the future of the retail supply chain: is it on your...

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THE FUTURE OF THERETAIL SUPPLY CHAIN:IS IT ON YOUR RADAR?

int roduct ion

Today’s retail market is characterised by falling margins and increasing global competition. In thisenvironment, RFID technology helps retailers achieve dramatic supply chain efficiencies, resultingin precious competitive advantage.

RFID enables goods to be tracked effectively across the supply chain, from the factory to theshopfloor. In doing so, it gives retailers the visibility they need to reduce inventory levels andminimise out-of-stocks. It also helps to eliminate manual stock checking and receiving processes,and to reduce shrinkage.

RFID tags are already being attached to pallets, cartons and high-value items. Ultimately, theywill help to track goods at item level, delivering a number of benefits to shoppers. Not only canitem-level tags provide consumers with extensive product information, they also enable a checkoutprocess that is faster and more convenient than anything available today.

Microsoft’s RFID strategy is based on collaboration with world-class software vendors, systemsintegrators and retailers. We deliver the software infrastructure that is required for integrating arange of RFID readers with critical enterprise applications and third-party software acrossbusiness partners.

Microsoft is also helping to create the standards required to support RFID, primarily through ourmembership of GCI, EPCglobal, CIES, EAN.UCC and other industry bodies. We have also formed theMicrosoft RFID Council, which helps retailers find more effective ways to track merchandise acrossthe supply chain.

For more information about Microsoft in the retail sector, go to: www.microsoft.com/uk/smartretail

R E T A I L W E E K R F I D J U N E 2 0 0 4 3

CONTENTS4-5 Best since barcodes

Since Wal-Mart adoptedRFID, the technology isbecoming ever more popular.We look at the issues involved

6 RFID is no newcomerRFID has been around formore than 50 years – it was used in war long beforeretailers took an interest

7-8 A streamlined future?Very few new technologieslive up to their promise.What are the potential problems this time round?

9-10 Is tagging worthwhile?Item-level tagging is coming, but there is still a range of technical and business issues to solve

11 Harmonising standardsWe consider the attemptsbeing made to establish uniformity in the use of RFIDin the global supply chain

12-13 Amassing retail dataRFID has many uses beyondthe supply chain – anythingfrom finding lost children to gathering information

14 Privacy mattersRFID could revolutioniseretailing, but only if it cankeep privacy activists at bay

Published by Emap Retail, 33-39 Bowling Green Lane, London EC1R 0DA© Emap Communications 2004

Any retailer who hasn’t heard of RFID – radio frequency identification – by now is likely to be in the wrongbusiness. However, the number of retailers that have a firm grasp of what the technology can be used for toget maximum business benefits could probably be counted on the fingers of one hand.

We are told that RFID tagging will allow retailers to follow the journeys of products from manufacture tosale, and possibly beyond, into the home itself. The technology can combat theft and fraud, and even throwlight on the mysteries of customer behaviour. All these benefits are plausible in the future, but none of themare possible yet. Many hurdles – technological, regulatory and cultural – have to be overcome before RFIDis as pervasive as the pundits believe that it will become.

At the moment, retailers are still feeling their way, like infants practising standing upright before they areready to take their first steps. Money, more than anything, is stopping companies from investigating RFID-based solutions on any large scale. As always, there is a Catch 22 situation – the price of the technology won’tdrop until it has a widespread take-up, and no-one will take up the technology until the price drops.

However, some trailblazers have emerged. The insights they have gained at this early stage will positionthem as retail market leaders once the technology matures. When that will be is still uncertain. Most expertsagree that we are talking about decades, rather than years, before RFID tagging is widespread enough forthe technology to start widening the gap between the innovators and the companies that follow behind.

In the meantime, we may well see more retailers starting to experiment with tagging. This is to beencouraged, because the wider the cost of the development of applications can be spread, the sooner thetechnology will mature enough for everyone to benefit from it.

This supplement provides an overview for retailers that are aware of the concept of RFID, but are uncer-tain about the big issues they need to consider when embarking on a pilot of the technology.

Julian GoldsmithReport Editor

Javed SikanderProgram ManagerRFID StrategyMicrosoft Corporation

S U P P L E M E N T

RFID 2004

Making the dream real

Building a foundation for RFID

Editor Neill Denny Supplement Editor Julian Goldsmith ContributorsNick Booth, Gary Flood, Niall Hunt, John Oates, Annie Turner, Zoe Wood,

Ken Young Production Editor Niall Hunt 020 7520 3514 Sub EditorMadeleine Minson Head of Creative Services Sally Cairns 020 7520

3513 Marketing Manager Ashley Rigg 020 7520 3546 SeniorMarketing Executive Ben Wood 020 7520 3547 AdvertisingProduction Manager Wendy Course 020 7520 3516 Head of Sales Dan

Thurlow 020 7520 3554 Deputy Advertisement Manager Venessa

Oloyede 020 812 3781 Account Managers Ian Francis 020 7520 3535

Helen Kwiecinska 020 7520 3523 Classified ManagerMonique Mandalia

0207 520 3526 Journal Administrator Louise Moss 020 7520 3538

Cover by Billy Pope/Folio

Originated by JJays, Southend,

and printed by Wyndeham Grange

4 R E T A I L W E E K R F I D J U N E 2 0 0 4

r f idexplained

Best idea since barcodesSince Wal-Mart decreed that its top suppliers have to use RFID, the technology for identifying and trackingproducts is becoming more popular among retailers on both sides of the Atlantic, writes Annie Turner

Lee Scott: Wal-Mart’s chiefexecutive officeris showing otherretailers the waywhen it comes tointroducing RFID

The big players in the retail industrybelieve that radio frequency identifica-tion (RFID) could be the best thing sincebarcodes. Wal-Mart chief informationofficer Linda Dillman decreed lastsummer that the company’s top suppli-ers must use RFID tags on cases andpallets destined for certain stores fromJanuary 2005.

