Wal-Mart Stores Inc. figured it out. The Department of Defense saw the potential. And now, Microsoft is jumping in, too.
Radio-frequency identification--the emerging technology that involves small, cheap electronic tags, wireless RFID readers, and related infrastructure--promises to revolutionize supply chains and usher in a new era of cost savings, efficiency, and business intelligence. Microsoft last month said it's integrating RFID-tracking technology into its Axapta warehouse-management software as part of a pilot program with Danish snack manufacturer KiMs that involves using RFID to track pallets of its products.
The pilot represents one of the earliest examples of Microsoft's unfolding RFID strategy. Instead of developing RFID applications from scratch and forcing businesses onto entirely new applications, Microsoft is taking no-frills approach by adding support for the technology to its existing business applications.
"It's an approach that's pragmatic," says Satya Nadella, corporate VP for development at Microsoft's Business Solutions group. "It really helps small and midsize businesses realize all the benefits of RFID, with a lower cost of ownership. My goal is not to inundate these companies with more software than they need."
KiMs is serving as a kind of model customer, helping Microsoft figure out what it is that midsize businesses require. Four months ago, the two companies began rolling out new software in KiMs' warehouses, including the Axapta applications, but with a change--the software, typically used with bar-code scanners, supports RFID readers. A few tweaks were made to the application's data model; RFID chips from Phillips and tags from Avery Dennison were applied to pallets; and readers from SAMSys Technologies were installed in the warehouse.
With those changes, KiMs became the proud owner of an RFID-enabled supply chain. So far, the system is being used to track pallets within KiMs' warehouses and to provide data to help the company better analyze and optimize its own manufacturing processes. "Over time we want to be able to extend this tracking capability to KiMs' providers and retailers," Nadella says. Another goal is to help KiMs become compliant with the RFID demands of one of its biggest retailers, Marks and Spencer.
Microsoft plans to introduce RFID capabilities into the commercial releases of its software, promising RFID-enabled versions of Axapta and Navision next year and an updated version of its Retail Management System in 2006. "KiMs was our way to learn a lot about some of the solutions," Nadella says. "We proved that there's nothing stopping any of our platform pieces from being used for RFID."
Why not create an all-new, RFID-centric warehouse application that can more fully exploit the benefits of the new technology? Microsoft's enterprise-resource-planning and supply-chain software is geared for small and medium-sized businesses, which tend to have smaller information-technology budgets. "It doesn't make sense for them to redesign their businesses around RFID yet," Gartner analyst Jeff Woods says. "It will make sense once there are templates for success, once the large companies have figured out how to use RFID and develop new processes."
Wal-Mart and the U.S. Department of Defense have both mandated that their top suppliers adopt RFID according to prescribed timetables. In Microsoft's view, smaller businesses should be able to roll out a simple and easy RFID system to meet such requirements. "It should be no different than what they do today with bar coding," Nadella says. "And when bar coding happened, Microsoft didn't have to create anything special, but we wanted to make sure we supported it. That's the same approach we want to take with RFID."
Yet, for small businesses that may have skipped a generation of technology, Nadella says, it may be possible to use RFID as their very first tracking system. "There's a whole host of warehouses that don't even do bar coding," he says. "RFID may be the first economically viable solution for those folks."
Microsoft isn't the only application vendor getting into RFID. Oracle recently said that it has integrated RFID capabilities into its Oracle Warehouse Management software, and SAP and IBM are among the others with products and strategies.
"I think Microsoft started looking at it in terms of continuing to get penetration of their handset platform and quickly realized, 'Hey, there's this middleware thing,' " says Ian McPherson, an analyst with Wireless Data Research Group. "They realized, we do these things, and we can go in there and capitalize."
But Microsoft's challenge may be to show customers how to move beyond the low-cost tactical approach to RFID to realize some of RFID's strategic potential. "It's simple, it's easy to do," says Gartner's Woods. But, he adds, Microsoft's simple approach isn't "going to impact the profitability all that much."