Get Ready For RFID

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Granted, you'll have to travel to Rheinberg, Germany--home of supermodel Claudia Schiffer--to experience this next wave in food shopping. To date, some 2,500 customers shop there on a daily basis and are quickly becoming accustomed to the novelties and glitches that are a part of their unique shopping experience. They owe this to radio frequency identification (RFID) technology.

Arguably one of the hottest new technologies of the past year, RFID is one day expected to replace bar codes that are used to scan items. Market researcher IDC said spending on RFID was approximately $92 million last year, a figure that will increase more than tenfold to $1.3 billion by 2008. But it will be more than a decade before the technology and economics make RFID ubiquitous. In the meantime, retailers like the Metro Group and Wal-Mart are among the pioneers testing RFID's ability to make inventory management more efficient by tracking cases and pallets in the supply chain through a Web-based portal. And those solution providers working with the Metro Group and Wal-Mart are getting an early foothold in helping customers test the technology.

"It's difficult to imagine that VARs or businesses that are in any way, shape or form associated with the consumer packaged-goods industry won't be impacted with the degree to which RFID is now being embraced," says Cliff Horwitz, chairman and CEO of SAMSys Technologies, a Richmond Hill, Ontario-based provider of RFID hardware.

Rolling It Out
While RFID technology is still in the test phase, retailers have ambitious plans to roll it out. As announced last year, officials at Wal-Mart are still targeting to have their top 100 suppliers capable of supporting RFID at the supply-chain level by 2006. And thanks to a successful pilot with IBM Global Services and its partners that began last year at the Future Store, the Metro Group has decided to roll out RFID to 250 additional retail locations and 10 warehouses.

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Despite those plans, the Future Store project is far from perfect. For example, not all containers with RFID tags are performing optimally; in some cases, they're achieving read-rates of only 80 percent. According to Jim Reynolds, national practice leader for mobile and wireless for IBM Global Services' integrated technology services, read-rates at the Metro Group are 100 percent for dry goods, such as paper towels. But if an item contains metals or liquids, the technology is still imperfect because they block RF signals, he explains.

While IBM Global Services has been the Metro Group's key systems-integration partner, SAP is providing its recently unveiled Java-based Auto-ID Infrastructure platform, and Microsoft is providing the BizTalk platform, among other wares. Intel is also a partner in the effort.

"We are standing at the very beginning of the technological modernization of retailing," said Hans-Joachim Korber, the Metro Group's chairman and CEO, speaking at the National Retail Federation show in New York in January.

Wal-Mart says it, too, has been happy with the progress made in its RFID pilots so far.

"In the past nine months since we set our milestones, we have seen some tremendous innovation," said Simon Langford, Wal-Mart's manager of RFID strategy, in a panel session at the retail show. "Things are looking as though they are deployable and will meet our business needs."

Among those business needs are automated inventory counting, faster receiving and shipping, and improved inspection processes at distribution centers. At the store level, the retail giant is looking for real-time and accurate inventory control, improved stock, theft prevention and automated checkout.

While Wal-Mart has mandated its suppliers be RFID-ready by next year, the company is also pushing them to build their own business cases to do so, hoping to make it a sustainable effort moving forward. So far, large retailers and suppliers of consumer-packaged goods, such as Gillette, Procter and Gamble and Unilever, have RFID pilots in process.

Customer Issues
Goals set by the Metro Group and Wal-Mart, as well as a similar mandate by the Department of Defense, have had a ripple effect on solution providers of all sizes--from the likes of Accenture and Cap Gemini Ernst and Young to ISVs specializing in merchandise management, such as Atlanta-based Manhattan Associates.

"When Wal-Mart came out with its initiative, we had a number of companies that were not customers or prospects contact us just to see if there was something we could do to help them," says Trashant Bhatia, Manhattan Associates' director of product management.

Indeed, you'd be hard-pressed to find a major retailer or wholesaler that isn't in some way evaluating RFID. Gillette and Procter and Gamble are among those that see RFID as a transformative technology to their businesses, though they are treading slowly. For example, Gillette recently put on hold a test it was conducting with Wal-Mart because of concerns raised by privacy advocates, while Procter and Gamble is still developing the business case to move its pilot beyond its own four walls.

Company executives have little question, however, that the ability to know where a case of goods is in the supply chain and to reroute it if necessary can have huge benefits.

"These are things we are not going to know completely about until we actually start doing these eight-wall pilots," says Milan Turk Jr., Procter and Gamble's director of global customer e-business.

Yet, for all the buzz about RFID, this technology is still in the very early stages of adoption. Technical uncertainties abound, among them, compatibility. A handful of RF standards exist, but it's still unclear which will win out. That should crystallize later this year. (Wal-Mart is pushing Class 1, Version 2, a standard yet to be defined.)

Then there's cost. While Wal-Mart is mandating the use of RFID, suppliers and retailers are still at odds over who's going to shoulder the going rate of 50 cents per tag. Even if suppliers take on the burden, they are not promising they can do so without impacting the price of their goods, notes Gartner analyst Jeff Woods. As a result, many suppliers are investing only about $100,000 to $200,000 per warehouse for the bare essentials--RFID tags, readers, printers and drivers that link into warehouse-management systems.

The problem is, many of the suppliers are still looking for business cases to justify major investments in RFID. Wal-Mart's top 100 suppliers have no choice but to start pilots, Woods says. "A lot of suppliers I talk to tell me their business case is keeping Wal-Mart happy," he says.

What's more, most major retailers haven't assigned the level of urgency to the technology as the handful of early adopters, such as the Metro Group and Wal-Mart, have.

"RFID as a next-generation technology is something that is important for us to pay attention to and watch, but it's not immediate," says Patty Morrison, Office Depot's CIO. "It's not something that's going to add immediate value. It's still too expensive, the management of the data is not completely locked down, and there are a lot of challenges with it."

However, optimism that the technology has big potential to reduce costs and provide real improvements in the supply chain, and that technical and business-case challenges will be resolved this year and next, remains.

"The big retailers are effectively pooling the technology with such speed that it is very likely there will be one standard and one low-cost solution," says Bard Jan Vethman, a principal consultant at CGEY.

The obvious question is, how soon? Stay tuned.

RFID Checklist
Here are some of the things you should be thinking about to prepare your business for RFID projects: