Thursday, July 07, 2005

Where is RFID going?

In December 2004, Larstan Business Reports conducted a survey among 669 supply chain IT executives to understand the pattern of adoption of RFID technology in various segments. In the retail industry vertical, as high as 77% percent of the executives judged an advanced RFID infrastructure as either ‘Very Important’ or ‘Important’. Infact 88% of them felt that their business would benefit if suppliers and business partners implemented RFID. Now contrast this with the state of RFID implementation in Retail today. The survey found that only 35% claims to have some form of the technology implemented in their organization. There seems to be a clear gap between the aspiration and realization. Despite the promise and the value proposition, there seems to have been precluding factors in the diffusion of this technology.

To understand the reasons behind this, one has to look at its inception and growth. Radio Frequency based identification cannot be considered as new by any standards. Right from World War II, this technology had been in use. But it was only in the last few years that it got the prominence it deserved, especially in business circles. RFID’s appearance on the business front could not have been more dramatic and forceful. Initially, media has, based on predictions by technical analysts, gone ahead to position RFID technology as the harbinger of next technical revolution through out supply chain. By the middle of 2003, the hype had given way to pragmatism. In 2004 Gartner has predicted RFID hitting the ‘trough of disillusionment’ of their ‘Hype Cycle’ by 2006. The industry started discussing ‘to do’s with respect to this technology to make it deliver the perceived value.

Some of the major shortcomings identified with respect to this technology which resulted in low adoption rates were:

Ø Privacy issues – imagine walking around with RFID tags all around you (on your dress, bags, wallet, loyalty card etc.) broadcasting who you are, what your tastes are and where you normally shop etc., to the whole world!!
Ø Radio waves do not travel well through metal and liquids
Ø Unit cost of tags
Ø Reading accuracy issues

These point to two important aspects. On the one hand, it emphasize that, with the current state of technology, RFID is not suitable for every business scenario where it can be applied. As a corollary the technology can work wonders and exceed expected ROI if it is applied diligently in suitable environments. This demands enterprises to enlist organizations with sound business background to work on identifying and implementing RFID solutions for them. In other words RFID is no longer a technical solution to a business problem but a business solution using one of the emerging technologies.

In 2004, organizations with expertise in industry practices, like ADEA solutions, entered the RFID arena providing sound business solutions to various clients addressing many of the concerns raised earlier. This was a welcome change from the initial domination by pure technology players in this segment. ADEA for example, concentrates purely on the Retail and Consumer Packaged Goods segment with well designed frameworks and tools to solve business problems in that sector.

RFID technology’s impending spread is evident from the growth it has shown in the first quarter of 2005. By March 1, Walmart is stated to have RFID implemented in 104 Wal-Mart stores, 36 Sam's Club stores and three distribution centers. The enormity of this is evident when we consider that it involved installation of 14,000 pieces of hardware, 230 miles of cable and is live with more than 100 suppliers. Walmart is now looking forward to implementation at 600 stores and 12 distribution centers by year's end.

From a retailing perspective, Walmart’s success has convinced the industry that RFID could help them track goods throughout the supply chain. It could ultimately lead to fulfilling every retailer’s dream: ‘right products in the right stores at the right time’. It'll also help locate specific products anywhere in the supply chain, rendering recalls easier to manage. Actually this is just the proverbial tip of the iceberg. Appropriate adoption of this technology could not only contribute immensely to the supply side but can also revolutionize the demand side leading to improved customer satisfaction. A customer loyalty solution ADEA developed for a large retailer in Europe stands testimony to this.

Next generation UHF Gen 2 tags, expected to be available by the end of the year could further hasten the industry adoption of RFID.Specification for UHF Gen 2 tags is already finalized by EPCglobal Inc., the nonprofit organization spearheading RFID adoption, in December 2004 enabling this. We are also seeing newer and newer uses for the technology coming to the forefront. Finally RFID has grown beyond the shadows of barcode tags. Considering the increased acceptance of the technology after Walmart success, we are confident that the gap between aspiration and actual implementation seen in Larstan Report would reduce to single digit levels by the end of 2006. The key to this success would be involvement of technology vendors with domain expertise in driving the RFID juggernaut.


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