Dillman’s motivation is to get bettercontrol of the supply chain by being ableto track it. As Wal-Mart carries inventoryworth between US$25 billion and US$30billion(£14 billion to £17 billion) at anygiven time, according to BusinessWeek, even a small improvement wouldlead to big savings. In the UK, Tesco andMarks & Spencer, among others, areconvinced by the case for improvedshelf availability and are carrying outRFID pilots.

What is RFID?An RFID tag comprises a chip attachedto a tiny, coiled antenna. The chip sendsidentification data to an RFID readerthrough the air. Tags can look like an

ordinary label, be embedded in packag-ing or encased in plastic to withstandthe weather. The reader converts thetag’s data into a format that can beentered automatically into a computersystem, where it can be processed andanalysed. The most common use ofRFID is to store a serial number on thetag. This identifies the product.

Why now?RFID is not a new technology. It hasbeen around since the Second WorldWar, but it was considered too expen-sive and too limited to suit commercialneeds. However, the retail industry sawits potential for improving the supplychain, from manufacture to check-out.In 1999, Auto-ID Center was formedunder the aegis of the MassachusettsInstitute of Technology (MIT). It wasfunded by companies including Wal-Mart, Coca-Cola, Gillette and SunMicrosystems to the tune of US$20million (£11.4 million).

The Center was disbanded last October, once responsibility for co-

ordination of technical standards andspecifications had been transferred toEPCglobal, a not-for-profit joint venturebetween EAN International and theUniform Code Council (EAN.UCC). Italready administers barcodes for globaluse and has defined the basic shape ofhow data is structured on the tag. It isworking on refinements with its manymembers.

EPCglobal’s project manager ate.centre, David Weatherby, says:“Price/performance is just coming intoits own. The most simple [passive] tagcosts between €0.20 and €0.50 (13pand 34p), but the expectation is that thiswill fall to less than €0.05 (3p) asvolumes rise. Marks & Spencer uses RFIDtags on trays and cases that are returnedto their suppliers and reused. The cost oftags becomes irrelevant. After the initialset-up costs, their use is in effect free.”

What do you want to do?Reusing tags, or sticking to the cheap-est, passive tags might not be viableoptions in many cases. Andy Coussins,


head of retail, travel and transport at SunMicrosystems UK, explains: “Passivetags take their power from the radiowaves themselves. Their read-range isdependent on the frequency used andon allowable power level, which differsfrom country to country.”

RFID tags and readers have to betuned to the same frequency to be able tocommunicate, but RFID systems usemany different frequencies. Europe uses868MHz for Ultra-high frequency(UHF). New regulations governingfrequency and power supply will beintroduced later this year. They will bringus closer in line with the US, which uses915MHz. Japan does not allow any use ofthe UHF spectrum for RFID. The GlobalCommerce Initiative, an organisationthat works towards standardising data, istrying to persuade governments toharmonise regulations. Tag and readermanufacturers have developed systemsthat can operate at more than onefrequency to overcome the problem.

Why UHF?UHF tags are better able to penetratenon-metallic substances. They typicallyoffer a better range and can transfer datafaster. The downside is that they usemore power and are less likely to passthrough some materials, necessitating aclear path between tag and reader.

However, Weatherby says: “UHFGeneration 2 will be the next generationof tags that most people will want toadopt and the standard should befinalised by the end of this year, combin-ing the current Class 1 and Class 2formats and adding some criteria thatthe retailers wanted.”

However, there will still be differenttypes of tag for different types of RFIDapplications. Coussins says: “Unlikepassive tags, active tags have a batteryand can achieve longer read range, butthis comes at a cost and complexity. Youcan also get semi-active tags that areactively transmitting in one directionand passive in the other.” UHF tags canbe read from between three and sevenmetres. Active tags with batteries toboost their power can be read at rangesup to 100 metres or more.

There are also read-only tags, wherethe information can be read as requiredbut not altered, and read/write tags,where the reader can change the infor-mation if needed. Tags can also work in

conjunction with sensors, for exampleto alert staff if meat is not being stored atthe correct temperature.

RFID in actionAlthough Wal-Mart is concentrating onusing RFID to track pallets and cases, itcan also be used to track items on the

shopfloor. This is where RFID differsfrom barcodes. RFID can identify anyindividual item, using an EPC [elec-tronic product code], whereasbarcodes offer generic informationabout the product. In February, Marks &Spencer announced that it was pleasedwith the results of a trial using RFID tagsto track items of clothing at its HighWycombe branch. It is planning toextend its use of item-level tagging.

Tesco is running RFID trials for high-value items, such as CDs and DVDs, insome of its outlets. Coussins says: “Youcan even use it to track a DVD that’sbeen picked up and put back in thewrong place,” although its main use isto stop leakage.

Mixed signalsAnother issue to be tackled is that ofsignal collisions. A signal from one readerinterferes with a signal from anotherwhen coverage areas overlap. This can beovercome by ensuring that the readersare not active at the same time. This mightmean that one tag is read by two readers,so the computer software has to be set upto counter this duplication.

Accurate reading is difficult and theonus is on the suppliers to fix the prob-lems. H-P, which is a major Wal-Martsupplier, had to change how it stackspallets to get faster, accurate read rates.It found that readings on ink-jetcartridges were often inaccuratebecause the liquid and metal theycontained caused interference.

The company solved the problem bypacking insulating material betweenthe cartridge and the tag. H-P reckonsthat it is now getting 100 per cent accu-rate read rates on case and palletshipments. This is better than itsbarcode system, which achieves 92 to97 per cent accuracy. These wrinkles

will have to be ironed out on a case-by-case basis and are an inevitable part ofthe big trials that are under way aroundthe world.

