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Tagging Along On The RFID Revolution

RFID Revolution 1

A sample RFID label maker at ASAP Automation

If you are reading this journal, odds are this isn’t the first time you’ve heard about radio frequency identification (RFID). Over the past few years, RFID jumped off many strategy meeting drawing boards and into hundreds of warehouses, distribution centers and retail stores worldwide. The material handling industry has been the proving ground for RFID, thanks mostly to the mandates set by the world’s largest retailer, Wal-Mart, and the U.S. Department of Defense.

The Progression of RFID Initiatives
If you were to ask those involved in the development of the technology, the standards that govern the technology, or the mandates that require the use of this technology, the state of RFID is strong indeed. Many technological and implementation milestones were achieved in 2005, and more are being met in 2006. Currently over 300 companies are shipping pallets and cases with RFID tags to Wal-Mart’s RFID-enabled distribution centers. This amounts to over three million tagged items per week and hints at the success Wal-Mart has had with their mandate.

These numbers will double by 2007 as the third phase of Wal-Mart’s mandate comes to pass in January, requiring the next 300 of their biggest suppliers to be RFID-ready. Similar success will likely be seen by the Department of Defense, as well as other companies with RFID mandates, such as Target, Albertson’s and Best Buy. But these mandates alone are not the only reason RFID has seen success in the industry.

RFID Revolution 2

Within the next 12 to 24 months, item-level tracking will be the most strategically important investment for 42 percent of surveyed retailers.

Since 2004, RFID tag prices have dropped over 70 percent and reader prices have dropped nearly 40 percent. In bulk, some tags can be purchased for less than 15 cents, while single readers can be purchased for less than $1,000. These price drops have made RFID much more economical to deploy, meaning that for some applications a return on investment could come in months instead of years. The success of the EPC Generation 2 standard has tremendously improved the performance of RFID systems and standardized their operation by providing global interoperability between different brands of tags and readers.

Real-World Results
Adding to the motivation for RFID implementation were some of the first concrete results from a real-world RFID analysis. An independent study conducted in 2005 by the RFID Center at the University of Arkansas examined 24 Wal-Mart stores, half of which were RFID-enabled, over a period of seven months. The study uncovered a 16 percent reduction of out-of-stock items when RFID tags were applied. These tagged items were also replenished three times faster and associated manual orders were reduced by 10 percent. Further review of the study recently revealed that the reduction in out-of-stock items was more in the neighborhood of 30 percent.

The Department of Defense has also noted some tangible benefits to the deployment of RFID throughout its supply chain. In the Marine supply chain, average delivery times have fallen nearly 43 percent and inventory value in the chain has been reduced by over 47 percent. In all, the DoD expects to invest roughly $500 million across its supply chain, resulting in a savings estimated to be anywhere from $70 million to $1.7 billion over the next seven years. Other less quantifiable benefits include increased confidence in the field, knowing exactly where critical supplies are, and making sure they get to where they are needed as soon as possible.

RFID Beyond the Mandates

RFID Revolution 3

As a box passes the RFID reader, its radio signal is captured and the item is accounted for.

As the mandates from Wal-Mart, the DoD, Best Buy and others continue, some manufacturers and warehouses are adopting RFID for their own benefit. Controlling the movement of items within a facility, guaranteeing the authenticity of a product, even double-checking an entire pallet’s contents in the blink of an eye, are just some of the methods by which companies are finding different ways to put RFID to work.

Flow Control — Whereas barcodes are great at finding where an item was last seen, RFID offers the potential to reveal where that item is now. This use of RFID can greatly enhance the control of material, product and personnel flow within a facility. RFID tags on totes can help to track and direct the flow of product along a conveyor system, offering real-time asset location data. Some companies employ battery-powered tags along with triangulation techniques to achieve total, real-time visibility of their high-value products and equipment.

