From tags to riches

Despite a slow start, the retail sector is coming round to the potential benefits of deploying radio frequency ID (RFID) technology in supply chain management

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By  Peter Branton Published  July 2, 2006

|~|RFIDmainbody.jpg|~|Retailers such as Damas have realised that deploying RFID technology can have positive effects on supply chain management issues.|~|It was one of the buzzwords among IT circles a few years ago, and is the focus of several multi-million dollar projects by some of the biggest names in the retail industry. But in spite all the interest and attention, radio frequency ID (RFID) technology is seemingly failing to take off. RFID was set to revolutionise everything about supply chain management. There is no doubt that the technology has very strong potential, especially because of its ability to track items in real time. Retailers, for instance, can use the technology to keep goods on the shelves, gain more efficiency through better inventory management, improve safety through smart recalls, and minimise theft. This is made possible by the use of a tag consisting of a silicon chip and antenna that responds to a reader using radio waves to access the information. Although some think of it as an extension of bar codes, RFID offers some significant advantages to the user. For instance, scanning RFID tags does not require direct line of sight and can be done at a distance. Moreover, the amount of data an RFID tag can hold, compared to a bar code, is much higher. Such advantages are what attracted top organisations, including Wal-Mart, the Metro Group and the US Department of Defence, to trial the technology in the first place. Wal-Mart’s RFID mandate to 100 of its top suppliers is well underway. Then CIO Linda Dillman, who pioneered Wal-Mart’s RFID project, announced last October that “it is a success so far.” Although some suppliers ‘slightly’ failed to meet the January 2005 deadline, Dillman said that by the end of January last year, the required RFID systems were in place. This year, another 200 of Wal-Mart’s suppliers are getting ready to be RFID compliant. A number of airports around the world have also begun piloting RFID bag tags. The Hong Kong International Airport has a US$50 million project underway that it hopes will boost security and enhance the airport’s baggage-handling efficiency. Express delivery and logistics company DHL has also been working on its own RFID initiative. Earlier this year, at CeBIT, the company unveiled its pilot project on which it is collaborating with IBM, Intel, Philips and SAP. IBM, in particular, is working with DHL on integrating RFID technology to improve the supply chain by using RFID-tagged repair boxes, RFID readers staged at key points in the transport chain, such as transfer of packages on containers and pallets, loading and unloading on aircraft, and to and from a customer. DHL is expecting the pilot project will dramatically improve shipment visibility, and reduce the inbound and outbound scanning process by 90%, saving valuable time for transporting shipments. Locally, Symbol Technologies is working with Saudi Post to install millions of RFID-enabled post-boxes across Saudi Arabia as part of a US$270million project to support its new home delivery service, Wasel. The Wasel project, a key step in Saudi Post’s efforts to transform itself prior to privatisation, will eliminate the need for customers to collect mail from post offices, as the postal service will deliver and collect mail from their homes instead. “The Saudi Post project is an ongoing project. We have finished one or two areas there now, and we are rolling out the technology in other areas,” says Tariq Hasan, sales support manager for Symbol Technologies Middle East. The implementation work started in Riyadh, followed by Makkah. The next phase will be the Eastern Region, together with other provinces in the Kingdom. “The idea is when the mailman delivers mail, he will also scan the tags in the mailbox. So things like date and time scanned are recorded. Ultimately, they [Saudi Post] plans to deliver services, like sending SMS messages or e-mails to the owner of the mailbox to say that he has mail,” Hasan adds. However, while several prominent case studies dot the RFID skyline, Hasan admits that the technology has been slow in taking off. “There are many reasons for that,” he says. “One, the technology was new. Most of the vendors were not familiar with the technology. Two, there was a bit of resistance, and three, there were issues with the technology itself, which were sorted out over a period of time,” Hasan states. However RFID has moved on. “We are now in Generation 2 (Gen 2),” says Colin Summers, regional manager for Intermec Technologies Middle East. “There are some important differences in the way Gen 2 works compared to Gen 1 and Gen 0. There are important issues to deal with, such as compliance and compatibility with the different elements of the different component parts,” he adds. Summers attributes the slow uptake to the learning curve that companies must overcome. “There is still