RFID: A Tale of Two Cities

The current market for RFID supply chain applications reminds me of the opening line of Charles Dickens’ A Tale of Two Cities.

According to RFID vendors, the market is poised for strong growth as active RFID solutions pick up speed, equipment prices begin to drop, and the industry continues to make progress adopting global standards.

But RFID end users are still largely hesitant to embrace the technology, citing too-high tag prices, uncertain ROI, and an onerous implementation process.

Best of times, worst of times, anyone?

Some evidence to support the “best of times” view: A substantial number of RFID offerings and capabilities have debuted recently, in a wide range of applications.

The Port of Oakland, for example, announced it will use active RFID technology to meet homeland security requirements.

Horizon Services Group, the technology subsidiary of carrier Horizon Lines Inc., is working to create RFID reader infrastructure on U.S. highways to devise a national network for real-time intermodal container tracking.

SAP released a new set of RFID technologies that adds product trading and authorization capabilities.

And DHL completed a successful pilot using RFID to monitor temperature-sensitive pharmaceutical products during transport; the company plans to bring the service to market in the fall.

The list goes on. News releases boasting RFID product updates, launches, and new partnerships and pilot programs fill my in-box daily.

End Users: Adopt or Avoid?

But who is using these new applications? The tale reads more “worst of times” from the end-user perspective.

Three years ago, when the Wal-Mart RFID mandate kicked into effect, forcing its top 100 suppliers to ship cases and pallets of goods tagged with RFID, it seemed a sure bet that shippers would flock to RFID solutions. Following right behind Wal-Mart, the Department of Defense (DoD), Target, and Albertsons also placed RFID mandates in motion.

But what followed was not a mass march to adopt RFID, but rather a slow trudge to so-called “slap-and-ship” compliance so as not to lose a major customer.

Today, the plan for RFID installation in Wal-Mart distribution centers is behind schedule, expansion plans for Target and the DoD have been delayed, and Albertsons discontinued its pilot, reports AMR Research analyst Lora Cecere in a recent paper, What We Have Learned From Three Years of RFID Pilots.

Some shippers are wholeheartedly embracing RFID – retailers broke out as early adopters, along with companies in the automotive and aerospace/defense industries.

Notes from the Field

U.K. retailer Marks & Spencer, for example, began item-level tagging on men’s suits back in 2004. Now 120 stores utilize RFID tags on a wide variety of both men’s and women’s clothing.

In the United States, Best Buy has led the way, having issued a 2004 mandate similar to Wal-Mart’s. The retailer is also piloting RFID systems to expedite the process of locating items in storefronts and back rooms, and plans to eventually use a RFID-based automated system designed to eliminate checkout lines.

Hewlett-Packard also logs on to RFID – the computer manufacturer first implemented RFID in 2002, now maintains 28 RFID-enabled facilities worldwide, and plans to use 10 million Gen 2 tags in 2007, reports AMR.

Mounting evidence exists, however, that many shippers are generally blase about RFID, unless a specific mandate forces them to implement it.

A recent study from IT industry group CompTIA highlights this. While 84 percent of technology resellers, solutions providers, systems integrators, and consultants surveyed say they will offer RFID products and solutions in the next three years, 65.6 percent report that their customers have yet to implement RFID solutions.

“The results of the survey are reflective of the RFID market, where rosy forecasts about rapid and widespread adoption have given way to the reality of dealing with a technology whose broader deployment has been challenged by equipment and tagging costs, murky and unclear ROI for supply chain applications, and a workforce skills shortage,” explains David Sommer, vice president, e-business and software solutions for CompTIA.

Who’s Using RFID?

I attended a recent Council of Supply Chain Management Professionals (CSCMP) NJ roundtable event, where logistics IT provider CAPE Systems demonstrated its RFID Tag Locator technology – a software solution for RFID tag testing, evaluation, location, and usage – to a group of 50 logistics professionals.

When the demonstrator asked us who worked for a company that implemented or was planning to implement RFID, only two people raised their hands. In both cases, their companies were complying with Wal-Mart’s mandate.

Also, at CSCMP’s annual conference last October, interest in RFID seemed minimal. Only a handful of RFID seminars and vendors were on hand, and many shippers cited the familiar woes of high prices and low ROI as prohibitive.

When I wrote about this in my November column (Talking Tech at CSCMP) I got in trouble with a quartet of RFID supporters working on a book. They argued that strong interest from their client base did not mesh with what I noticed at the conference.

“The truth is that RFID hype is down, but real business is up. Companies are increasingly using active RFID solutions where passive RFID fails to reap benefits. In the manufacturing arena, in particular, RFID is alive and well and providing value,” wrote the authors in an e-mail.

Such discussion and debate among industry professionals is common. Even the analysts have mixed opinions about exactly where the RFID market is headed, and its eventual value.

“We originally predicted that RFID would see widespread adoption in 2008. This will not happen,” admits Cecere. Instead, AMR now expects the industry to take the next five years to learn and grow through focused, collaborative RFID pilot projects.

When asked what he expected of the RFID market in 2007, Sommer of CompTIA said he sees “strong movement across many industries, taking RFID deployments from the pilot test phase to the full production phase.”

Global consultancy Frost & Sullivan expects the RFID market to stabilize between now and 2009, predicting the market’s revenue will nearly triple over the next four years.

The firm also estimates the passive RFID tag market will grow to $486.6 million by 2013, from $124.6 million in 2006, citing the Gen 2 protocol for UHF RFID, and increased adoption by retail and military sectors as factors.

Technology consulting firm IDTechEx, meanwhile, estimates worldwide demand for RFID tags (its report does not specify whether active or passive tags, or both) will reach 240 million units in 2007, rising to more than one billion units per year by 2009. It puts the total global RFID market value – including all hardware, systems, and integration – at a whopping $4.96 billion in 2007.

Still No Decision

What does all this mean for shippers? Do the market predictions, analyst and vendor endorsements, and impressive results from early adopters hold much sway?

It is hard to know for sure whether this is the best of times or worst of times. The wait for an official verdict about RFID’s prospects for supply chain applications continues.

What is certain, however, is that we’ll still have a Dickens of a time determining how RFID can best help manufacturers, retailers, and distributors on their constant quest to balance supply chain optimization with the bottom line.

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