If you were caught off guard by the news that some companies are already sticking RFID tags on individual items (as opposed to cases or pallets), you're in good company. Even the tag-makers were taken by surprise.
"If you had asked me six months ago if a move to item-level tracking would be big in 2007, I'd have said that was possible, but in fact it seems to be happening much earlier than that," says Bill Colleran, president and CEO of tag-maker Impinj. "There are a few applications that have a near-term ROI."
Up until recently, the conventional wisdom held that RFID made sense only for the tagging of cases and pallets (and sometimes, not even then). RFID tags, as everybody knew, were nowhere near affordable enough to use to track individual products. But all of a sudden, item-level tagging, as it's known, has emerged as a practice that is not only viable but promises a relatively quick payback. Word is that item-level tagging has seen a surge of interest in the past few months, particularly among certain types of manufacturers.
Contrary to what you might expect, the manufacturers most likely to be tagging their products today are not the makers of extremely high-value merchandise—say, plasma TVs or couture fashions. Right now, you're far more likely to find tags on your CDs and DVDs, your meds or your new pair of jeans.
Most likely to be tagged
In the past, most analysts assumed that outside of tracking, RFID tags' biggest potential lay in deterring theft—and thus, their primary appeal would be to makers of high-value goods. They were partly right. Businesses ranging from jewelers to electronics manufacturers to ski-rental companies are reportedly experimenting with ways to use tags to cut down on theft.
What the analysts missed was the tags' potential for solving other, more industry-specific business problems. But the possibilities did not escape apparel manufacturers, the pharmaceutical industry, or companies in the entertainment sector.
Companies that produce CDs and DVDs, for example, quickly recognized the tags' potential as a means of boosting sales. With DVDs, sales are heaviest in the first seven days after a film's release on DVD. Nearly 70 percent of sales are recorded during that week, which means manufacturers want—indeed, crave—assurances that copies of "Capote" or "Memoirs of a Geisha" are out on the shelves, not lost in a backroom, during that critical period. RFID tags can provide those assurances.
The pharmaceutical sector likewise sees RFID as more than a means to combat theft. Using RFID technology, drug companies can create a virtual "pedigree" for each bottle or package as it moves from the plant to the wholesaler and finally, to the pharmacy. The ability to document a drug's movements through the supply chain helps manufacturers weed out counterfeits and trace stolen shipments. One drug maker, Purdue Pharma, has been shipping RFID-tagged items for 18 months now. It started by shipping tagged bottles of OxyContin to Wal-Mart and drug wholesaler H.D. Smith. Last year, it introduced RFID technology at a second manufacturing plant in order to tag its newest product—another potent painkiller called Palladone.
Clothing manufacturers, by contrast, aren't so much interested in where a garment has been as in how to locate it quickly. Apparel is notoriously difficult to keep track of. Not only does each item come in an array of sizes and colors, but consumers often return items to the wrong rack after trying them on. Clothiers are gambling that sticking a 15- or 20-cent tag on a $95 pair of jeans will cut the risk that they'll lose a sale because a customer can't find an item in a particular size or color.
So far, it appears to be working. AMR Research reports that in pilot projects, RFID tagging improved stock availability by more than 50 percent. And that wasn't the only benefit. AMR also claims that the labor needed to manage inventory and handle replenishment dropped by 15 to 20 percent.
Although the interest in item-level tagging has picked up, universal tagging is still a ways in the future. No one expects the day when every pack of gum and jug of spring water carries a tag to arrive anytime soon.
Even the folks at Metro Group, the German retailer known for its pioneering work with RFID, believe we're still a decade away from that. "When it comes to item-level tagging on a daily basis where all of our products will carry tags, we think it will take another 10 or 15 years to reach that goal," says Albrecht von Truchsess, a spokesman for Metro Group.
Part of the problem is cost. It makes no sense to put a 20-cent tag on, say, a $1.95 greeting card. The other part has to do with technical difficulties that still need to be worked out. "[T]o use this on a daily basis, you need a 100-percent read rate every time, every day," says von Truchsess. "You need to be able to read that one tube of toothpaste that might be wedged between 10 cans of soup. It's a very complex issue to deal with."
Nonetheless, Metro is pressing forward with its RFID experiments. At its Future Store in Rheinberg, Germany, which is best described as a combination RFID test lab/supermarket of tomorrow, it's currently collaborating with Gillette, Procter & Gamble and Kraft to tag and track individual items.
Though all of the pilots involve item-level tagging, each manufacturer is interested in something different. Gillette, for example, wants to see if tags help reduce theft of its razor blades. Kraft is looking to see how well the tags work in tracking expiration dates on packages of cream cheese and monitoring the temperatures to which the packages are exposed.
P&G is tagging items for yet another purpose: marketing. When a customer removes a bottle of shampoo from the Future Store's shelf, its RFID tag—coupled with smart shelf technology—triggers a short movie to begin playing on a small video screen above the shelf. The movie's subject? The shampoo, of course.
For all their novelty, von Truchsess seems less enthusiastic about these futuristic store-level trials than about Metro's experience using RFID in more traditional applications. "Today," he says, "the more interesting aspect is what's going on in the distribution centers before goods arrive at the store."
Whether it's more interesting is debatable, but no one denies that Metro's experience using RFID in its DCs has been a success. About 40 suppliers are now shipping RFID-tagged pallets to Metro's DCs in western Germany, von Truchsess reports, and Metro has already saved more than $10 million (U.S.) as a result. Not only has RFID sent labor costs plummeting, he says, but it has also cut the time required to check in pallets by more than one-third.
Von Truchsess has no doubt that this is only the beginning. "These results are from limited operations," he points out. "You can imagine what will happen when the technology improves and we roll this out at many locations."