a big learning curve, which companies are going through. In comparison, if we put in a quick bar code in a system or a normal mobile system, we will probably do a pilot for maybe one or two months maximum, and then the company will be rolling out very, very quickly. The pilots for RFID are taking a lot longer,” Summers explains. Bumps in RFID’s learning curve come in different forms, ranging from a lack of skilled resources down to where tags must be placed. Saudi Post faced such problems with its project, says Husam Al-Saleh, general manager, Hala Supply Chain Services, one of the systems integrators hired to do the project. Because the post boxes are made of metal, it became quite challenging for Saudi Post to attach an RFID tag as metal interferes with its signals. To get round this problem, Hala has designed its Chinese-made post boxes to include a 6mm deep indentation in the front of the box. The RFID tag is then placed inside this slot, in a 5mm thick plastic casing, which was then covered with the Saudi Post logo. “The tricky part with the RFID is the metal box, as you cannot stick the RFID tag inside it, as you cannot read it,” Al-Saleh explained. “So it is going to be encapsulated in plastic to separate it [from the metal].” Procter & Gamble has also experienced a similar dilemma with its product, Pantene shampoo. Since the shampoo consists of some form of liquid and metal — two elements that make it difficult to read RFID tags — the company had a tough time tagging the item, says Hasan. “They tried various techniques in tagging the cartons, and finally what they came up with is they had to raise the height of the cartons by four inches so that they can apply the tag where there is air inside the carton and then they were able to read the tag,” reveals Hasan. ||**||Reengineering |~|Getty-DHLbody.jpg|~|Customers undertaking deployment of RFID technology include express delivery and logistics company DHL.|~|But the biggest challenge companies are facing when it comes to RFID deployments, according to Summers, is how to reengineer their current IT infrastructure to accommodate the technology. “There is a realisation that if you are putting in an RFID system, it is really all about reengineering the way a company works. It is not like putting in a PC or a different single device. You are having to change so many areas of the way a company operates. That is why the pilots are still going on and why we have relatively few line implementations in our area,” Summers explains. Summers says a lot of work needs to be done in ensuring that a company’s ERP application works with RFID. Companies, he adds, must also be prepared to invest in adding more storage devices or enhancing their current network architecture, to anticipate the volumes of data that RFID will generate for them. “Because RFID is designed as a real-time system, you will be putting far more demand on your network. It may well be that you might need to change the way the actual network is running and managed in a large organisation,” Summers says. “It is not just about putting in some three or four extra access points. Because you are putting a massively different level of input into the system, compared to if you are using a scanner or bar code where you may be doing a thousand transactions a day, with RFID you could be doing hundreds of thousands a day, so the scale of it is quite large. Therefore, there is a lot of thought that has to go into the network architecture,” he notes. “Additionally, you may be storing ten or a hundred times more data. When you are putting an RFID system in, there are a lot of changes on the overall IT architecture, which have to be looked at and most probably have to be redesigned and there is a lot of upgrades going on,” he goes on to say. While the cost of tags has been one of the issues with RFID earlier, Hasan says that is not the case anymore as prices are gradually coming down. At the moment, tags are priced anywhere from 20 cents to a dollar. Ideally, vendors are trying to cut costs to as low as five cents. At least, this is what Symbol wants to achieve by the end of 2007, although Hasan is not convinced that this will be feasible. “The cost of tags is coming down as the first production is being ramped up. The target that Symbol had was to be able to do a tag for five cents by the end of 2007. I don’t know if that will be achieved. Most likely it will not, but over the last two years we have seen the cost of the tags come down substantially,” Hasan says. “Today, a typical tag, which consists of a sticky label, which you can put in a carton, will be in the range of 20 cents to 25 cents. A year ago, that was l40 cents to 45 cents. It has come down by almost 50%. We are seeing the costs coming down because as technology improved the cost came down rapidly,” he adds. According to Hasan, the 2007 target is not viable because there is not enough demand yet. “Going by the way the trend is, it may not be achievable by the end of 2007,” he says. “But as adoption increases and the economies of scale quickens, we will see the cost coming down.” But Hasan says there is no doubt that the cost