March 1, 2008
special report | RFID: The Next Generation

The future is now

the future is now

Only a few months back, the pundits were telling us that item-level RFID tagging was still years in the future. It turns out the pundits were wrong.

By John R. Johnson

Not too long ago, item-level RFID tagging was categorized as one of those futuristic notions—like hydrogen-powered cars, desaliniza- tion plants, and sending humans to Mars.

But while most of those concepts are still some years away, item-level tagging has already arrived, albeit for special applications that carry a strong value proposition. You likely won't find an RFID tag on individual cereal boxes at the grocery store (not yet, anyway). But you will find the technology on the sneakers you buy from New Balance, jeans and other apparel purchased at upscale retailers, and on books at European book stores.

Driven by falling costs for the technology as well as the arrival of long-awaited standards for item-level tagging, the practice of applying RFID tags to individual items is exploding. That fact was only accentuated early this year when Wal-Mart, owner of the Sam's Club warehouse stores, announced that Sam's Club suppliers must attach RFID tags to all products entering its distribution centers by 2010 (see RFIDWatch on page 51).

And Wal-Mart is not alone. Last summer, Levis rolled out a program for tagging individual pairs of jeans at 40 of its stores in Mexico.

Good reads
It's not hard to understand why retailers would be eager to embrace the technology. To begin with, they stand to benefit from fewer out-of-stocks (which leads to increased sales), labor productivity gains, and better inventory visibility and control. On top of that, there's the potential for improved security and less shrinkage.

All of those were motivating factors behind Portuguese bookseller Byblos' decision to build item-level RFID into the infrastructure at its first retail location in Lisbon, Portugal. The company is using RFID to help track more than 200,000 items across the 35,000-squarefoot retail outlet, which opened in December. Every item sold at the new store—with the exception of daily newspapers and magazines—is equipped with a UHF RFID tag in order to increase onshelf product availability, as well as to provide a better customer experience.

Byblos' new system also includes a series of 40 customer information kiosks located throughout the store. Customers can use the kiosks, which are embedded with RFID readers that help monitor the store's 2,000 zones, to browse products, see what's in stock, and obtain directions to the proper stock locations. "Our goal is to combine the most sophisticated means and the maximum attention to detail to provide a superior experience to the customer," said Byblos COO Rui Gaspar in a statement announcing the program's launch. "Based on what we have seen in other trials of item-level RFID, we are confident that our investment in RFID will provide the best shopping experience available and ensure that customers can always find the products they need."

In addition to the tags and kiosks, the bookseller has installed 14 RFID-enabled check-out stations that move customers quickly through the purchase process, and portal readers that monitor doorways and sound an alarm if they detect an unpaid-for tagged item leaving the store. Byblos also has 10 handheld RFID readers that employees use for cycle counting and inventory management.

All this high-tech equipment has come with a price, of course. Byblos spent about $350,000 (U.S.) to outfit the store with RFID technology—a figure that doesn't include the associated infrastructure and IT costs. The company, whose books carry an average price of $30, is currently sourcing its tags for 13 cents apiece. Yet Byblos is confident that it will see a significant payback on the project. It points to a previously deployed item-level project at Dutch bookseller BGN that resulted in sales increases of 10 to 15 percent. In addition, Byblos executives note that their project is scalable, meaning it will cost less to bring additional stores online. The company plans to roll out the technology in three more stores this year, which will bring the total number of items tagged to almost a million by the end of 2008.

A running start in the U.S.
Although interest in item-level tagging has generally been higher in Europe than in the United States, item-level tagging is starting to make a splash here as well. Running shoe and sports apparel retailer New Balance, for example, recently completed a rollout of RFID to help it track its topselling men's running shoes from the distribution center to the retail floor at its outlet store in Lawrence, Mass.

This spring, the company expects to start tagging every pair of men's sneakers sold at the store, which will increase tagging from the current 750 pairs of sneakers to about 22,000. The move is expected to give New Balance even greater inventory visibility, and, because the women's models will not carry RFID tags, the company will have a system for benchmarking the usefulness of RFID.

The big challenge for New Balance was finding a reader solution to handle the 22,000 items. For the first phase of the project, employees used handheld readers to perform cycle counting, which took about 20 minutes. However, handhelds would be too cumbersome to cycle count larger inventory, so Motorola has put together a mobile cart reader that should allow cycle counting to be completed in 20 minutes.

By using Vue Technology's TrueVUE Platform, combined with RFID tags from Avery Dennison and handheld and fixed RFID readers and antennas from Motorola's Enterprise Mobility business, New Balance has achieved far greater inventory visibility and improved accuracy at the item level, with read rates greater than 99.5 percent. As New Balance begins to tag more products, company execs expect this visibility to enable reductions in receiving and replenishment labor costs, reductions in inventory levels, and reduced stockroom retrievals. Frank Cornelius, director of information technology at New Balance, also expects that the data captured from RFID reads will allow the company to document sales trends and have the proper number of shoes in each size on the store shelf. The killer application for New Balance would be using item-level tagging to do away with the problem of mismatched pairs of shoes on the sales floor. That would require tagging each individual shoe, however, something New Balance execs say is probably still two years away.

Zero to sixty
At the moment, Vue Technology and other vendors, including Seattle-based Impinj, are working on a number of itemlevel applications for the retail, apparel, and pharmaceutical businesses. Gordon Adams, Vue Technology's senior vice president of sales, says that the rapid pace at which retailers are pursuing item-level tagging shows that its value is finally being recognized, especially within the apparel sector.

"We have a customer that went from simply having an interest in doing this to a deployed pilot in 60 days," says Adams. "Sixty days after that, they told us to prepare for a full enterprise deployment rollout.

"Everyone used to be afraid that the costs were too high, but we've been able to show people that the cost to deploy all this is now at the point where the … investment makes sense. There are a number of companies doing production deployments now, and if you are not on board, the train is passing you by."

About the Author

John R. Johnson
John Johnson joined the DC Velocity team in March 2004. A veteran business journalist, John has over a dozen years of experience covering the supply chain field, including time as chief editor of Warehousing Management. In addition, he has covered the venture capital community and previously was a sports reporter covering professional and collegiate sports in the Boston area. John served as senior editor and chief editor of DC Velocity until April 2008.

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