Business Technology: Implementing RFID Is A Risk Worth Taking
With all the talk about RFID, what's the real story? Is there hope or is it all just hype, Bob Evans asks, as he looks at specific examples and advises that while there's risk in jumping in, there's probably a whole lot more risk in standing pat.
For the past few years, this column has been a strong advocate of RFID technology and its potential for greatly enhancing transparency, optimizing business processes, and pointing the way toward opportunities that would otherwise never have been recognized. Some readers, unsure of either the merits of the technology or the morals of the columnist (or possibly both), have asked if I've got a few sackfuls of piasters invested in various RFID vendors and am trying to hype the stocks. Others have wondered if I should perhaps seek a new line of work since I clearly know less than nothing about this one. And some have probed thoughtfully into the future, asking things like, "Oh yeah? Well, when Wal-Mart sticks RFID chips in the brains of every person on earth and makes us shop there 24 hours a day, you won't be so hot on it then, will you?"
So let's take a look at several examples that indicate where some significant RFID-related issues stand today (btw, a great place for doing this whenever you'd like is our RFIDInsights Web site):
Gillette has used RFID "to determine whether stores have stocked their shelves with a specific item in time for a marketing promotion," my colleague Chris Murphy reported recently. "Gillette is doing that by analyzing data from retailers with RFID scanners, which read the electronic product codes on each tag at receiving docks and at various points between stockrooms and store entrances. In one instance, Gillette confirmed that all the stores it measured received the product before a promotion ran. Among stores that moved the product from stockroom to shelves before the promotion hit, average sales were 48% higher for it than those that did so after the promotion's start."
My colleague Elena Malykhina recently spoke with Pfizer director of trade operations Bryon Bond, who said his company is evaluating RFID in a number of ways but has concerns about the cost and immaturity of RFID technology. He cited these issues: The data architecture hasn't been developed, the standards aren't finished, and tag readability remains a problem. Bond told Malykhina, "RFID is not a slam dunk."
"The market for supply-chain applications of RFID technology made progress in the last year, and we continue to believe that it will become a multibillion-dollar growth opportunity in coming years, although it is still in its infancy," says a Bear Stearns research report released last week and authored by Philip Alling and Andrew Matorin. "Within the DoD, the Naval Supply Systems Command reported that use of passive RFID in a sea container loading application was 37% more efficient than legacy manual and bar code scanning methods, and the implementation is now being expanded. German retailer Metro AG reported that out-of-stocks at its Future Store site dropped 9%--14% with RFID tracking and that wastage dropped 18%, highlighting the technology's ability to boost sales and financial performance."
Microsoft senior VP Paul Flessner last week said, "We're going to make sure RFID is available very inexpensively and plentifully from a Windows perspective," as reported by my colleague Aaron Ricadela. Microsoft's intent, wrote Ricadela, is to develop software "for use with Windows and SQL Server it says could smooth out problems companies are having loading data from RFID tags into databases, and making that data available to workers. RFID tags in manufacturing and remote data-scanning sensors used in science, shipping, and commercial construction are forecast to generate reams of new data in coming years." Ricadela added this overview of RFID from Flessner: "This is a super-important play for us."
IBM has created a new business unit called Sensors and Actuators that subsumes RFID into a larger strategy the envisions massive intelligent networks of intelligent devices extending into machinery, household appliances and other equipment.
"An encouraging sign that China recognizes the value of RFID comes from the IT vendor camp," writes my colleague Laurie Sullivan. "Hewlett-Packard in June will start shipping some RFID-tagged consumer products, such as notebook computers, directly from manufacturing facilities in China to Wal-Mart's Sanger, Texas, distribution center, says Len Erickson, HP services consulting and integration lead for RFID. Earlier this year, the Chinese government granted HP licenses to transmit RFID signals at three of seven manufacturing sites. That means HP can test tags on boxes and pallets before they ship, rather than passing the products through a U.S. facility to check whether tags work before continuing down the supply chain."
When Microsoft CEO Steve Ballmer disclosed this week that several new tools for software patch management are now available, he was delivering on a two-year-old promise to relieve one of the most acute pain points for many IT departments. The drawn-out process of downloading, testing, and redistributing frequently issued Windows patches has been unduly difficult because Microsoft's own products for managing things were outdated. Ballmer and Microsoft chairman Bill Gates have staked their reputations on fixing the problem.
New standards and open-source support: My colleague Alex Wolfe writes that agreements on standards "come just as RFID has begun to shed its reputation as a touchy technology, for which readers had to be carefully positioned lest they miss tags attached to shipping pallets and corrugated boxes." 'Many of the problems that plagued the first pilots have been resolved,' said Mike Wills, general manager of the RFID business at Intermec Technologies Corp., in an interview. 'Experiences will be significantly different, as people begin to implement [RFID] generation 2. They're going to see a measurable difference.' " On the open-source front, Wolfe adds, "RFID is about to get a separate software boost from the newly formed RadioActive Foundation, which is looking to develop a suite of open-source RFID software that conforms to the EPCglobal's RFID standards."
From the Bear Stearns report released last week: These new standards mean "that a number of new market participants should be entering the market, most notably in the manufacture of silicon chips for use in RFID 'smart' labels. The entrance of new market players should act as a catalyst to begin to drive costs down. ... Mandates should continue to drive adoption activity in 2005 and into 2006, rather than a compelling case for ROI, which will likely remain elusive for retailers in the near term, as ROI should require broader integration of RFID adoption into operations and, likely, a change to existing business processes. However, we believe that ROI opportunities *should* be uncovered longer term, and we have seen evidence from initial implementation reviews from the DoD that returns could be dramatic. As implementations become more robust and comprehensive in late 2006 and 2007, companies should begin to tie the new RFID data streams into their existing systems, which should enable them to extract meaningful ROI over time, although likely not immediately upon implementation for all but the most successful adopters."
Target Corp. and 100 of its consumer-goods suppliers last week began using RFID in shipping and receiving, writes my colleague and resident RFID expert reporter Laurie Sullivan. "To get the effort going, Target assembled a board of experts," Sullivan writes. "Physicists from RFID service and consulting companies such as Extra Prize, Oden, and R4, which VeriSign recently acquired, were brought in to assess and address frequency interference from other technologies deployed within stores and the distribution center, observers say. 'If Target starts with a core group of RFID experts, and consistent methodology with a plan and a blueprint, they should be able to install the required RFID infrastructure to 40 stores weekly,' says Peter Regen, VP of global visible commerce solutions at Unisys Corp., who is familiar with the project but not directly involved. 'Target has about 1,500 to 1,600 stores, and they could finish the rollout in about a year.' "
So there's a snapshot of how things look: plenty of promise, but some lingering uncertainties as well. While those uncertainties and potential pitfalls must be scrutinized rigorously, it's also important to remember that this technology is, as the Bear Stearns report emphasizes, in its infancy.
In my opinion, the biggest issue is for companies to focus on what the broad and enterprisewide repercussions could be as new information flows and unexpected insights drive improvements in processes and create new opportunities.
Is it risky? Sure it is. Will there be some setbacks? Without question. But when has that not been the case? Where, exactly, are the zero-risk, high-return opportunities? So it might be good to compare just how risky those challenges are versus standing pat while competitors pursue new and better ways of serving customers and then trying desperately to play catchup. And call me crazy, but that seems like the riskiest business of all.
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