of tags has to go down for RFID’s adoption rate to rise, particularly in the retail area. “Ultimately, we will have to go below five cents. The final goal is to be able to tag every item in a retail store, for example. So if you have to tag a can of Coke, there is no way that you can do it even with a five-cent tag. It will have to be less than that, maybe one-tenth of a cent,” Hasan stresses. Despite the challenges of RFID deployment, there is a company in the Middle East that is making strides with the technology. The Jewellery Store, a service provider to the jewellery industry, is using RFID tags to identify and track individual items of jewellery before they are sold. This helps retail shops quickly and easily carry out stock checks using handheld scanners. According to Gabriel Nasser, IT director at The Jewellery Store, the RFID solution is especially useful in minimising the retailers’ ‘paper’ exposure to the international price of gold. “What happens today is if you are a retail store and you took a loan from the bank, the loan you are getting is not a currency loan but a gold loan. You are not taking, say, US$500 but 500 ounces of gold,” he says. “The problem with trading to gold value is that you are exposed to the price of the market. So, for example, if you took 100 kilos of gold loan last year in February, the value of gold at that time is US$417 per ounce. Today, the same gold has jumped to US$730 an ounce. What that means is that if you still have that gold loan you have to pay the gold value equivalent to today’s rate, and that translates into millions and millions of dollars,” he adds. The Jewellery Store currently services 15 shops across the UAE, Bahrain and Qatar. But expansion plans are underway, in destinations as far away as Sou- theast Asia, Europe and the US. According to Nasser, one of the issues they initially faced with RFID was the cost of the tags. Because they are tagging several thousands of items, they needed to devise a way that would lower the cost for their customers. What they came up with were recyclable RFID tags that are, at the same time, tamper-evident. Once an item is sold, the retailer cuts the tag and returns it to The Jewellery Store, which then sends them to its supplier, Sokymat. Sokymat recycles the tags and ships it back to The Jewellery Store for future use. “The price of the tags will be too high for customers today. With our recyclable tags, we only charge customers per use,” Nasser says. “So, the recycled tags cost 1/10th tot he retailer than they would otherwise,” he adds. Because they are only specialising on the jewellery business, Nasser claims that integrating their software, called Ivory, with their clients’ existing ERP systems, is easy because they are only dealing with a few third-party applications. Symbol’s Hasan says that, at the moment, there are only several scenarios where RFID is proving its business case. For one, the technology is ripe for deployment in high-value asset tracking or fixed asset tracking, such as what The Jewellery Store is offering. Cargo handling and baggage tracking are some other areas where RFID right now also makes sense. “If it is warehousing then definitely it is something that I will suggest they go ahead with because that is something that is proven. Examples are already in place, the experience is already in place and we can do it today,” he adds. However, he advises companies that are looking at deploying RFID for security systems or for checkout systems in retail stores “to sit and wait awhile.” “Today’s technology is not feasible to be put in a retail outlet because you cannot tag individual items by using a tag that is costing 20 cents,” says Hasan. Summers says companies, particularly in the Middle East, should follow closely the developments of existing RFID projects. While pilot projects seem to go on for a long time, he believes that the technology is right on track. “We are at the stage where pilots are expanding rapidly. Certainly there are more pilots on the go. In the past, we were probably involved in around six to 10 pilots. Now, we are probably involved in about 20 to 30, so certainly there are far more pilots,” Summers says. “If companies in the Middle East want to look at RFID seriously, they have to look at revamping their entire IT systems. This is great news for IT companies, but you are talking about a serious amount of investment. It is not going to happen overnight, it will take time. It might take years by the time these visions are put into place,” he adds. RFID is not a solution that comes in a one-size-fits-all package. It involves a lot of integration and collaboration within a supply chain. A lot of work still needs to be done to cement RFID’s place in the mainstream market. Vendors and customers alike have to work closely to understand business processes and tailor products accordingly. The mandate now for RFID is to prove its financial viability. In so doing, more companies will set its sights in developing their own RFID projects. Failure to do so might make RFID just another science experiment.||**||

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