5¢ mark where it's going to become relatively pervasive," he explains.

"I think there will still be a period in five to 10 years before the tag gets to the price where it becomes a commodity, and where retailers won't be worrying too much about the hardware cost."

There is little question that a major RFID win in an Australian retailer would be a shot in the arm for the technology — but Coles and Woolworths have yet to commit to anything beyond rudimentary trials of RFID. GS1's Schmid says the organisation is working with numerous Australian companies on RFID projects, but their commercially sensitive nature has kept them hush-hush for now.

Partners, as always, remain essential to the success of any such effort. "RFID works best in a closed loop supply chain," says Davison, "but nowadays very few retailers have suppliers which are only supplying them. The biggest thing [retailers] are looking for is product availability to the end consumer, which should of course uplift sales and, thereby, profitability."

Research bodies are fast at work building RFID business cases: last year, for example, LogicaCMG opened an RFID research facility in Sydney. And the University of Adelaide houses one of a handful of worldwide affiliates of US-based industry body the Auto-ID Center.

But for every positive there is a negative: German researchers recently published (PDF) a way to hack the security of NXP's Mifare Classic RFID chip, widely used in building access control, cashless payment and transport systems.

Although they believe a growing body of business cases will help RFID pull itself up by its bootstraps, RFID's chequered past has forced analysts into widely differing expectations. US analyst firm ABI Research recently forecasted that the market would reach US$9.7 billion by 2013, while Gartner's own figures peg the market at US$1.2 billion this year and just US$3.5 billion in 2012.

That's a wide margin for error, and perhaps better than anything reflects the many factors that are contributing to the uncertainty around RFID's future. Companies wishing to tap into its potential, says Davison, need to remember that as with all technologies, RFID alone won't solve anything.

"RFID," he says, "has to be used like any other technology — in conjunction with [ancillary technologies like task management] to actually solve the business problem. RFID will be as transformational a technology for retailers as electronic point-of-sale was, but it will have to be used in conjunction with new technologies."