The bar code of the future

Prada stirred up buzz with it in its high-tech Manhattan store. German retailer Metro AG is promoting it in its new "Store of the Future" concept. Other big-name retailers have run pilots on it, including Wal-Mart, Target, Home Depot, Gap, CVS and Benetton Group. What's the new technology buzz on everybody's mind these days? Radio Frequency Identification (RFID) tags, or "smart tags," for short.

RFID tags are small tracking devices attached to products that function as a new alternative to today's bar code. But in contrast to a standard UPC system, the Electronic Product Code (EPC) system enables retailers and distributors to pinpoint individual items on a shelf for greater inventory efficiency. The tag itself, which consists of a chip and an antenna, is about the size of a postage stamp and is read by a wireless tag reader—either shelf-based or hand-held. The bigger the tag, the longer the range a tag can be read from a reader. A 1-in. tag, for example, might only be read at a 3-ft. or 4-ft. range, whereas a 3-in. tag might have a read range of more like 15 ft. to 20 ft.

As RFID technology begins to take off in the retail industry, the benefits—from inventory tracking to shelf management and labor cutbacks—are becoming more and more discernable. "The common benefit across all retail sectors is the ability to take inventory at the shelf level to make sure you have the correct mix of product," says Tom Coyle, vice president of sales and marketing, supply chain management for Matrics, an RFID manufacturer based in Columbia, Md. "The idea is you can do inventories at night and keep track of your inventory on the sales floor to assure that you have the appropriate mix of (apparel) size 6, 8 and 10, for example."

The Auto-ID Center, a nonprofit global research organization headquartered at the Massachusetts Institute of Technology (MIT), was founded in 1999 with a single mission of building the bar code of the next generation. "EPC allows companies to identify any object, anywhere, automatically. If widely adopted in retail, that is a whole new capability, and simply not available today," says Kevin Ashton, executive director at the Auto-ID Center. "In today's world, if you want to find out what products you have in stock and where they are, you have to go and look—or rely on bar-code data that gives only approximate information about what you have sold." He goes on to explain how RFID technology enhances the inventory tracking process: "By making these processes automatic, accurate and real-time, you can get all sorts of benefits, from improved quality, to faster product movement, to reductions in inventory, out-of-stock and overstock. There are endless possibilities, and the return on investment could be huge."

RFID technology has the capability to clean up a lot of the data inaccuracies that occur with bar-code inventories, as well as speed up the process by 85 percent to 95 percent, according to Coyle. "Bar code is a great technology, has been for 25 years and will continue to be important for decades to come," Ashton says. "Its limitation is that you need somebody to scan the object, and that restricts when you can read it, and also makes gathering information laborious and relatively expensive—people expect to be paid for scanning bar codes. With EPC, the identification is fully automatic, so you can be constantly monitoring products throughout the supply chain—not just at checkout."

Once the technology becomes more prolific in the retail scene, both retailers and consumers are predicted to save money in the long run with the more frequent usage of RFID tags, says Mark Roberti, editor of Long Island, N.Y.-based RFID Journal. "More efficiency on the retail end equals less time and overhead for the retailer, which leads to lower prices for the consumer," he says.

For now, however, one of the major drawbacks of RFID implementation is the cost per tag for retailers and manufacturers, with the cost now averaging around $0.50 per tag. That's extra cost per SKU that the average retailer just can't afford to spend. "Business case estimates vary, but on many products and for many applications they need to be $0.05 or lower to be attractive," Ashton says. "We have helped develop mass production processes for making tags, so price is now a function of volume, not time. RFID is just electronics, and electronics get cheap quickly if there is a mass market."

Concerns have arisen in the general public regarding sensitivity to privacy issues surrounding this kind of tracking technology, such as whether products will continue to be active once customers leave the store and return home. "Everyone's concerned with Big Brother watching you, and that's a concern, but to me an unnecessary concern," Coyle says. "You can put a deactivating capability, or 'kill' capability on the tag, which will essentially render it neutral once the customer leaves the store."

As more buzz is generated around RFID technology, some experts think the retail industry is in for quite a major transformation. "I think this technology is a lot faster in coming than most retailers think," Roberti says. "It's not just a bar code on steroids. It's like the Internet—a platform, an infrastructure that can be used for ever-expanding opportunities."