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RFID: When and how?

“WHEN will they mandate,” asks the food and beverage sector.

If you need an answer, it may be time to take a closer look at the question.

Four letter word

By attaching a radio frequency identification (RFID) tag to an object, a computer can track that object without human intervention.

Business is getting more ‘interconnected’ and more ‘real time’.

By tracking an object remotely through key events in that object’s ‘life,’ you can automate its flow through the supply chain.

From raw materials to retail shelf, it is hoped that RFID will help supply chains tune themselves to respond more quickly to consumer demand.

The Wal-Mart experience

Driven by RFID’s path to market in North America, food and beverage manufacturers have asked when Woolworths and Coles, Australia’s two dominant supermarkets, will mandate the technology.

In 2003, US retail giant Wal-Mart asked its top 100 suppliers to invest and re-engineer RFID into their systems to retain their status as suppliers.

Other companies including Metro, Target, Carrefour and Tesco quickly followed suit.

It was an expensive investment to force on suppliers, when you consider that large supermarkets may be trading billions of items per year, and at the time individual RFID tags cost up to $US2.

The early results did show business improvements, according to VeriSign information services manager Ben Armstrong.

“Goods with RFID tags and EPC reduced out of stocks by 16%, and reduced manual orders and excess inventory in RFID-enabled stores.”

Implementation of the technology is helping companies reduce the estimated 30% of buffer stock held in inventory by showing demand and supply information in real time.

It could play a key role in preventing food poisoning by warning when food is bad or bacterial levels are approaching volumes that will cause sickness.

However, in his book RFID Labelling, Printronix CEO Robert Kleist said the technology has the potential to create huge amounts of data that is not necessarily accurate, appropriate, complete or unique.

Driven by the mandate, many US suppliers have taken an unfortunate ‘slap and stick’ approach, fixing an RFID tag on their products to appease Wal-Mart without taking advantage of the available efficiency gains.

It’s like the introduction of barcodes all over again.

Local knowledge

Although Australian applications are predominantly still first generation (Gen1), the recent Patties-Montague trial (see breakout) tracked second generation (Gen2) performance in the cold chain between Patties’ palletiser and Montagues’ cold storage loading dock.

Products were tagged at the carton level - Armstrong said it doesn’t make sense to tag fast-moving-consumer-goods at the individual product level.

The trial results were impressive; however, Metcash was the only supermarket officially involved.

Although they are undoubtedly interested, the dominant players in Australia’s high volume, low margin retail environment have kept their cards close to their chests.

Since 2002, Woolworths have completely overhauled their supply chain under the ‘Refresh 2’ banner.

Woolworths project manager (shelf ready packaging) Brett Griffiths told an audience of Australian Institute of Packaging members at Conrad Jupiters, Queensland, that the main driver was “efficiency and that’s what we’re always moving towards.”

However, he was non-committal on a timeline for the technology.

Costs of implementation have dropped drastically over the past couple of years - as low as 10c per tag - and Alien vice president Andrew Berger, a major developer of RFID Gen-2 tags, said he is committed to a 5c tag.

The use of global standards means we use the same tags as American suppliers to Wal-Mart and the US Department of Defense (DoD).

“If you get bored hearing about Wal-Mart and DoD,” said Berger, “think about it this way, their economies of scale bring down prices and give you a chance of good return on investment in RFID technology.”

But although the trickle-down benefits of global standards and case-study experiences make the task much easier for Australian business, the major retailers refuse to make any public commitments.

GS1 general manager (service delivery) Richard Jones told the AIP audience that compliance is coming.

“The major grocery retailers are considering this – you can probably name them - and participating in activities that, without giving too much away, have to do with EPC and RFID.”

However, GS1 general manager (standard development) Fiona Wilson told the Australian Financial Review it would be a minimum of five years before supermarket products begin to be tagged across the board.

Another route

It is extremely unlikely that suppliers will convert to the technology without a local mandate from retailers, as it means rising costs for vendors, while retailers are perceived to get all the benefits.

It may be that Australian suppliers are inevitably drawn in by international trade requirements.

Despite the positive results of the National Demonstrator Project, which involved a consortium of 13 companies in manufacturing, retailing, packaging and transport (including Gillette, Metcash, Visy Industries and Verisign) measuring the benefits of RFID across an entire supply chain, industry experts consider asset management may be the first win for RFID in Australia.

Along with toll tracking, asset management has become one of the big opportunities here for RFID.

UHF RFID is increasingly being used in libraries, and one of Alien’s biggest current projects in Australasia has been tagging an aluminium smelter as all 40 thousand items are moved from Malaysia to Australia.

“We don’t see the Wal-Mart directive as driving the Australian RFID market,” said Berger.

“It’s more asset tracking in a closed loop to see benefits.”

Opening the loop

In this case, ‘closed loop’ refers to tracking assets within an organisation, rather than tackling the less clearly defined benefits of RFID tagging products for external distribution.

However, it seems inevitable that Australian suppliers will eventually be forced to comply with RFID standards.

Initially in export markets, but once the results of closed loop usage have proven themselves, RFID is likely to be taken up in tracking products as they move through the supply chain.

The uptake will be extremely quick.

With potentially billions of objects to be tagged, RFID stakeholders need to ensure 100% reliability – any tag that fails undermines the entire system – and they will need to substantially increase capacity to make them.

Current capacity can only produce up to 250 million tags per year, a significant shortfall on projected demands for up to two billion per year.

24/07/2006 12:00 AM
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