At the beginning of May, Sun openedits Dallas-based RFID Test Center, whichallows companies to simulate RFIDdeployments. It will perform full-scale

RFID compliance testing, primarily tocheck adherence to Wal-Mart’s specifi-cations. Many other Wal-Martcompliance trials are under way else-where, and Sun has another RFIDcompliance centre for the EMEA regionin Linlithgow, Scotland.

Data management is a challenge. H-Puses RFID in its facilities at several sitesin the US and in Sao Paulo, Brazil.Together, these facilities generate one tofive terabytes of data every day. H-P doesnot plan to archive all the data, but it willcollect and react to exceptions to pre-set parameters (when the data suggeststhat there is an error in what is beingshipped). Like many of the big suppli-ers, H-P argues that the “slap-and-ship”approach – just putting tags on to satisfya retailer – is treating RFID as a simpleexpense instead of exploiting the infor-mation to improve their operations.

Bad publicityRFID also has to overcome the hurdle ofprivacy concerns, though the issue hasnot raised its head in the UK yet. In theUS, an organisation called CASPIAN(Consumers Against SupermarketPrivacy Invasion and Numbering) hascomplained that RFID tags are notdisabled when a tagged product goesthrough check-out, so the tag can beread by anyone in the vicinity with theright reader. Germany’s Metro Groupfaced a protest at its Extra Store inRheinberg, near Duisburg, earlier thisyear, where it had been testing the use ofRFID tags for a year.

Weatherby says: “Those issues arecovered here by the Data Protection Act.No personal information is stored onthe tag, so we just need to ensure thatthe technology is rolled out sensibly andlegally, and that consumers know whatis going on.” ■

RFID can identity any individual item,while barcodes offer generic information

.


r f idhistory

No new kid on the blockRFID is a versatile technology, which can be used just as effectively in war zones as in public libraries. Retailers are embracing it now, but many other industries discovered it a long time ago, writes Zoe Wood

Friend or Foe? the RAF used RFID technology to identify other planes during the Second World War

RFID is being hailed as a 21st Centurytechnology solution for retailers, despitethe fact it has been around for more than50 years. It is a malleable technologythat is deployed in situations as diverseas war zones and public libraries. Muchis made of RFID’s ability to drive supplychain efficiencies, but less orthodoxapplications highlight uses that retailersmight be overlooking.

The pharmaceutical industry, forexample, is using RFID to isolate roguedrugs. The sector has to contend withboth benign and dangerous substancesbeing substituted into the supply chainby criminals, and RFID offers an effi-cient means of establishing authenticityat the point of dispensing.

“RFID offers the ability to tacklecounterfeiting,” says Dave Weatherby,EPCglobal’s project manager ate.center. This is the UK arm of EANInternational, a global organisation setup to develop industry standards.“There is real potential to avoid conta-mination in the supply chain.”

Weatherby points to American retail-ers, which are considering RFID as a

means of tightening supply chain secu-rity as post-September 11 fears ofdomestic terrorism and sabotage grow.

Absolute traceability The notion of absolute product trace-ability is attractive for retailers, and inparticular for grocers, which faceconsumers that are more and moreinterested in where food comes from.

“With RFID you can track the wholelife cycle of a product,” says AndyCoussins, head of retail and distributionat Sun Microsystems. “With milk, youcan track which dairy it comes from.Similarly, with bottles of wine, you canidentify which one is the fraud, even ifthe bottles are identical.” Farmers havebeen using embedded RFID tags to keeptrack of their herds for many years, butthe process could be adapted to offerproof of the animals’ origins at market.

RFID may appear to be the new tech-nology kid on the block, but itsparentage can be traced back to theinvention of radar in 1922. It combinesradar’s capabilities with those of radiobroadcasting, and the military wasquick to harness its potential. Much ofthe early experimentation is cloaked insecrecy, but the Allies used long-rangesystems such as “identification, friend

or foe” (IFF) to avoid shooting downits own planes during the SecondWorld War.

In the 1960s, the first commercialapplications emerged, with companiessuch as Sensormatic and Checkpointdeveloping electronic article surveil-lance (EAS) systems to combat theft.Academics and big business carried theRFID mantle into the 1970s. Researchradiated in all directions, including toanimal and vehicle tracking systems.

In the 1980s, the technology reallystarted to be put into practice. Elec-tronic toll collection systems wereamong the first popular uses. In 1987,Norway became the first country tointroduce an RFID-based toll system,and the US quickly followed suit.

In the 1990s, research and develop-ment continued to snowball. RFID wasput to work in everything from buildingentry systems to car ignitions, and dual-purpose tags arrived. The current tagsare classed as “first generation.” EANwill finalise the criteria that will definethe “second generation” this year. Thesecond wave of tags should bring parityto Europe and North America.

The main barrier to RFID claimingthe 21st Century as its own is the pricetag, which is still high. ■

1922 The invention of radar enables scientists to pinpoint the distance and speed of objects

1940-1950 The Allies use radar during WW2 to identify friendly aircraft. RFID invented in 1948

1960-1970 Development of RFID technology leads to commercial use of RFID as anti-theft measure

1970-1980 Governments, inventors and universities compete to develop RFID applications

1980-1990 RFID enters the mainstream and is used for animal tracking, and in industry and business

1990-2000 The emergence of common standards furthers the reach of RFID

April 2004 Wal-Mart goes live with RFID, working with eight manufacturers to introduce it in stores

Summer 2004 Global standards of second generation tags expected

T I M E L I N E


pal let level

A streamlined future?

Warehousedata: RFIDtechnologypromises tomake the supplychain muchmore efficient

Capturing one pound in every eight thatUK consumers spend is not reassuringenough for Tesco, so it is interested inadopting the latest miracle solution thatthe IT industry has come up with, RFID.Tesco dominates the retail market at themoment, but the company is acutelyaware that this position depends on itsability to become a leaner and fitterorganisation.

