Tracking System Not On Track

October 28, 2005
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GRAND RAPIDS — Standing on one side of a makeshift gateway of flat, plastic pads in an unfinished portion of RFIDentics’ headquarters and manufacturing operation, Pete Metros takes a half dozen steps to the other side of the fenced-in area.

On a nearby computer screen appears a line of data corresponding with the coaster-size RFID tag in his hand. The RFIDentics chairman repeats the process with a small roll of the tags, and dozens of lines blip onto the screen.

“Are you ready for the future?” he asks, rhetorically. “You can walk through the checkout aisle and it’ll see you’ve got baby formula, then it’ll tell you there is a sale on diapers in the other aisle.”

Theoretically, Radio Frequency Identification (RFID) has unlimited potential for retail and supply-chain applications, checked only by the laws of physics governing speed and the conductivity of certain materials. But when and if RFID ever reaches that potential remains to be seen.

Whether as the next-generation of electronic product code, magnetic stripe or dog license, in all but a handful of instances the little microchips of RFID are no closer to revolutionizing the world than they were when the technology first emerged in World War II.

“When this whole technology blossomed two years ago, there were expectations of incredible and universal acceptance on a very rapid basis,” said Ken Ruehrdanz, business development manager for Siemens Dematic in Grand Rapids. “The big news is that the technology is not maturing and there hasn’t been widespread adoption and utilization.”

RFID’s modern history began two years ago with Wal-Mart’s declaration that its top 100 suppliers must participate in an RFID pilot within its Texas region in January 2005. That mandate was quickly followed by initiatives from the Department of Defense, Target, Best Buy and others.

For retailers, RFID offered hope for cost-cutting efficiency and fewer instances of store shelves being empty of a product.

“It’s hard to measure the impact of a ‘stock-out,’” said RFIDentics President Gary Burns. “If a store doesn’t have your Crest, instead of buying something else you might go to another store and never come back. Or if you do buy another brand, you might like it and then never buy Crest again.

“It’s not the loss of that product, it’s the loss of a customer base forever.”

An RFID tag is a small microchip on an adhesive piece of paper with an antenna — made of silver, Mylar or copper — printed onto it. On the chip is embedded the identity of both the product and unit. With a battery or other power source, these tags can be read from great distances, and with the addition of a Global Positioning System and transmitter, from virtually anywhere in the world.

The same technology is used in keyless entry systems for parking lots and automobiles, along with quick-pass credit cards, tollbooths, pet licenses, school buses, garbage cans, dry cleaning and ID badges.

Retailers want the data a “smart shelf” can provide.

Jeff Dixon, former director of Siemens’ RFID initiative, suggested there is more to the smart shelf than stock-outs. For instance, Wal-Mart will be able to track not only when an item is removed from the shelf, but also when a customer puts it back and for how long it was examined. It can see what other brands were picked up at that time, and which one was finally chosen.

“If they change packaging, they can see it moving faster or slower,” Dixon said. “It’s a detailed view of customers’ buying habits.”

For the supply-chain, RFID can decrease warehouse errors and inventory shrinkage. Brent Forden, alliances manager for Provia Software, said the barcode system is riddled with human error.

A warehouse worker might receive an order for 20 cases of diapers, but then scan one case and only load 18, or load 19 cases of diapers and one case of baby powder. Perhaps 10 cases of diapers headed to Grand Rapids are switched with 10 cases of baby powder destined for Detroit.

If the error isn’t caught before it reaches the pallet, it becomes costlier and more inconvenient with each stage of the supply chain.

Provia has been involved in a handful of RFID deployments using its ViaWare Warehouse Management System. With each, the intention is to catch that error immediately at the forklift or dock, without any added labor cost.

A Provia client initially was one of the most vocal proponents of RFID. Gillette Co. began shipping 200 RFID-tagged products to Wal-Mart’s Sanger, Texas, distribution center in March. As Wal-Mart prepares to add 200 more suppliers next month, Gillette has reduced its RFID-tagged products to an undisclosed number, according to Information Week, concentrating on fast-selling products like razors and items that do best in promotions.

On a global scale, suppliers have all taken a step back from RFID.

Siemens isn’t even marketing a full-service RFID product, instead offering a “slap and ship” conveyor system that will apply tags to only those shipments intended for Wal-Mart or another RFID-mandated customer.

In this model, RFID actually adds cost to the supplier with no value other than keeping the customer. Siemens’ role has been solely to minimize that effort. As Ruehrdanz explained, with agreement from Dixon and Forden, suppliers will not see any real return on investment until the tags are applied during the production process, rather than at the distribution center.

“There is a lot of hype surrounding it, but people aren’t going to pay a premium for what can be done for less, and better, with barcodes,” said Doug Bonzelaar, principal of 2Think in Holland, a logistics-consulting firm that designs bar-code systems for the office furniture industry.

There are a number of reasons for the slow adoption, Bonzelaar said, but chief among those is reliability. RFID, designed to eliminate error, has “read rates” averaging 70 percent to 80 percent, according to Intelligent Enterprise magazine — but as low as 40 percent, according to Information Week.

Failure can be attributed to software, the readers themselves and the tags. The tags are unreliable when attached to many products, such as liquids and products wrapped in tin foil, including cigarettes.

RFIDentics spent a year engineering a process to create tags with 99 percent reliability. In the lab, Metros displayed a cigarette carton and several pop bottles with tags plastered on them, problem items the company is hoping to engineer around.

Metros disagreed with the reliability concern. From his view, the main concern is cost. Eighty percent of the cost of an RFID system is tags, he said, and for tags to be cost effective on a mass level, tags that this year cost 50 cents to $1 must drop to around 20 cents.

As such, the company has concentrated on gaining efficiency and volume, with hope of lowering its prices. It is already quoting high-volume orders at the lower price. Currently, it has seen success in uses such as loss prevention and tracking.

Founded last year by former Siemens executives from the baggage-handling group, RFIDentics knew RFID could improve reliability.

“When an airline loses your bag, it costs roughly $150 to deliver it to you, and you’re still mad,” Burns said.

The barcode system has design limitations, like when the bag is positioned so that the tag cannot be read in the chute. Twenty percent of bags have to be manually handled, opening up a large possibility for error. With RFID, which will read no matter how the bag is positioned, that error could be greatly reduced.

Similar models have been RFID’s fastest adopters. There are several deployments in the pharmaceutical and medical industries, where product must be accounted for at all times and in all places. Other high-theft, highly regulated items like DVDs, cigarettes and liquor are other likely users.

RFID has also been successful in managing the temperature and life of perishable goods. The Michigan Blueberry Growers has an RFID tracking system for blueberries, currently being piloted for the Albertsons grocery store chain. The tracking system was created in partnership with the RFID Testing Center at the Kalamazoo M-TEC, Western Michigan University, and technology firm BlueGranite.    

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