As a kid, you asked “Are we there yet?” over and over during long trips in the family car. The parental answer was usually a vague platitude designed to distract you from your single most urgent mission: to get the whole thing over with as soon as possible.
Today, as an operations executive, you probably experience the same impatience when called upon to deal with radio frequency identification (RFID). It seems like an interminable journey, and while the diversions and sightseeing detours along the way are unavoidable and sometimes even pleasurable, you just can’t wait for the process to end and the ROI to begin.
But the upside of this particular excursion is that, armed with our charts and definitive travel guide, you’re guaranteed to get there from here, if not in no time flat, at least without too many stops along the way.
Bump ahead
We warn you, though, that your very first tourist attraction is likely to be a roadblock. A common pitfall is to rush into RFID implementation without understanding the technology’s limitations.
“RFID is not a ‘plug and-play’ technology,” says James A. Tompkins, Ph.D., principal of logistics consulting firm Tompkins Associates in Raleigh, NC. “The first step in moving ahead with RFID is to develop a firm grasp of its components, benefits, challenges, and applications.”
The analysts at Boston-based Forrester Research have put together definitions of RFID that are the clearest we’ve seen anywhere. In a report on RFID, Forrester analyst Joshua Walker describes it as “a data collection technology that uses electronic tags to store identification data and a wireless transmitter or reader to capture it.” A typical RFID tag is about an inch square (note, however, that sizes and shapes can vary) and is made up of three parts: a chip that holds information about the physical object to which the tag is attached; an antenna that transmits information to a reader (often a hand-held device) using radio waves; and packaging that encases the chip and the antenna so that the tag can be affixed to the physical object.
Tags can be active or passive. Active tags have their own battery sources and are always on, whereas passive tags obtain their energy from radio frequencies transmitted by readers.
My tag fell off!
For the average small to midsize company, taking on an RFID installation is a gigantic undertaking fraught with all manner of risks, from massive costs to lack of global data standards to training and management challenges. And then there are the drawbacks of the still-evolving technology: inconsistent read rates for certain types of materials, such as metal, liquids, and frozen items; interference caused by noise; unreliable data synchronization; tags that fall off in transit; and so on.
“A lot of companies are struggling in terms of scanning, accuracy, and read rates — a 90% read rate is not acceptable,” says B. Vijayaraman, Ph.D., a professor of management and information systems at the University of Akron in Ohio. He and a colleague, Barbara Osyk, Ph.D., recently co-authored a report detailing the findings of an RFID survey conducted for the Warehousing Education and Research Council (WERC). Their conclusions, derived from the responses of 211 companies from a variety of industries: “…many WERC member organizations (44% of our sample) are not yet ready to jump on the bandwagon…. It is clear that a number of concerns still exist and there appears to be a fair amount of skepticism about the potential for RFID to deliver cost savings or a positive ROI.”
| By Dec. 31, 2006 | Percentage of respondents |
|---|---|
| Less than $100,000 | 28% |
| $100,000-$500,000 | 28% |
| $500,000-$1 million | 16% |
| $1 million-$5 million | 19% |
| $5 million-$10 million | 9% |
| $10 million-$50 million | 2% |
| Source: WERC, 2005; total exceeds 100% due to rounding | |
Several years down the road, however, the technology will be cheaper, more reliable, and much more widely used, Vijayaraman predicts. For one thing, he says, its applications go far beyond retail, extending to institutions such as libraries, courts, and hospitals. “Anything that needs tracking and identifying will use RFID technology.” Eventually, Vijayaraman thinks, RFID may even replace bar codes.
That forecast may be too optimistic, counters Ron Hounsell, director of logistics services at Cadre Technologies, a Denver-based distribution systems provider. “The perception that RFID will replace bar codes is unfounded,” he says. “Bar codes are used in a lot of places in the warehouse — such as bin locations — that don’t need the sophistication of RFID.” Hounsell does believe, though, that most companies are not taking advantage of the opportunities that the technology offers to streamline internal operations. “Those who are forced to use it under a mandate are doing a ‘slap and ship’ operation and not much more than that.”