The IT industry is good at exploitingsuch insecurities. Technology manufac-turers are constantly coming up withnew lines that they say will give retailersa better bottom line. IT analyst, theButler Group, has often highlighted thatpreviously fashionable technology solutions such as ERP, e-commerce anddata warehousing never lived up to theirpromise, but this is all forgotten whenthe next big thing seems to be able toovercome all the problems that previousgenerations have failed to resolve.

The latest must-have technology isRFID (radio frequency identification).Like every technology that preceded it, itpromises to introduce massive efficien-cies, this time in the supply chain. UsingRFID tags, the path of a package orpallet of goods can be monitored atevery step of the supply chain, whetherit is at the manufacturer, in a ware-house, on the road or on the shop floor.

Surpassing barcodesSceptics may point out that a previousgeneration of technology, barcode scan-ning, promised this, too. The beauty ofRFID is that the tags – being chips thatcommunicate by broadcast – are auto-matically read as they pass through,whereas barcodes needed to be inputmanually. Warehouse staff will waste lesstime. They will know the exact shelf posi-tion of every box they need to load, sothey can spend more time moving goodsand less time looking for them. Theadvocates of RFID point out that thisbenefit alone could cut labour costs byas much as 20 per cent.

Retailers are being promised thatcomplete visibility over the supply chainwill bring even greater benefits. By

shedding light on the murkier cornersof the distribution business, incidencesof fraud and theft will be identified andeliminated. The intelligence that is gath-ered will be collated and analysed,allowing companies to identify othercauses of shrinkage. If goods are oftenlost or damaged in a particular ware-house, that can be investigated andrectified. If goods are passing their sell-by date as they get trapped in aparticular supply bottleneck, compa-nies will have more power to cure theseproblems.

These are just some of the benefitsyou would hear about if you attendedone the many “making RFID a reality”seminars that are being organised bytechnology companies, keen to sellmore in the retail sector. The seminarshave clearly made an impression. Tescoreportedly wants all its suppliers to useRFID tags by 2007. Its top 50 suppliersare expected to be RFID compliant byspring 2007. In the US, Wal-Mart isbeing even more gung ho. It wants all itssuppliers to ship products with RFIDtags by 2005. “It is going to be worthWal-Mart’s while, because the company

Ever more retailers are buying into the RFIDdream, but few new technologies live up totheir promise. What are the potentialproblems this time? Nick Booth investigates

Continued overleaf


pal let level

there could be a massive IT overhead.That data will need to be stored some-where, and powerful machines will beneeded to process the information to getany value out of it. “It is estimated thatseven terabytes of data a day could becreated by a single supplier,” warns RossSystems managing director Steve Baxter.The company’s rationale is to maximisevisibility of all links in the supply chain.

As if to demonstrate how little isknown of RFID at this juncture, thereseems to be no consensus on how muchsupport an RFID system needs. Baxtersays that new systems might be neededto handle the masses of data created byall these tags. Since there would bemillions of tags passing through thesupply chain at any one time, all in aconstant conversation with a database,that would call for some very powerfulstorage and processing engines.Specialist IT staff would be needed tosupport these systems.

Use current platformsIBM insists that companies will be able toadopt RFID technology without having tomake a big investment in new computingplatforms. “It is possible to process allthis information with existing systems. A company such as Tesco will havemassive IT resources and this processcould be integrated with their existingplatforms,” says Chris Mason, businessconsultant for IBM’s retail supply chainpractice. They key to integration is tomake sure that the workload created byRFID does not get out of hand.

According to a study by IT analysts theGartner Group, the initial purchase ofhardware and software is often just thetip of the iceberg when it comes to thecost of a new system. If RFID follows thepattern of other information technolo-gies, the real costs – in terms ofsupport, maintenance, upgrades and

integration – may be ten times the costof the initial purchase. Nevertheless,most retailers seem committed to theidea of adopting RFID. The question isnot whether they are going to buy tags,but when and how?

Protect supply partnersAvoid passing on the cost to supply part-ners, warns Sudhir Chaturvedi, head ofUK retail at technology supplier Infosys.Suppliers to supermarkets live onfamously slim margins. Forcing them toinvest in RFID technology might proveto be a bridge too far for them.

Companies adopting RFID will needto define their objectives clearly to avoidrepeating the mistakes made with previ-ous new technologies, warns PaulWood, managing director of RFIDadviser Mobile Platforms. “RFID tagscan cost between 3p and £2.50 each,depending on the amount of intelli-gence they offer. The danger forretailers is that they can get too ambi-tious with the information they want togenerate. If they try to do everything,they may drown in data,” he says.

Chaturvedi urges retailers to becautious about regarding RFID as amiracle cure. “The pilot schemes theysee may be wonderful, but these aresystems that work in isolation. Theywon’t give an accurate reflection of thecost. They are often proprietary systemsthat won’t be compatible with the rest ofyour IT infrastructure until a few yearstime, and then it gets really expensive.”

There should be some breathing timebefore the pressure mounts to embarkon an RFID project. The conflictingstandards for RFID between the US andEurope are holding back adoption. “We can’t ask manufacturers to intro-duce RFID until the standards and thetechnology are in place,” says Tesco ITdirector Colin Cobain. ■

Tesco’s Thurrock distribution centre: at the forefront of new technology

has worked out that it can save up to 20per cent of all labour costs by automat-ing tracking. If it saved 5 cents (3p) onevery manual scan that takes place now,that would amount to US$6.8 billion(£3.85 billion) in savings,” says Jan PaulBoos, alliances director at ManhattanAssociates, a Wal-Mart technologysupplier.

UK retailers are just as enthusiastic, atleast in theory. “If we only eliminate 1per cent of the losses in the supplychain, that represents a huge amount ofmoney that could be saved,” says B&Qdirector of profit protection BillMackenzie. B&Q saved an estimated£250,000 by identifying and eliminatinginternal fraud, using analysis tools. RFID

would give B&Q far more intelligence towork with.

