RFID bandwagon rolls on

Aug. 1, 2004
RFID bandwagon rolls on The RFID bandwagon is picking up speed now that other major retailing chains are echoing Wal-Mart Stores Inc.'s (www.walmart.com)

RFID bandwagon
rolls on

The RFID bandwagon is picking up speed now that other major retailing chains are echoing Wal-Mart Stores Inc.'s (www.walmart.com) demand to its suppliers that they put RFID tags on shipping cases in an effort to improve shipping logistics and inventory control. But vendors are quickly finding out — and Wal-Mart is beginning to acknowledge — that radio frequency identification (RFID) tags are generating a good bit of “static.”

The limited functionality and expense of the passive Class 0 and Class 1 RFID tags (they use different protocols and frequencies) and readers that are available right now explain these emerging reservations. There is almost no possibility — because of data and network limitations — for the shipper to get any kind of return on investment on the tags. And once implemented, the tags and readers may be quickly outmoded given the lightning speed with which technology is moving.

Simon Langford, Wal-Mart's director of global RFID, says the Generation2 tags-of-the-future will use a higher UHF radio frequency and, perhaps more importantly, be acceptable internationally, which the current tags are not.

One executive of a fruit packing company, which sells into both the food service/institutional market and to retailers, says he's been told that even these low-function Class 0 and 1 tags — sometimes referred to as “slap & ship” tags — would cost $.20-$.50/case depending on volume. His company produces 20 million packages a year, which are shipped on half a million pallets. He says that he'll probably use S&S tags on cases for all customers, not just his buyers who are demanding them.

That per-tag price will go down. Langford notes that one tag supplier is writing into its contract with buyers that the price of the tags would be below $.05 per tag by the fourth quarter of 2006.

But the price is going to have to come down substantially below that for product manufacturers such as Hewlett-Packard Co. (www.hp.com) to realize the ultimate benefit of RFID technology, which will come from tagging individual packages in order to reap the added benefit of theft and counterfeiting prevention.

“Everyone is looking for the next level — item tagging,” admits Greg Edds, product manager for global supply chain operations at high-tech manufacturer HP. All HP business units are implementing RFID tagging at some manufacturing locations.

“That will drive the magnitude of implementation,” Edds explains. That will be particularly true for ink cartridges, he explains, which often disappear from store shelves in the pockets of thieves.

But Langford predicts that item level tagging is 10-15 years away. “For chewing gum and bottled water to be tagged, the cost of the tag has to be less than $.01 per tag,” he says. “We're not going to be able to get there using silicon. We will probably have to put printed circuits on tags.” But he admits that Wal-Mart might “cherry pick” some “high-value, high-theft” products for near-term package-level tagging.

Meanwhile, Wal-Mart is more concerned with helping its suppliers figure out how to get Class 0 or Class 1 tags to work on product cases. The moisture in products, permeating outwards through the package to the case, has caused problems for some RFID tag antennas (see sidebar, “Message in a bottle”).

But Langford answers that new “agile” readers have enhanced sensitivity. Six months ago, for example, Wal-Mart was able to read only 30% of the tags on cases of consumer soap because of the moisture in the product. “Agile readers now allow us to read 100% of the tags,” he explains. “That was a big wow.”

Sometimes the location of the tag is the problem. Mike O'Shea, director of corporate auto ID/RFID strategy at personal paper products manufacturer Kimberly-Clark Corp. (www.kimberly-clark.com), states, “The best place to put a tag might not be on the outside of a case. The interior wall of the case or inside the flap might be better.”

Kimberly-Clark found that it had trouble reading tags on the outside of cases when those cases were stacked on pallets in such a way that the case butted up against the metal of a lift truck. Notes O'Shea, “There are all sorts of sources of electromagnetic energy which can limit readability of tags. We even found the steel rebar in the foundation of our floor was causing a problem.”

Langford makes it clear why Wal-Mart and other retailers such as Target, Albertsons, Metro and Tesco are demanding RFID tagging from their vendors. “The typical retailer loses 4% of sales because of out-of-stock product,” Langford says. “Imagine what 1%-2% could do to your profit.” LT

Stephen Barlas is a freelance writer based in Washington, D.C.

August, 2004

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