The Surprise Driver Behind Today's RFID Projects

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Three years ago, amid the gold-rush mentality spawned by RFID mandates from the U.S. Department of Defense (DoD) and retail behemoths Wal-Mart and Target, Miles Technologies--like many of its peers and competitors--took action.

After receiving training and certification from RFID vendors, including Alien Technologies, Intermec Technologies and Zebra Technologies, Chicago-based Miles had, by late 2004, scored deals to implement RFID systems for six of Wal-Mart's top 100 suppliers. The systems integrator also invested $500,000 to develop its own RFID software to complement hardware it was selling and to create an education center to train companies on RFID implementations. About 15 miles from Chicago's O'Hare International Airport, Miles bought warehouse space nestled in an active factory, where the company could demonstrate RFID pallet-and-case tagging systems in an environment with realistic interference challenges. The facility, dubbed the RFID Benchmark Lab, includes a 70-by-40-foot training and testing area with 28-foot ceilings, as well as several meeting rooms for delivering seminars on RFID technology to potential clients. With the financial support of several RFID vendors, Miles outfitted the center with a state-of-the-art conveyer system and various IT components required in a real-world RFID setting.

Now, three years later, Miles is among those RFID technology providers still standing, albeit watching the RFID market underdeliver on expectations that arose from the DoD and retail mandates. Many of Wal-Mart's suppliers, for example, are still not in compliance, and many of the consumer-goods companies that have complied have not achieved payback on their RFID implementations--a blow that consumer packaged goods (CPG) companies with thin margins in a highly competitive market can ill afford.

The RFID-related part of Miles' business did grow from $250,000 in 2005 to $1 million in 2006. But the bulk of those sales weren't generated from customers implementing RFID systems to comply with retail or DoD mandates. In fact, Miles estimates that some 70 percent of its projects now are for closed-loop internal systems, instead of open-loop systems, which involve external partners in the supply chain. This is a complete turnaround for Miles, which just two years ago generated up to 95 percent of its business from mandate-driven RFID activity.

"We did extremely well with RFID, but much to our surprise, not in compliance but in process improvement," says Miles president Tom Beusch, from the company's RFID Benchmark Lab in Vernon Hills, Ill. "We did very well with our custom software and doing process improvement and the services that go along with that."

Although many in the RFID market weren't as fortunate as Beusch's company, the shift in customer priority that the VAR witnessed is a trend sweeping the industry.

A recent survey of 275 manufacturers of varying size and across multiple vertical industries found that 41 percent of their RFID implementations were driven by process improvements, compared to 34 percent fueled by mandates and 25 percent driven by both, according to ChainLink Research.

"There was a big shift in 2006 that we saw around midyear that we expect to carry forward in 2007," agrees Joe White, vice president of Motorola's Symbol RFID division.

"While we may not be accelerating the tagging process around mandates as fast as everyone had predicted, it created awareness in companies where they looked through their organization and thought, 'If we're doing RFID for mandates, where else can we benefit?'" White says. "They'd identify opportunities outside of the supply-chain or mandate-driven efforts."

Symbol, for one, in the past year has also focused on more profitable areas outside of retail compliance, such as implementing RFID systems in the airline industry for baggage handling.

"Hong Kong International Airport thought the biggest benefit would be for tracking lost bags, but they got an increase in the number of bags they can handle with their existing infrastructure," White says. "And they don't have to build or expand as much as they would have to with bar-coding."

That's not to say RFID is completely replacing bar-coding technology. In fact, Miles is in the process of setting up a track at the RFID Benchmark Lab that will mix RFID and barcoding technology to help illustrate which works best for specific customer applications.

"There's a lack of understanding of what RFID can do and what it can't," says Miles' Beusch. "Our seminars and lab environment have helped people understand what it can do [and] how it can benefit them."

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