Retailers have traditionally struggledin this area, says Wooolworths RFIDprojects manager Geoff O’Neal. “It’snever easy to tell whether losses arelegitimate or intentional. RFID meansthat we could monitor activity from themoment an item was picked until it wasdelivered to the intended store, withminimal manual intervention.”

Potential drawbacksAll well and good, but what are theproblems you won’t hear about in theRFID seminars? New technology is oftenintroduced with a cloud of nebulousarguments and contradictions. RFID isno different. There are standardsissues, after which there will be deploy-ment issues.

The main problem with RFID is thateach tag contains an enormous amountof information about the product it isattached to. Since tags can be automati-cally read every five minutes and the more sophisticated tags containhundreds of fields of information for thatsnapshot of time, each single item gener-ates masses of data. Multiply this by thenumber of product lines that a singleretailer stocks (typically about 50,000for a grocer such as Waitrose), then

With RFID tags, the pathof a pallet of goods canbe monitored at every step


Is tagging worthwhile?

Clothes shoppingat M&S: the UKretailer is testingapparel itemtagging usingRFID technology

To tag, or not to tag, that is the question.But is it nobler – or makes more busi-ness sense – to do so at the pallet, caseor item level?

While the Bard spins in his grave,retailers are struggling with thisquandary. It may not be quite asdemanding as Hamlet’s conundrum,but organisations that are already tryingto assimilate the general issue of RFID(radio frequency identification) have towork out which area of their supplychain they need to tag. The general orthe particular – the shipment of allthose nice €100 jumpers, or the indi-vidual item itself? Large companies suchas Wal-Mart in the US have madeaggressive moves to standardise suppli-ers’ adoption of RFID, so companiesfeel they have to start moving.

“The time is certainly right to beevaluating this,” says Chris Mason,

IBM’s European supply chain leader inretail. “But you have to be pragmatic.”Pragmatic covers a variety of sins.Experts and suppliers of the emergingRFID for retail industry admit that arange of technical and business issuesstill needs to be worked out. Thismeans that item-level tagging is likelyto remain a minority sport for the time being.

Why would we want to do item-leveltagging at all? RFID is being positionedas the functional replacement for thebarcode. Indeed, many see clear paral-lels. “When they were first introduced,

there was a lot of debate as to wherethey could add value,” says SandanaKichenane, European retail technicalmanager at Microsoft in Paris.

“We had the same arguments as towhere they could work best, but nowno-one would want to see them

removed, and of course RFID will notreplace them wholesale anyway. I’msurprised at the speed with whichpeople are looking at item-level tagging,but there has to be a real business case,or you can end up tagging for tagging’ssake,” she says.

The business caseJust as with barcodes, the business casecentres on keeping as far ahead of thecompetition as possible. “Retailers wantto tag at the product level to make theiroperations more efficient,” says CiscoRetail Practice UK head Phil Read.

RFID promises to help retailers trackitems at a greater level of granularitythan ever before. At the item level, thiscould translate to more efficient stockcontrol; the ability to limit the amount ofout-of-stock events; better control ofboth shrinkage and external theft; and achance to combat counterfeiting –though whether the average East Enderwould worry if their knock-off Armanidid not have the right transponder is anopen question.

But – and it is a big but – is that adistant vision or a nearby destination?

Item-level tagging is heading our way, but a range of technical and business issuesstill needs to be solved. Will tagging initiallybe a minority sport? Gary Flood reports

Continued overleaf

i temtagging

You need a real businesscase, or you can end uptagging for tagging’s sake


i temtagging

shelf brings a re-stocking and turn-around burden that it would be nice toreduce for both retailer and customer,”says Mason. “Tagging with this sort ofitem could be a good way to improveavailability and re-merchandising.”

So – for certain reasonably high-value items, especially ones that getmoved around stores and fly off shelvesat a high clip – item-level taggingmakes sense.

In terms of feasibility, there are stillmany technical issues around taggingthat have to be sorted out. These sepa-rate into standards and basicfunctionality issues. Anyone thinkingabout item-level RFID needs to factorthese into their plans.

“We will very soon be at a high-volume, low-cost, commodity market,”says Mason. “And the EPC, the elec-tronic product code, is near to being agenuinely global standard. But tag read-ers will have to be able to operate indifferent regimes and at differentfrequencies. The US ones are workingin the part we sold off to the 3G compa-

nies. There are lots of excellent trialsgoing on, but this is not going to besettled until later in the year.”

At the moment, the most widelydeployed tags have short ranges andlimited intelligence (see box below).“Physics has limits,” says Kichenane.“There is a limit on how far readerscan read.”

Technology will advance, of course,but not yet. “By 2014 we expect to seeabout 300 million RFID readers on theworld’s retail network,” says Read.“That’s going to produce tremendousamounts of data and there will be adanger of chaos. But we will also start tosee RFID network applications, ‘savants’and other sorts of devices, that will help.”

Who can benefit most?It will probably be easier for retailersthat have closed-loop supply chains toget going with item-level tagging, than itwill be for retailers with open ones. Thismeans that tier-two retailers will find iteasier than the bigger boys.

The reason? Lion says: “Though it istier one, the larger retailers, that are themost talked about in connection withRFID, until their many suppliers havestandardised, they will have open supplychains. Tier two, smaller retailers, whohave less complex supply chains, couldbe in a better position to deploy RFID.There are still debates about whoshould pay for the tagging – the supplieror the manufacturer?”

This may seem pessimistic, but theoutlook does not have to be bleak. “Thebest place to start with item RFID is tolook at your existing business problemand see what the technology might beable to do,” says Hall. “This is the righttime to experiment,” adds Kichenane.“Check your business case, of course,and start small.” ■

M&S shirts: clothes are among the first items to be tagged individually

“There are several issues around item-level tagging,” says Elsa Lion, an RFIDwatcher with UK analyst group Ovum.“These come down to the questions ofwhether it is feasible and viable.”

