Major retailers accelerate adoption of RFID

Wal-Mart, the world's biggest retailer, has announced plans for its 100 top suppliers to introduce radio frequency identification (RFID) tags for tracking goods through its supply chain by 2005.

The scheme will initially focus on tracking crates and pallets of goods to improve inventory management.

Such widespread use will increase mass-production of the chips and could reduce unit costs to five cents, the level at which many experts consider to be economically feasible to tag individual products.

Using the tags for Wal-Mart's top 100 suppliers will mean the production of about one billion RFID chips.

The US company, which owns Asda in the UK, has not mandated the use of the chips, but its decision will provide a major kick-start for a technology which has so far been used only in limited pilot schemes.

"Make no mistake about it, Wal-Mart is serious about RFID," stated analyst John Fontanella of AMR Research.

"Some company had to step in and make it happen, one with mass market influence to dictate and create a wave of momentum that would wash over the entire industry."

When Wal-Mart mandated use of barcodes on products in 1984, it was the turning point for the universal adoption of the system that RFID is one day likely to replace.

In the UK, Tesco and Marks & Spencer have been leading trials of the technology. Tesco's first test was on Gillette Mach 3 razor blades at the retailer's Cambridge store in January, and the company has extended the scheme to track the movement of DVDs in a new trial at the Tesco Extra store in Sandhurst, Berkshire.

The trial will be extended across the country later this year if the tags are successful.

"RFID is a unique technology because it allows us to be mobile," explained John Clarke, Tesco's director for group technology and architecture. "It's about developing standards that will allow us to understand the supply chain."

The project, which has received funding from the Department for Trade and Industry's New Wave Technology Programme, has been developed for Tesco with packaging company MeadWestvaco.

Each DVD features a unique tag on the packaging that is activated by a shelf reader. When the product is removed from the shelf, or from the back room of the store, the reader immediately sends a message back to a central computer system.

"We want to know where products are in the supply chain," said Clarke. "The system allows the customer to get improved availability, and we'll ensure that products are there."

Tesco hopes that RFID will link into stock ordering systems in the future. This could tell staff when products are about to go out of date, the number of items in the stock room, and the range of items at the distribution centre.

"We believe we can get benefits for the customer now," insisted Clarke. "We've seen higher availability and increased insight into the supply chain."

At the Retail Systems 2003 conference in Chicago last week, Marks & Spencer's food logistics controller Keith Mahoney told delegates about the retailer's RFID project in its food supply chain.

Working with warehousing and distribution supplier Gist, M&S first trialled tags in 2002, and implemented RFID into a depot this year.

"The trials used 300,000 trays tagged with temporary labels, and were tested in the real world and not in an artificial environment," said Mahoney

The tags were subjected to temperatures of -20C and washed in hot water without affecting their use.

"As an enabler RFID has the potential to generate more information about events in the supply chain. We will capture information about events in the depot, which we have not been able to collect before in a cost-effective manner," he explained.

M&S hopes to roll out RFID across all its depots during 2004, and introduce RFID-enabled systems in-store in 2005.

"RFID is an enabler for radical change in the supply chain. This will not happen overnight and it will be some years before we see all the benefits," said Mahoney.

"To exploit the benefits we have set in motion a redesign of all the processes in the primary network, from supplier to regional distribution centre and its operations, deliveries to stores and in-store activities. Each process is being broken down and redesigned to fully exploit our RFID vision."

But retailers are already having to consider a potential consumer backlash over the implications of RFID.

In March, clothing giant Benetton said it was planning to embed the chips into the labels of 15 million garments. But the company has since dropped its plans following protests over privacy.

Ari Juels, principal research scientist at security specialist RSA, warned that concerns over privacy are hindering RFID's potential.

"If RFID tags are deployed naively, they represent a serious danger to consumer privacy," he said. "In the near future we can expect these tags to be everywhere."

RFID tags are currently pointers to databases, so how do you protect that data? "The appeal to marketers is clear: if I buy a pair of Levi jeans and Levi wants to know what stores I go to, it can read the tags and determine that information," explained Juels.

Current thinking suggests that retailers will embed the tags in products, but will be forced to 'kill' or deactivate the chips when they leave the shop.

But with the European Central Bank planning to embed the devices in Euro notes, this is likely to be a short-term solution because the tags are so useful.

Juels indicated that alternatives will soon emerge. RSA has devised a Blocker Tag, which selectively blocks RFID readers by simulating all possible identification codes, allowing the devices to be read only by selected parties.

"It's possible to strike a balance between privacy and convenience," he said.

Additional reporting by Bryan Glick.

FURTHER READING:

Benetton knits RFID into supply chain

Smart tags on trial at Tesco

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