RFID: Don't Miss The Innovation Opportunity - InformationWeek

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10/21/2004
09:18 AM
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RFID: Don't Miss The Innovation Opportunity

As companies wrestle with demonstrating a clear business case for RFID, they can lose competitive ground if they don't at least begin experimenting. And in that process, it's well worth considering the use of RFID on an internal basis.

Larry ShutzbergEditor's Note: This is the first in a series of excerpts from an in-depth research report written by the chief information officer at Rock-Tenn Co., a leading manufacturer of consumer packaging, promotional displays, and recycled paperboard. In the author's own words, his white paper "makes recommendations for a sane path through the RFID quagmire."

Is radio-frequency identification a mandate from 800-pound industry gorillas or a far-reaching innovation for the future of packaging, manufacturing, logistics, retailing, and the overall consumer-goods supply chain?

In response to the growing number of RFID mandates from companies--including Wal-Mart, Target, Albertsons, Best Buy, Tesco of the United Kingdom, and the Metro Group of Germany--consulting firms worldwide are developing competency with RFID so they can help companies address the complexities of deploying the technology.

At the same time, RFID technology is changing rapidly as technology suppliers race to address the issues and opportunities associated with today's--and tomorrow's--RFID technology.

A few companies are pursuing RFID for gains in internal operating efficiency. Others are striving to differentiate themselves from their competitors by incorporating RFID as part of their product and service offerings.

These initiatives include trials with item-level RFID tagging as well as collaboration between packaging and display companies, consumer-goods manufacturers, and retailers to deploy smart shelving, intelligent displays, or other RFID-enabled strategic offerings. Companies such as Georgia-Pacific, MeadWestvaco, LG&P In-Store, and Smurfit-Stone have all publicized such initiatives.

When pursuing these other opportunities, companies must still address technical challenges with today's RFID technology, but they can often avoid issues with industry standards, synchronizing data over the Internet, and disconnects in collaborative processes.

Long term, we expect RFID to increase revenue, reduce operating costs, facilitate optimization of assets, enhance safety and quality control, and much more. Unfortunately, most companies won't be able to make a business case for RFID at this time. Instead, we believe meaningful RFID research and development is required before a clear understanding and related business case can be developed. Furthermore, we see a continuous need for R&D as RFID technology evolves and matures.

While every company has the option of taking a wait-and-see approach to RFID, this approach entails several risks, including:

  • A company without a clearly articulated business strategy for RFID could see market-share erosion, particularly if its sales force can't publicize the company's readiness for complying with RFID mandates;

  • A company that waits may not have time to work through all the issues and challenges of RFID and may have difficulty deploying and refining a strategy for complying with RFID mandates; and

  • A company that waits may be forced to deploy less than optimal and much more costly RFID implementations once the need arises.

RFID is unlike any technology that we as an industry have seen in the past. It's extremely complicated and very costly, yet it's inevitable that RFID will be a transformation agent throughout our supply chain for packaging, manufacturing, logistics and retailing.

We are mindful of the desire to have a compelling business case for investing in RFID and of the inability to make a case at this time. Nonetheless, we believe it would be prudent for companies to spend a relatively small amount for initial RFID technology as a means to further understand the many aspects around the inevitable rise of RFID in our supply chain.

We believe companies need to develop several strategies for RFID. The first is for complying with RFID mandates. And though this will likely become the focus for most companies in our supply chain, we think it's not too early to at least consider strategies on pursuing RFID for internal operating efficiency and also on pursuing RFID for competitive differentiation.

To address the many obstacles that exist with RFID today, and to support each RFID-enabled strategy, we think companies need to pursue RFID research and development. We believe such a plan will lead to RFID mandate compliance and can also be leveraged for other RFID-enabled strategies.

Waiting for RFID to be 100% proven, understood, and standardized may seem to be a safe decision on the surface, but it's also a losing strategy. Instead, it's time to move forward with RFID--using clear business goals as a compass. We don't believe RFID is simply a matter of mandate compliance. Instead, RFID R&D and mandate compliance can ultimately be leveraged for internal operating efficiency and also for competitive advantage.

We also believe it's wise to be in the "early majority" of innovation adopters for RFID with a focus on smaller, less risky R&D investment.

Next week: Shutzberg will deliver a real-world analysis of the cost implications for deploying RFID.

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