Let’s take viable first. For a start, saysLion, there is a much clearer businessissue for other parts of the retail process– the case and pallet level back at thedepot. “An Airbus will want to tag everysingle item of spare parts for one of itsplanes, because each one represents asignificant investment.

But in a retail context, if the cost of thetransponder is 20p and the item coststhe same on the shelf to buy, you wonderwhat the return would be. So in the firstinstance, this is only going to apply tohigh, or at least higher, cost items, if it isgoing to happen at all.”

Trials in the UKThis seems to be borne out by early trialsof item-level tagging. In the UK, Marks &Spencer is looking at apparel itemtagging, while Tesco has been looking attags on DVDs at one pilot in Sandhurst.

Clothing seems to be an item-levelRFID tagging no-brainer at the moment.“There are lots and lots of apparel SKUs,because you have such variety of sizesand combinations,” says Ross Hall, chiefexecutive officer of Auto-id Services, anRFID-oriented business unit within BT.“They are complex and often expensiveto manage, very vulnerable to theft, andthey have struck people as a good placeto start,” he says.

But why would you want to tag a DVD?“It is our understanding that customersmis-replacing such items on the wrong

Low-frequency RFID systems, 30 KHz to 500 KHz, have short transmission ranges, generallyless than two metres, while their high-frequency brothers (850 MHz to 950 MHz and 2.4 GHz to2.5 GHz) go up to about 30 metres. But the higher the frequency, the greater the cost. In theearly days, this will make generalised item-level implementations less likely to happen.

There most widely used current tag is the active sort. It is mainly seen in depots ordistribution points at the pallet and case level. These tags have short read distance and, so far,good read accuracy – 90 per cent, but not the 95 per cent that barcodes can achieve. The nextgeneration of active tags may be able to close that gap. It will not take long before thishappens – six months say the main suppliers, such as Texas Instruments and Philips. Withthese tags, we are looking to achieve closer to 100 per cent read accuracy. Tags are mainlyread-only at the moment. Extensions are needed if you want to be able to write to them. Thiswould be useful in item-level RFID, which is still in draft form.

R F I D I T E M O B S T A C L E S


r f idstandards

Harmonising standards

The fight over frequencies: troubling global RFID users

The benefits of using RFID are vast, fromtheft control to being able to keep trackof stock in transit. However, at present,retailers wanting to implement RFIDinto a global supply chain face severalhurdles.

The 13.5MHz system is well estab-lished and has a global standard, butbecause it is a low-power system it onlyhas a read range of about 3 ft. This limitsthe speed at which incoming productscan be counted.

The alternative is using UHF tags. Asfounder and editor of The RFID JournalMark Roberti says: “A UHF systemprovides a longer read range than13.56Mhz, at about 25 ft to 30 ft. Thismeans that you can read a pallet goingthrough a dock, so everybody is focusedon using UHF in the supply chain.”

Different frequenciesHowever, there are problems with usingUHF tags in a global supply chain. Thefrequency that is allocated by govern-ments for use in UHF RFID tagging variesfrom country to country.

The US has allocated 912 to 922 MHzto RFID, which Roberti says is used bymobile phones in Japan. This meansthat a product made in Japan carryingan RFID tag would have to be read by areader that can recognise more thanone frequency. He adds: “In the UK andEurope, they have standardised on868MHz, because there are otherthings using the band that are used inthe US.”

There is, however, a move to shift thefrequencies allocated to RFID. Deloitte& Touche analyst John Greavescomments: “European legislation iseven now undergoing change.” Robertisays: “In Japan, what they have saidthey are going to do is move to950MHz, so when you make a reader,you have to make one that can operateon all of those frequencies.” He pointsout that getting global uniformity for

frequencies allocated for RFID is“going to take time”.

“As licenses for different frequen-cies expire, they can be moved [todifferent frequency ranges] to makeway for a uniform UHF RFID systemaround the world, but that’s going totake 10 to 15 years. You can’t just calleveryone who makes cell phones andtell them they’ve got to switch radiofrequencies,” Roberti says.

Greaves points out that radio spec-trum regulation is only a minorhindrance to RFID. Recently, Tesco,Wal-Mart, Kraft, Nestle and a raft ofother companies backed the EPCglobalstandard to speed up the developmentof RFID in retail. The aim is to makeEPCglobal recognised worldwide.

Double standardsGreaves believes that this brings upanother issue. “There is [already] anexisting [global] ISO standard that isadequate to the purpose,” he says.Roberti adds: “We have two standardsemerging worldwide.” As opposed to

One of the problems with using RFID systems in the global supply chain is that they operate on differentfrequencies in different countries. Niall Hunt explores the attempts being made to establish uniformity

the EPCglobal standards, the ISO18000-6a and -b standards are “fairlywell along in the standards process,”he says.

So why are retailers adopting theEPCglobal standard and not ISO?Roberti says that the main reason is cost.“EPCglobal wanted something that was avery efficient, low-cost system, whichjust reads a simple tag,” he says.

Finding a global solutionEPCglobal’s move is not designed togazump ISO, and there are some movesto harmonise the two standards. Robertisays: “The standards have been movingcloser together. Now the control is morein the hands of the end users, who cansee the benefits of the ISO and EPC stan-dards being one.”

He believes that this will happen inone of two ways. One is for EPCglobal totake its system to ISO and ask them tomake it an ISO standard. “The other waythat seems to be gaining some momen-tum is for the folks at ISO and the folks atEPCglobal to work together, to makeEPC more like ISO and ISO more likeEPC. Work on some of the ISO standardshas been slowed down to try toharmonise with EPC,” he says.