Security — In the pharmaceutical industry, RFID has taken a role in helping to reduce shrinkage and fight counterfeiting. The FDA’s drug pedigree, soon to be enforced in several states this summer, will help provide a trail of accountability for all major drugs from the pharmacy counter all the way back to the manufacturer. RFID can help make this process easier by enabling the entire pedigree to be stored on the bottle itself, which can be updated at each destination automatically as it passes through the pharmaceutical supply chain. To fight drug counterfeiters, both Pfizer and GlaxoSmithKline are placing RFID tags on their most counterfeited products. Bottles of Pfizer’s Viagra and GSK’s Trizivir, an HIV medicine, are being shipped with passive RFID tags on them.

Quality Control — One of the greatest benefits of RFID lies in its ability to read many items at one time, through a variety of materials. Quality control is a prime area to take advantage of this trait. Taking random pallets aside and manually checking each case against a pack list is very labor-intensive and time-consuming. With RFID, every pallet exiting a facility can be QC’d on the fly and any erroneous pallets corrected before shipment. While this has not yet seen widespread use, RFID has great potential to improve this process.

Integrators On The Future Of RFID

“RFID has a foothold in the supply chain now,” says David Gealy, senior consultant at FORTE (Mason, OH). This is the most important result of the 2005 supplier mandates laid out by Wal-Mart, even though many suppliers were unable to comply.

Chris Shult, president, Babush Material Handling Systems (Sussex, WI), concurs. “The 2005 mandates were successful because the benefits of RFID have become more universally known. Today, the question is not if the technology will be accepted, but when. Many of the large retailers slowed down the mandate timeline but are still pushing forward.” The retailers have become more flexible because they realize that RFID is an emerging technology, and they are allowing the second wave of suppliers to catch up and evaluate how to incorporate RFID technology into their operations.

David Gealy

David Gealy, Senior Consultant, FORTE

The next progression will be installing printers that encode RFID and print tags and readable bar codes on labels. The other main pieces of equipment from a material handling distributor perspective being applied to solutions are RFID hand readers with scanners and in-line RFID print-and-apply systems. “When a carton comes in on a conveyor, it is scanned upstream, allowing the system to know that this carton needs an RFID label which can be printed and applied on the fly,” says Gealy.

Chris Shult

Chris Shult, President, Babush Material Handling Systems

The emergence of Generation 2 tags will be a catalyst to unify the technology, according to Shult. “Because of the implementation of Gen 2 tags, activity will pick up considerably in the next 18 months. Customers are spending a lot of time gathering information and trying to determine how and when to apply the technology. We are starting to see more widespread interest.”

As the technology evolves, material handling distributors must evolve with it. “Really, it comes down to working with clients and understanding what their requirements are,” says Gealy. “How many SKUs need to be tagged? What are the volumes? The important thing is to come up with a scalable solution that can accommodate future growth while at the same time minimizing the impact to cost and distribution operations.”

There are still issues with readability and with tagging certain products like liquids and metals, but the industry generally is becoming more educated about the pros and cons of RFID. Estimates vary as to when RFID adoption will be “widespread,” but once it is, Gealy believes a shift will occur as to where the tagging takes place. “Right now, if 25 percent of a supplier’s business is for a customer like Wal-Mart, that supplier will apply RFID tags in the distribution center only on items to be delivered to Wal-Mart RFID-enabled DCs. It doesn’t necessarily make sense right now to selectively tag and then segregate RFID-tagged inventory in the DC. Conversely, if 75 percent of the volume going out the door requires RFID and 25 percent doesn’t, it might be that tags should be encoded and applied farther up the supply chain.”

Effects on the Material Handling Industry
The variety of applications already taking advantage of RFID have prompted many manufacturers in the material handling industry to take notice of the technology’s selling potential. Several trends have begun to appear in the industry.

