RFID-Driven Supply-Chain Tested

Procter & Gamble Co. and a major retailer, which spoke to InformationWeek only under condition of anonymity, this summer are running pilot tests that use radio-frequency identification devices to replace bar codes as a way of tracking goods through the supply chain and onto the store shelf.

P&G's plans to put RFID chips--the active ingredient in the Mobil SpeedPass--on one product category in a couple of stores is a first step toward understanding the infrastructure needs and return on investment that an RFID-driven supply chain can deliver, says Larry Kellam, director of business-to-business supply-chain innovation.

Like a smart card compared to a credit card, the small chips that emit radio waves are better than bar codes; their sound waves can be scanned through a carton, so the entire inventory can be scanned in the same 40 seconds it takes to scan a single bar-coded item, and the chip itself can be both written to and read.

P&G, along with Gillette, Kmart, and about 25 other top retailers, has anted up $300,000 to join MIT's Auto-ID Center, which is working out the issues of building a global infrastructure to pick up RFID signals and a global registry of domain names to make it work. Already in the air is a new acronym, EPC, or electronic product code, the RFID-based equivalent of the UPC that bar codes carry today.

For now, Kellam says, the question is, "If EPCs work, what would we do with all the information?" But he's bullish on the technology over the long term. "It's only a matter of time," he says, "and cheap devices."

One huge clothing retailer, though, already has taken the dive into the RFID pool this summer. Calling it one of the three top technologies the company is looking at for 2002, the well-known chain "believes RFID delivers the ability to bring the right product at the right time to the right location, and will increase our revenues," says an IT exec in the fiercely competitive retail industry.

Some companies are waiting for the price of RFID devices to fall from the current 25 cents to 75 cents, depending on the size of the orders. "Our view is totally different," the IT exec says. "We're not going to wait for the price to come down, but rather drive down the cost by saying we'll be pushing 3 billion units a year, and we'll pay 10 cents. Let's play the game with these quantities, and tell us if you can't supply the devices for this price range."

The retailer started testing RFID devices in the first quarter by wiring up the supply chain with antennae that "hear" the emissions from the clothes passing by, starting with receiving, all the way to shipping and into the store. Now he's analyzing the data and building a business case he will take to the board of directors in August.

"My vision is to put an RFID device into every garment, every single unit, from production to the point of sale," he says.

In testing, the devices are tracking goods at about 99.7 or 99.8 accuracy, which is better than any other technologies for doing inventory in real time and pinpointing where shrinkage happens in the chain, he says. Also nice is the ability RFID offers to follow the sound waves and locate an item in the back of the store when a customer wants something that's not on the shelf. That's no joke, the retailer says; its flagship store will have half a million goods piled up in boxes in the back during the height of Christmas season, making it virtually impossible to pull out one item without RFID.

The business case will be straight forward: "If we have 96% efficiency today and RFID can bring that to 100%, how much would we increase our sales, and what is the value of that?" He says he has every expectation that the board will approve a larger rollout.