VideoHas any technology in recent memory been so hyped and, at the same time, so controversial as radio-frequency identification (RFID)? One moment it's a miracle cure that will streamline the supply chain, eliminate theft and waste, and essentially solve every logistics problem known to man. But at the same time, it has been portrayed as a buggy, expensive, privacy-devouring monster being forced upon Corporate America by an implausible and wicked cabal: major retailers and the Department of Defense.
In January, when the deadline for the first phase of Wal-Mart's RFID compliance program met with only partial success, the vultures started to descend with a vengeance. Wal-Mart had been both the biggest cheerleader and the most demanding coach, pushing its suppliers to affix a new generation of tiny radio tags to their products so that they could be tracked from the assembly line right into consumers' homes. Critics contended that companies slapped the bare minimum of tags needed on products to get Wal-Mart off their backs, while anonymous sources bewailed that there was no cost justification for investing in RFID at the moment, and they resented being bullied into the technology.
Anyone listening to all this negativity would be tempted to dismiss RFID as yet one more bleeding-edge technology years away from practical use. But cut through the clutter of complaints, and you'll find hundreds of companies successfully using RFID in everyday business. In fact, you've probably been using it yourself in everything from your office security badge to your ExxonMobil Speedpass to, for you runners, the timing chip attached to your footwear.
"Many RFID success stories have not gotten a whole lot of attention," says Beth Enslow, vice president of enterprise research at Aberdeen Group. "Companies have been turned off by the hype and all the talk of the Wal-Mart project, and that could result in them missing the ways that RFID can create value for them."
It's not that RFID doesn't have its challenges: the cost of the chips, the lack of standardization for the chips and the machines that read the data on them, the challenge of analyzing the vast amounts of data that RFID will produce, and the privacy concerns of consumers all demand attention. But so much is happening in the world of RFID that 2005 will almost certainly be the year in which most, if not all, of these impediments will be eliminated.
How They Work
RFID sprang from the minds of the MIT Auto-ID Center staff in 1999 as a replacement for the common bar code. More sophisticated than bar codes, RFID tags (sometimes called chips) are like little radio towers or transponders that send out information to a reader, or "interrogator." Active RFID tags have tiny batteries in them, while passive tags must usually be "awakened" by a tag reader in order to send information. Active tags can store and send more information at a greater distance than passive versions.
One advantage that RFID tags have over bar codes is that they don't have to be in the line of sight to be read. Anyone who has purchased groceries in the past 20 years knows full well that bar codes must be directly scanned by a laser, a process that can be thrown off by moisture or other contaminants. Products to which RFID tags have been affixed can be read at a distance, even through crates or other packing materials. The tags and readers can exchange everything from a simple price check to reams of information about where that product has been and where it is going next.
Another advantage of RFID tags is that, unlike one-size-fits-all bar codes, each item in a given carton or shipment can be tagged with information that pertains only to it, so that manufacturers, distributors, transportation companies, retailers, and marketers can track individual units across every step of the supply chain.
Market-research firm IDC projects that RFID spending in the retail supply chain will grow from just $91.5 million in 2003 to nearly $1.3 billion in 2008. Another market-research firm, In-Stat Inc., expects revenues from the sale of RFID tags and related technology to reach $2.8 billion by 2009. Some of the heavyweight companies already experimenting with RFID include Johnson & Johnson, Campbell Soup, Gillette, Dell, Texas Instruments, Exxon, Kellogg, Kraft, Hewlett-Packard, Nestlé Purina, Abercrombie & Fitch, Procter & Gamble, and Unilever.
Major manufacturers, particularly in the consumer-goods market, face intense pressure from Wal-Mart, Target, Albertson's, and others to get on the RFID bandwagon. But for many other companies, it's more of a chicken-or-egg game: manufacturers are waiting to see how many retailers install RFID-reading equipment before they invest heavily in RFID tags, while retailers are holding off on such investments until enough of their suppliers start shipping tagged goods.
"RFID is like the telephone," explains Al Delattre, managing partner of the electronics and high-tech practice at Accenture. "The value multiplies as more people use it. The value of one telephone is extremely limited. With two you can communicate with someone else. Add a third and you can have a conference call." Make them ubiquitous, and soon you can't imagine life without them—for better and worse.
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