  • The physics of RFID are influencing new product design. Many material handling companies are taking strides to include RFID environmental considerations into their products. Some conveyor manufacturers are using RF-friendly materials, like plastic, for conveyor rollers and bed surfaces. Other hardware manufacturers are including mounting options for their equipment, specifically designed for RFID hardware.
  • Current material handling equipment is being integrated with RFID hardware. Still other companies are taking the next step and offering RFID hardware already integrated into their products. At least one material handling hardware manufacturer offers this feature as an option on its stretch-wrapper. By placing the RFID antenna on the arm of the machine, cases spend more time in the read field as the pallet spins, increasing read accuracy. The inclusion of a wireless bridge allows the wrapper to be relocated throughout the warehouse and still send tag data to the host system.
  • RFID solution providers are designing around existing hardware. Other RFID solutions build themselves around existing machines, allowing easy hardware integration into existing systems. BlueBean, an RFID compliance company, offers a Conveyor Portal Kit that simply mounts around an existing piece of conveyor. Compatible with many different RFID readers and antennas, add-on portals like this offer a quick and easy solution to adding RFID hardware to a company’s existing operations.
  • Third-party logistics providers are offering value-added RFID integration services. Some third-party logistics companies are jumping on the RFID wagon as well. One easy way for a manufacturer to achieve compliance with an RFID mandate is to partner with a 3PL provider that offers pallet and case tagging as a value-added service. These 3PLs could also take advantage of the data generated by the tags to automate their own processes while giving their suppliers better visibility as to where their product is along the supply chain.

What Lies Ahead?
Over the next few years, as RFID technology becomes more prolific, tag and hardware costs will continue to drop as purchase volumes increase. New technologies will also help to drive down costs, making tags cheaper to produce and easier to implement. Continued demand for the technology will drive a dramatic increase in the amount of RFID-trained personnel. And the issue of item-level tagging will become more important than ever, as well as creating the infrastructure to support it.

In early May, tag manufacturer SmartCode announced pricing of its Gen2 RFID inlays falling to five cents, claiming the race to the mythical five-cent RFID tag was over. However, these inlays still need to be converted into labels, raising the price of the actual tag to at least eight or nine cents—still exceptionally low pricing. While this price is only valid for quantities of 100 million tags, it shows SmartCode’s faith in future increases in tag volume purchases.

Several companies are researching new methods and materials for RFID tag production. OrganicID is in the process of creating technology to print entire RFID tags, organic transistors and all, and looks to bring this technology to market within two years. Utilizing ink-jet style printing methods, this technology could reduce the cost of a tag to a penny or less and make tagging as easy as printing a barcode. Other companies, including Philips, are investing in plastic electronics to make tags faster and cheaper than their silicon-based counterparts.

Currently there are not enough personnel available with RFID experience to meet demand. To help remedy this situation, and create a global standard for RFID training, CompTIA has introduced their RFID+ certification program. This vendor-neutral certification will help develop the RFID workforce, guaranteeing a technician’s ability to install, repair and support complex RFID systems. With programs like this, and the continued pressure from mandates, there is sure to be a steady growth of “RFID engineers.”

According to a survey of 24 Tier 1 retailers conducted by AMR Research, 42 percent acknowledged that item-level tracking will be the most strategically important investment in the next 12 to 24 months. When it comes to using RFID for this purpose, the jury is still out on whether it is best to use high frequency (13.56 MHz) or ultra-high frequency (915 MHz in the U.S.), since each has performance advantages depending on the material to which it is applied. Some RFID hardware manufacturers are planning ahead by building readers that are compatible with both frequencies, allowing the use of tags whose frequency works the best for that particular product. Regardless of which tags are used, RFID tagging at the item level will consume billions if not trillions of tags each year.

As customers assume more responsibility and more active roles in transactional processes, distributors will need to respond faster and with more information and features than ever before. RFID can greatly enhance both the quality and quantity of the information and speed the process of reacting to inventory changes and customer demands. Between those four little letters lies a revolution in logistics and distribution that is already well underway. When will you be ready?

Material Handling Equipment Distributors Association

Chris Bratten Meet the Author
Chris Bratten is a sales consultant at ASAP Automation, located in Louisville, Kentucky, and on the Web at www.asapauto.com.

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