Comparing optionsThere is much to consider if a retailer isthinking about using RFID in a globalsupply chain. The 13.56Mhz system,albeit limited in its uses, is cheap, reli-able and has a global standard, whileUHF has a lot more potential.

At present though, card readers needto be smart enough to be able to discernbetween different frequencies andunderstand different standards orprotocols, which makes them moreexpensive.

All in all, UHF does look promising,but there is a need for a single globalstandard, both for frequency allocationand the protocols used by tags. ■


otheruses

Amassing customer dataThere is much more to RFID than just keeping track of the supply chain. Businesses around the world arebusy trying out a range of other ways in which the technology could be put to use. John Oates investigates

Just a tiny chip:Texas Instruments’RFID technologycan be put to amultitude of uses

RFID is a technology that almost disappeared before it even arrived.Over-enthusiastic vendors got privacycampaigners all upset before the tech-nology was ready to use. Scare storiesappeared in the press, explaining howsupermarkets were going to track every-thing we bought and what we did with it.

There is still a lot of resistance to RFIDfrom consumers and privacy groups.Brian Subirana, visiting associateprofessor of information technologies atthe Massachusetts Institute of Technol-ogy and associate professor at IESEBusiness School, told delegates at ADT’srecent source tagging conference inAmsterdam that it will be 10 years beforeRFID tags are commonly attached toindividual items.

In the meantime, what other uses arepeople considering the technology for?RFID is not new. The first time it waswidely used was to identify friendly aircraftduring the Second World War. It is a tinychip that contains information and anaerial, so that a reader can pick up data.

At the end of last summer, LegolandDenmark began looking for a technicalsolution to finding lost children. A tradi-tional RFID system would requirehundreds of readers to accurately findsomeone in such a large park.

What they did was to couple the tech-nology with the wireless local areanetwork that they were alreadyinstalling. Parents can rent a chip wrist-band to attach to their child and registertheir mobile phone number. If they getseparated from their child they send atext message and will get an automaticresponse that tells them their child’slocation. The system uses three wirelessreceivers to triangulate the child’s posi-tion to within 10 ft. The process takesbetween 10 and 20 seconds.

This means fewer crying children, andit frees up staff time – 1,600 children ayear become separated from theirparents during a visit. It also provides anew revenue stream, because the wrist-bands cost €3 (£2) a day.

Some retailers are also looking at

putting the technology on loyalty cardsand staff security cards. Nevertheless,all such initiatives need to be clearlycommunicated to avoid people worryingabout the privacy invasion inherent insuch a project.

RFID for timekeepingSeveral vendors already offer time-keeping systems based on RFID chips.These have been less controversial thanother RFID projects because theyrequire little change in people’s behav-iour and do not worry privacycampaigners – if you have to log in atwork, then that information is alreadyavailable to your employer.

If a retailer puts RFID chips into loyaltycards, then, in theory, you could identifyevery customer as they enter the storeand sell to them based on their pastpurchases. You would know how longthey stayed in the shop and what theybought, and you could link the card todatabase records of everything they havebought before. A recent study from a


leading supermarket found that 17 percent of consumers spend up to 20minutes in stores without buying anything– either they are staying out of the rain orthat is a missed sales opportunity.

However, German supermarket chainMetro was recently forced to abandon aproject of this kind under pressure from consumer groups and privacycampaigners. Metro was putting RFIDchips into its loyalty cards at its store inRheinberg, Germany, where it trials newtechnology. The retailer wanted to usethe technology to check the age ofconsumers, in particular the age ofpeople who wanted to view DVD trailers,to ensure that they were old enough toview the material. The chip on the cardheld a customer number, while thecentral database held information ondates of birth.

In March, Metro cancelled the scheme.The chain will go ahead with the project,but use barcodes rather than RFIDchips. It will also continue with its otherRFID trials. These include using smartshelves – RFID readers that detect whenitems are removed from shelves andinform staff when it is time to restockcertain items.

Speedpass and stickersOne idea from the US might help tolessen people’s fears about RFID. By separating the technology fromloyalty cards, which already worrycustomers, US retailers have had moresuccess in getting customers to sign uptheir schemes. Petrol chain Mobilemploys a device called Speedpass,which can be used at its service stations,Exxon stations and McDonald’s restau-rants around Chicago. Threesupermarkets in Boston are also usingthe technology.

Speedpass is a little wand thatattaches to a key ring or to the rearwindow of your car. It identifies you by aunique number and allows you to payautomatically on a pre-selected credit orcash card. You can even buy a Timexwristwatch that has one of the chipsinside it. Mobil customers in Singaporealso use the devices. So far, Speedpasshas 5.5 million customers.

The simple tag lets you pay forpurchases without using cash or creditcards, which is the advantage forconsumers. It may well be that becauseit looks like a key ring rather than a

credit cared or a smart card,consumers do not mind using it.

Another system that has been fairlysuccessful in the US uses RFID stickers.Consumers can attach the sticker to awallet or a driving license. It provides aunique number to identify them to acentral database. The system, which isbased on Texas Instruments’ technol-ogy, is aimed at restaurants. LikeSpeedpass, it may lessen consumerconcerns by being a paper stickerrather than a mysterious card.

RFID in restaurantsAnother system that is being tested useskiosks in restaurants. It is aimed atfamily restaurants – neither hautecuisine nor Burger King.

Customers will wave their RFID stickeron the way in. Staff in the restaurant willbe able to see their preferences – do theywant a table near the window, iced wateror bread as soon as they sit down? It willalso provide information on what kind ofwine they have ordered in the past from

other restaurants using the system. Thesystem will not yet allow for payments.

After the meal, restaurant staff can goback to the kiosk and input what thecustomer bought and any other poten-tially useful information gained.Ultimately, it would mean that walkinginto any restaurant would be the sameas walking into your local, where thestaff actually know you.

Some of this will provide lessons fortraditional retailers – and require a bigmind-shift from customers. Would youlike to be greeted by name as you entereda store? Would you really like loudspeak-ers to suggest that you buy some food togo with all that booze you have bought?