Sticker shock
The irony is that retailers stand to benefit the most from RFID because of its extensive applications in warehousing, inventory control, and shipment tracking, but only the largest retailers can afford to invest in the technology to any significant extent. With tags costing $0.30-$0.60 each, and with the average company requiring anywhere from 500,000 to 5 million tags, according to the WERC report, costs can zoom into the stratosphere. The point at which RFID will become widely affordable, experts say, is when tag costs drop to $0.05 each — something unlikely to happen very soon.
“A lot of people say RFID is an elegant solution looking for a problem,” says Anthony Calabrese, vice president of e-commerce and customer solutions at Panalpina, a global logistics services provider with North American headquarters in Foster City, CA. At a recent seminar on RFID, Calabrese noted that corporations large and small have yet to adopt a holistic approach to RFID: “There are only spot installations, no open-loop scenarios, and it’s risky.”
| Shipping | 40% |
| Receiving | 37% |
| Loading | 32% |
| Putaway | 32% |
| Picking | 28% |
| Replenishment | 19% |
| Manifesting | 16% |
| Stocking | 16% |
| Packing | 13% |
| Quality control | 12% |
| Kitting | 9% |
| Value-added | 9% |
| Source: WERC, 2005 %. of RFID users out of 211 companies surveyed |
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For those just wetting their feet with RFID, Calabrese suggests doing this six-step prep:
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Research and build up your knowledge of the technology.
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Conduct an assessment of your operation to determine whether and where RFID would be applicable.
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Engage experienced partners and consultants to help you work through the inevitable snags.
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Upgrade your software to integrate it with radio frequency applications.
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Establish a pilot program of your own or participate in a joint one with other companies whose products are similar to yours.
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Be prepared to build on what you learn from the pilot.
A good RFID pilot program, Calabrese says, should take you through all steps of the order from pick-up to delivery and should include notifications of in-transit status as well as early alerts of deviation. And, he warned, don’t make the mistake of thinking a pilot project comes cheap: In addition to tag costs, figure on shelling out $10,000 for each hand-held scanner, $15,000 for antenna equipment for each gate, and many tens of thousands of dollars for readers, cards, laptops, and other paraphernalia.
For a relatively “safe” way to experiment with RFID, try using it in isolated areas of your operation, advise the consultants at FKI Logistex, a global supplier of material handling equipment. For example, replacing bar codes with RFID for warehouse storage functions results in automated, accurate inventory management and a 28% cost reduction. Similarly, using RFID instead of bar codes for warehouse dispatching activities nets you an automated checking process and a 26% dip in costs. With this one-step-at-a-time approach, you have the added advantage of flexibility: You can either stick with what FKI calls “short, well-defined, and targeted projects” or conduct a wholesale conversion to RFID at some point.
| (millions of dollars) | |||
|---|---|---|---|
| 2004 | 2007 | CAGR | |
| Hardware (transponders, readers, printers/encoders) | $1,035.9 | $2,888.2 | 40.7% |
| Software (RFID middleware, application software) | $122.1 | $587.8 | 68.9% |
| Services (integration, maintenance, support, training) | $363.8 | $1,223.0 | 49.8% |
| TOTAL | $1,521.8 | $4,699.0 | 45.6% |
| Source: Venture Development Corporation | |||
Given the technology’s forbidding costs, it’s not surprising that so far the only companies that have really lavished money on it are suppliers and third-party logistics providers forced to follow retail mandates. And it is these buyers that largely account for the upbeat statistics on sales of RFID-related equipment and services.
According to Michael J. Liard, RFID research program director at Venture Development Corp., a Natick, MA-based technology research firm, spending on RFID systems will enjoy a 45.6% compound annual growth rate (CAGR) between 2004 and 2007. For vendors, the bonanza lies in RFID middleware — applications that filter the tons of incoming raw data and route them to the appropriate systems within an organization. The global market for RFID middleware will surge 162% in 2005, to $43.1 million, Liard estimates, up from last year’s $16.4 million.
