RFID - next generation inventory solution

Companies heavily dependent on fast and reliable transportation are actively looking into mobile and wireless technologies that make it easier and less time consuming to track and monitor sealed container shipments worldwide. One of the technologies that show a lot of promise is radio frequency identification, or RFID, and the use of tags that are equipped with such technology. Wal-Mart Stores has canceled testing for an experimental wireless inventory control system, ending one of the first and most closely watched efforts to bring controversial radio frequency identification technology to store shelves in the United States. Radio frequency identification (RFID) technology uses microchips to wirelessly transmit product serial numbers to a scanner without the need for human intervention. The technology is seen as an eventual successor to bar-code inventory tracking systems, promising to cut distribution costs for manufacturers and improve retailing margins. But the technology has drawn barbs from consumer privacy groups that worry about potential abuses if product-tracking tags are allowed to follow people from stores into their homes. Wal-Mart’s proposed smart-shelf system was designed to pick up data transmitted from microchips embedded in Gillette product packaging, alerting store managers via computer when stock is running low on the shelf or when items may have been stolen–two informative and powerful measurements in the retail business. Those ambitious plans now are likely to take a backseat to proposals to upgrade warehouse operations with RFID technology, which will require fewer chips and less computational power. Wal-Mart, the world’s largest retail chain with more than 4,700 stores around the globe, said that it is urging its top 100 suppliers to attach RFID chips to cases and pallets of products that they ship to Wal-Mart warehouses. Gillette and Wal-Mart had lauded the use of RFID systems to track merchandise in stores. Both said they were eager to explore the technology’s potential to boost the profits of retailers and manufacturers by ensuring that products are always available to consumers and by deterring theft.

Instant eye on inventory: Retailers are ever watchful for ways of improving the balance between inventory supply and consumer demand. They want to make sure there are enough products on the shelves to meet demand but not so much that they are sitting in a warehouse taking up costly inventory space. The use of RFID technology is viewed as one of the more promising tools to improve visibility of inventory almost instantly. But companies have only dipped their toes into the water, examining installation behind the scenes in warehouse settings. The smart-shelf trial by blue-chip company Wal-Mart was viewed as a potentially aggressive endorsement of an in-store application because of the company’s ability to influence its suppliers and push the adoption of new technologies–something it helped to do with bar-code scanning technology in the 1980s. The unexpected cancellation of the test is letting some of the steam out of the market, but that may be a good thing, according to one analyst. “The RFID industry has been floundering in a sea of science projects, which is what these trials have been to date,” said Jeff Woods, an analyst with research firm Gartner. “This is one of the most over hyped technologies out there, and this can be viewed as a precursor to the bubble bursting for RFID.” Soon after Wal-Mart first discussed its smart-shelf trial, privacy advocates began to raise concerns about the technology. The main questions: Would retailers and manufacturers be able to monitor products after consumers purchased them? Could the technology be misused by hackers and criminals or exploited for government surveillance? In answer, several RFID chip manufacturers pledged to incorporate a “kill switch” into their chips in a move to relieve consumer fears of the technology. The kill switch would let retailers and consumers disable the chips at the checkout counter.

Not-so-cheap chip: Economics ay have played a role in Wal-Mart’s decision to shelve its in-store RFID test. RFID chips are still too expensive for wide-scale use with consumer merchandise. While today’s price of around 10 cents a chip is cheap enough to fuel initial trials, the cost of the chips have to fall to a fraction of a penny if they are to become ubiquitous in stores. And that will take about 10 to 15 years, he added. Privacy concerns, though they’ve been overblown, have become significant enough to be a factor in the development of the technology and market and push the technology farther. Another issue for companies looking to test RFID technology is the strain on their inventory networks. For a company Wal-Mart’s size, it could have more than a billion products worth of data being collected, stored and sent through its inventory network, which means an extremely sophisticated system, would have to be in place to properly process the data.

The Network Effect: The “network effect” is a term used by technologists to describe the way some devices grow more useful as more people use them. The classic example is the telephone. More recently, e-mail has followed the same trajectory in going from a device used primarily by university researchers in the 1970s to ubiquitous public use in the 1990s. In contrast to the situation for Retail RFID, recent press reports about ship-container tracking have all been positive. Despite the heavy reliance of proprietary technology in tracking shipping containers, this market is growing as clients eagerly adopt the technology. Retail RFID, on the other hand, has adopted an open-standards approach to spurring the market; but despite this growth is slow and imposed primarily by big-box retail mandates. The root cause is the network effect. Due to the incomplete infrastructure of EPC RFID tools, the retail RFID market is currently not big enough to drive significant value-add to all participants in the supply chain. Companies are right to moderate their investments in this area while carefully choosing pilot programs to prepare themselves for the future. RFIDs in particular are being adopted widely by retail majors. “If somebody steals goods without paying, it is the public who ends up paying for it. We identify compulsive shoplifters and often catch them three or more times in the same month. We try not to involve the police especially when teenagers are involved. This is where RFIDs are useful in protection of goods,” says Biyani, Director, Pantaloon. Dharmesh Lamba, Country Head, Checkpoint echoes the sentiments. He points out that India’s organized retail is only 3 percent while 97 percent is unorganized. “India is the second largest growing economy in retail, after China. Around 300 plus shopping malls are coming up in 2006 alone. New products launched globally are now launched simultaneously in India as well,” says Lamba. In this context it is interesting to see that players like Checkpoint are entering the Indian market with their RFID solutions. John Davies, President, Global Apparel, Checkpoint plans to manufacture RFIDs and CCTV solutions in India. “As the retail segment in India keeps growing exponentially, RFID and other retail security products will play a more prominent role to control and combat retail shrinkage,” says Davies. However, RFID has its own share of defects. Some RFID tags cannot be detected by the antennas if they are shielded by the hand or the body. A solution suggested is that the RFID label should be integrated in the package or the product itself so the exact location of the RFID tag is not known. Another issue is threat to privacy. RFID can be used to trace customer behavior or find customer specific information. The tags can be read even if they are kept in the cars or homes of the customer. FID is responsible for transforming the retail scenario in India from traditional to modern. The concept of shopping malls is gradually getting accepted not only in large metros but also in small townships. Consumers get a prominent display and open access to products, while RFID protects the retailer by providing product identification and security to prevent retail shrinkage.