Information overloadPrivacy worries aside, there is alsoconcern about the amount of data thatan IT department would have to crunchto make such a system work. There hasbeen much talk of “transparent supplychains” and “real-time retailing,” butdealing with the data created is likely tobe a major problem. Pilot projects haveshown the need to rebuild business

processes to be able to handle theinflux of data.

John Smith, president of ADT’s retailsolutions group, said at the company’srecent source tagging conference: “Thehurdle for RFID has been the require-ment to re-engineer business processesto deal with the mountains of data that itproduces. You need to start parsing it atthe point of sale before passing it ontomiddleware. It is bad at case level –imagine what it would be like if everysingle item were labelled.”

Retailers will need to deal with thisnew environment. Identifying everyitem in your supply chain sounds likethe logistics Holy Grail. Any retailerwould surely love to know exactlywhere everything is. Counting prod-ucts, dividing them up and getting themonto shelves is a major expense forretailers. RFID will not solve that prob-lem, it will simply shift it fromwarehouses to IT departments. All thedata will be available, but makingsense of it and putting it into a form that

managers can use will be an extremelydifficult challenge.

The margins on retail supermarketsmight make the process too expensive,but not getting involved might cost evenmore. If the information is available,some retailers will start using it, andaccess to such a totality of informationhas to give a competitive advantage.

Trials have shown that shoplifting oftagged products has been cut by at least25 per cent. There are other majoradvantages, too. If you have a completeoverview of your supply chain and usethe information properly, that shouldmean no stock shortages and nomissed sales. In effect, the shelvesthemselves will be aware of what isstocked on them and can reorder fromthe warehouse.

It sounds like a dream, but it could bea nightmare. Database tools and datamining software will have to deal with anear limitless amount of information. It will change not just the supply chain,but the role of the IT department. Themain challenge in the next few years willbe to adapt to these new functions. ■

Walking into any restaurant would bethe same as walking into your local


r f idpr ivacy

Privacy mattersRFID technology has the potential to revolutionise retailing in the years to come, but only if it can keep privacy activists at bay, reports Ken Young

No secrets left: privacy groups areconcerned about the effects of RFID

An alien observing the retail industryfrom the comfort of his flying saucercould be forgiven for thinking that RFIDtagging technology is about to transformevery aspect of retailing. A technologythe size of a grain of sand that can beused to track everything from Mars barsthrough to pallets of lawnmowers. Whatcould be wrong with that?

However, much like any new technol-ogy, RFID has its detractors – and theirnumbers are growing as concerns overmisuse of the technology spreads.

The nub of the debate is about privacyand disclosure. Privacy issues concernthe possible use of RFID to link buyingbehaviour to databases of customerinformation and to trigger video surveil-lance. Disclosure issues relate to thequestion of whether consumers shouldbe informed when RFID is in use.

Privacy groups are worried that thereis no legislation on RFID use. Theybelieve that it is time that privacyconcerns are addressed. This is mostapparent in California, where headline-grabbing senator Debra Bowencrystallised public fears by saying: “Howwould you like it if, for instance, one dayyou realised that your underwear wasreporting on your whereabouts?”

A well-known campaigner againstspam, Bowen put forward an RFID

privacy bill, which the California Senaterecently passed. Her Bill 1834 “prohibitsany person or business from using[RFID] tags on store products and fromusing RFID readers to collect personalinformation about people,” unless

certain conditions are met. The bill willgo before the California Assembly in June.

In Australia, New South Wales fairtrading minister Riba Meagher hascalled on EAN Australia, the industrybody responsible for controlling taggingtechnology, to draw up a voluntary codethat would oblige retailers to informconsumers when tags are in use.

“It’s absurd,” says Tom Friedman,head of the US-based Retail System AlertGroup. “EPCglobal has done a miser-able job of explaining what RFID is to thepublic. Privacy groups seem to thinkthat there will be readers in the side-walk.” He points out that tracking ofconsumers is already taking place:“Nintendo tracks every player it sells.”

Even though most RFID pilots relateto tracking the supply chain, the indus-try has already given privacy groups

ammunition. Most notably, Wal-Martand Procter & Gamble admitted tosecret RFID testing of customers whenthey used RFID in lipstick casing to trig-ger filming of customers who weretesting the product in an Oklahomastore. Tesco tested a similar system totarget theft by embedding tags in somehigh-price items, which, when handled,triggered CCTV recordings.

Benetton planned to use RFID tags inclothes to link product details withcredit card data, but cancelled the plansfollowing public protests. German storegroup Metro scrapped its roll-out oftags in loyalty cards after shoppersobjected to them being used to identifythe age of consumers who wanted toview DVD trailers.

In the UK, human rights group Libertyhas joined with US groups, notablyCASPIAN (Consumers Against Super-market Privacy and Invasion andNumbering), to recommend what it callsfair information practices. They are call-ing for tags to be used only on packagingand not on the product itself, and for tagsto be de-activated on leaving a store.

German anti-tagging group FoeBuDhas objected to plans of the EuropeanCentral Bank to embed RFID chips intothe fibres of bank notes to thwart coun-terfeiters. They are concerned that thiswould allow all cash payments to bemonitored. FoeBuD is also worried thattags could be hidden in clothing withoutthe customer’s knowledge, and that RFIDscanning devices will be used illegally toassess the contents of people’s houses.

At the recent CeBIT trade show inGermany, EPC vice president in EuropePhilip Caulderon scorned FoeBuD,saying: “There are more myths in RFIDthan there are in Greek mythology. Thereis a place for legislation, but not if it holdsback new technologies.” Like the debateabout mining consumer data throughloyalty cards, the discussion about RFIDprivacy looks set to run and run. ■

“How would you like it if your underwearwas reporting on your whereabouts?”

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