In a marketplace that thrives on “the big hype circle,” Liard says, “compliance is king, and on the surface much of the benefit of RFID seems to be for retailers. But the sheer quality and quantity of data can be used within business processes and throughout the enterprise.”
The key to implementing RFID successfully is to view it as another input technology and make sure that business processes change accordingly, he adds. Like Panalpina’s Calabrese, Liard suggests launching an RFID pilot. “But make it small and scalable, and put deadlines on it,” he cautions. “You don’t want this project to drag on for months and years.”
| FREQUENCY | BENEFITS | LIMITATIONS | APPLICATIONS |
|---|---|---|---|
| Low frequency (125-134 kilohertz) |
Frequency accepted worldwide Works well near metal In wide use today |
Limited read-range potential (impractical for some warehouse operations such as pick and pack) — less than 1.5 meters | Animal identification Beer keg tracking Automobile key-and-lock, antitheft systems |
| High frequency (3.56 megahertz) |
Frequency accepted worldwide Works well in moist environments In wide use today |
Does not work well near metal Limited read-range potential — less than 1.5 meters |
Library book tracking Pallet/container tracking Building access control Airline baggage tracking |
| UHF (868-928 megahertz) |
Longer read-range potential — more than 1.5 meters Commercial use is growing rapidly |
Frequency not licensed in Japan Detuning when tags are in close proximity Does not work well in moist environments |
Apparel item tracking Pallet/container tracking Truck and trailer tracking (in shipping yard) |
| Microwave (2.45 gigahertz) |
Longer read-range potential — more than 1.5 meters | Frequency not licensed in parts of Europe Complex systems development Not in wide use today |
Access control (vehicles) |
What’s most important, Liard says, is making sure that the RFID effort isn’t just a top-down directive but one with “internal champions — one from IT and one from operations.” And even that isn’t a cureall: “Each application environment is going to be unique and bring its own set of challenges. In the future, we’ll see more pilots, customer case studies, and ROI models. Right now, companies keep ROI private because it’s seen as a source of competitive differentiation.”
Meanwhile, vendors of RFID technology have their hands full developing products for the next generation of tags, Liard says. Not that their current offerings are particularly satisfying — the vast majority of the respondents (88.6%) to the WERC survey are end users of RFID, and very few of those who have installed it are satisfied with the project. On a scale of 1 to 5, with 5 representing the highest satisfaction level, overall satisfaction ranks a remarkably low 1.93. As Osyk of the University of Akron points out, “Many companies are not convinced yet. They don’t see that the return on investment is there, although the sellers of equipment would like them to believe otherwise.”
Ian Hobkirk, manager of software services at Beacon Systems, a systems integrator based in Boston, says he constantly discusses the value and cost of RFID when helping clients select warehousing software. The main benefit of the technology is that warehouse receiving staff can take in product by the pallet, without having to scan bar-coded labels on individual cartons.
“RFID is currently used almost exclusively by business-to-business companies,” Hobkirk says. “Theoretically, in high-speed sortation, scanning of cases on high-speed belts, up to 600 feet per minute, is much more accurate as there is no need to ‘see’ a label. Although readability increases, however, it can be more difficult to distinguish one case from another with RFID technology, since two cases that are very close together transmit a signal that reaches the reader at almost exactly the same time.”
At present, the technology does not offer advantages for the direct-to-customer market, says Hobkirk. “The cost is running between $0.35 and $0.65 per label, clearly too burdensome to apply a tag to your average tube of toothpaste. Readers don’t transmit well through liquids, requiring delicate positioning of tags on things like shampoo and liquor. My clients recognize that RFID is something on the horizon, but most of them are not buying yet. So the short answer to the question ‘Are we there yet?’ is ‘No.’”