Tracking RFID

70-year-old technology meets the microchip and the introduction has broad implications

Nashville Business Journal - October 6, 2006
by Roy Moore
Nashville Business Journal

Radio frequency identification is changing the way businesses operate, speeding inventory passthrough and altering the inventory logistics landscape.

Rooted in technology 70 years old, RFID, as its known, has come to the forefront in recent years because microchip technology has made its deployment cost-effective. The occasion hasn't escaped Wal-Mart or the federal government for that matter. Both are embracing the convergence of the two technologies decades apart as a way to eliminate costly supply chain bottlenecks. In the process, they have launched an RFID revolution.

The most common RFIDs are passive tags – basically tiny, microchip-based targets.  When their antennae are hit with an incoming radio signal, the signal provides just enough energy for their microscopic circuitry to power up briefly and transmit a response.

At libraries, the response can trigger an alarm, notifying personnel that someone may be leaving with a book that hasn’t been checked out.  For cars with a window-mounted transponder imbedded with an RFID tag, the response raises a gate, signifying a toll has been paid.

For Wal-Mart, the world’s largest retailer, the technology means getting the right item to the right place, right on time-and the potential for savings millions, or likely billions, of dollars in the process.

Checking items in instantly via imbedded RFID chips eliminates the time it takes to individually check them in using a barcode scanner.  Wal-Mart officials are reporting more accurate inventory controls and, subsequently, higher “in-stock” ratios in stores where the technology’s used.

John Menzer, Wal-Mart’s vice chairman of U.S. operations, underscored the impact products availability has on the bottom line.  Speaking at an analyst meeting in June, he said when an item’s out of stock, customers are forced to look elsewhere – often to a different store or a different product – meaning Wal-Mart and its suppliers potentially lose business.

Not everyone’s totally taken with RFIDs.  Nor are they thrilled with the ripple effect a decision such as Wal-Mart’s to put it in use on a massive scale is having on supply chain businesses who have little choice but to fall in step.

Not everyone’s totally taken with RFIDs. Nor are they thrilled with the ripple effect a decision such as Wal-Mart’s to put it in use on a massive scale is having on supply chain businesses who have little choice but to fall in step.

Nashville’s Ozburn-Hessey Logistics went lice with RFID last year when one of its clients was forced to adopt the technology because of Wal-Mart.  Since then, the third-party logistics firm began offering it to other clients.

Aaron Warneld, engineering solutions manager for Ozburn-Hessey, says his company doesn’t sell RFID as a logistics panacea.  Instead, it makes it available as part of a larger warehousing solution.

“Our core competency is really in warehousing and we’re broadening out into transportation and freight forwarding,” Warneld says.  “As a stand-alone IT solution, (RFID) does not fit our business model.”

Part of the reason it doesn’t is because Warneld’s company caters to companies that ship a high volume of low-cost goods.  While a 20-cent tag may make  sense when tracking $1,000 refrigerators, it’s cost-prohibitive for $10 cases packed with 144 inexpensive widgets.  However, the cost of putting the technology to work is dropping.

Wal-Mart officials say chips that used to cost a half dollar each can be purchased now for less than a dime.  The company has RIFD system in five distribution centers, nearly 500 stores and 36 Sam’s Clubs nationwide. Menzer predicts the RFID wave will continue to swell.

Even if it’s not a logistics end-all, RFID use is expected to explode during the next decade.  The demand by Wal-Mart and the government has hastened the process – money spent by suppliers to both represented a sizable chunk of $500 million spent globally on RFID last year.  That number is expected to exceed $3 billion by 2010, according to Gartner Inc.

Paul Reed, president of Business Resource Solutions, a Brentwood purveyor of barcode technology and services, says as long as large organizations are demanding the technology, an increased reliance on RFID is inevitable.  Reed’s company got involved four years ago when Wal-Mart and the federal government began embracing it.

To stay ahead of the curve, his company developed a $20,000 software package that allows supply-chain businesses to become RFID-compatible.  The Windows-based program generates and reads the RFID tags that go on shipping pallets holding goods.

“We expect suppliers to tag quite a few more items going forward in the future,” reed says, noting that doesn’t mean barcodes will suddenly disappear.

“Barcoding doesn’t go away,” he says.  “It’s not like we’re going to wake up and there is no barcoding.”

Industry officials expect the technology to be applied well beyond basic supply chain management.  There are applications for pet identification that are already being used.

Other applications in human identification – such as security clearance, medical records and missing persons – are being considered and, in many instances, debated.

Roy Moore, Tracking RFID, Nashville Business Journal, October 6,2006, pg. 21