RFID done right

As a major supplier to Wal-Mart, computing giant Hewlett-Packard Co. (HP), Palo Alto, Calif., is well along in its RFID efforts. HP—which supplies printers-ink jet cartridges, and other products to Wal-Mart—expects to gain efficiencies from RFID.

"There are

basic benefits to RFID, like labor savings in warehouses, and consequential benefits that come from greater control of our business, because of that supply chain visibility," says Ian Robertson, RFID program director at HP.

Suppliers, including HP, see benefits to RFID, but also face challenges. These begin with the need for accuracy and performance, for a software infrastructure for RFID, and to forge an implementation strategy that brings ROI. These challenges can be trying at a time when mandates are coming from multiple directions, and standards are evolving.

In consumer goods supply chains, the flavor of RFID being backed by big retailers is the electronic product code (EPC). Applied within label media as "tags" on cases and pallets, the EPC uniquely identifies objects. EPC readers don't require manual scanning, and simultaneously read all tags within a field of range—not just one tag per scan.

Nonprofit group EPCglobal is driving EPC standards. A new generation of tags based on the latest standards hits the market next year, even while Wal-Mart pushes ahead with a requirement to have its top 100 suppliers ship tagged cases and pallets to locations in the Dallas-Ft. Worth area by Jan. 1, 2005. Other big retailers also are asking for tagging, as is the Department of Defense (DoD), with various deadlines within the next two years.

This leaves suppliers in a "multimandate" environment with deadlines "by entity, not geography," says Dr. Sanjay Sarma, chief technology officer with OATSystems , a vendor of an RFID framework solution—i.e., middleware. Dr. Sarma is one of EPC's biggest proponents. Before joining OATSystems, he cofounded the Auto-ID Center at the Massachusetts Institute of Technology, which devised most EPC standards before turning the effort over to EPCglobal.

Sarma urges suppliers to go after potential "low-hanging fruit" such as using EPC to minimize retailer charge-backs. But, says Sarma, "you need to make sure your policies today don't preclude a payback later. One might as well take the bull by the horns and invest in a foundation [for RFID]."

That foundation includes tags, readers, middleware, and above all, a strategy for rolling out RFID and communicating exceptions with trading partners.

First things first

Wal-Mart's RFID deadlines fall sooner than those from most others, though the DoD also is moving forward rapidly. Wal-Mart's top 100 suppliers—plus 37 volunteers—are working toward the January 2005 milestone for a distribution center (DC) and six stores in North Texas. The retailer will expand EPC use to up to 600 stores by October 2005, and by January 2006, expects its next top 200 suppliers to begin tagging cases and pallets.

According to Gus Whitcomb, a Wal-Mart spokesman, this schedule is feasible even though EPC standards are evolving. "Somebody has to be the champion for RFID to be adopted widely," says Whitcomb. "We're confident in the technology, and believe it is ready for use today in the retail industry at the case and pallet level."

HP's Robertson also believes. "Mandates are a reason to start RFID programs," he says, "but we got started to go after supply chain efficiencies."

Basic benefits, says Robertson, begin with hands-off data capture. "Suppose a forklift driver picks an order using bar-code technology," says Robertson. "The driver approaches the storage location, stops to scan in data at that location, then moves to a staging location, where he has to stop and scan again, and once again when it's time to load the truck.

"Now compare this to RFID, where the driver moves straight through a set of tasks without having to stop," Robertson continues. "The time savings might not seem like much when moving one pallet, but if you move 10,000 pallets a year, the efficiencies add up."

Software infrastructure

Suppliers tend to focus first on accurate tagging and reading, rather than on middleware or integration with back-end systems, says Christine Spivey Overby, senior analyst with tech advisory firm Forrester Research, Cambridge, Mass. "RFID is such an ambitious, industry-changing trend," she says. "It's just the nature of the beast that the initial focus will be on getting the data right."

The EPC concept, however, is as much about communication around tag reads as it is about the tags, which contain relatively few data fields. EPCglobal has laid out standards for the EPCglobal Network as a means of communicating EPC-based information.

Mike Meranda, president of EPCglobal US , says trading partners looking to exchange significant information related to tag reads will use the network. "It will focus on high-value transactions ... like exceptions that need to be processed between partners," says Meranda. "Examples might be, 'Why is this pallet on my dock when I wasn't expecting it?' or, 'Why are these store shelves empty while we're having a sale?'"

Another challenge suppliers face will be the sheer data volume generated by RFID. Part of this filtering task will be handled by intelligent readers, but also by RFID middleware offered by vendors like OATSystems and ConnecTerra , as well as some larger enterprise software and middleware vendors. The middleware also combs through data to spot significant events.

Consulting firms and RFID integrators also can help bring all the infrastructure elements together. "It's still early to standardize on [RFID hardware] vendors, but it is important to find partners with skin in the game to help drive and coordinate early projects," says Forrester's Overby.

HP is pushing its status as a consumer goods supplier, services firm, and member of EPCglobal to become an RFID services leader. But rival IBM also is gearing up its RFID-related solutions, as is Sun Microsystems . Warehouse management system vendors including Manhattan Associates and RedPrairie also offer RFID services and solutions.

OATSystems, which partners with HP, is betting suppliers will invest heavily in middleware. According to Sarma, by putting in an RFID foundation that can be repeated across multiple sites, suppliers will be able to phase in benefits. "It's a matter of being able to scale," says Sarma. For bigger consumer goods companies, he says, payback will accelerate after two to three sites establish an "imprint" for a repeatable solution.

Toward benefits

But even before EPC tagging is widespread, it can begin to have some payback, says Sarma. For instance, by verifying shipments via EPC, suppliers can reduce charge-backs.

Over the long term, he adds, EPC tagging should help eliminate out-of-stocks through precise inventory information. Out-of-stocks, says Sarma, exist with about 9 percent of retail inventory worldwide, and for each percentage point reduction, sales increase by a half-percent.

At HP, says Robertson, benefits include better interplant supply visibility. HP's first two sites doing EPC tagging are one near Richmond, Va., which packages and distributes ink-jet cartridges, and its Memphis facility, which packages and distributes printers. "Richmond is a supplier to Memphis, in that every printer we ship has cartridges that come with the printer," says Robertson. "So we're both meeting a mandate and integrating RFID into the process in areas like inbound logistics. Since we're tagging at the end of the line, it drives efficiencies in warehousing, distribution, and inventory control."

Some analyst firms, however, such as Dedham, Mass.-based ARC Advisory Group , warn that supplier benefits may take years to unfold, and early on, suppliers should seek to hold down compliance costs by reducing manual handling and automating the reader function through widespread use of fixed reader stations. Pushing the tagging function back to packaging suppliers is another option to explore, says ARC.

For HP, a special challenge was the ink and metal foil used in ink-jet cartridges. Radio tag technology can suffer from interference from metals or liquids, so HP experimented with tag orientation, says Robertson, until it found the best place for the tags where cartons had the most air behind them.