RFID-ological differences

What do Wal-Mart and the organization Consumers Against Supermarket Privacy Invasion and Numbering (CASPIAN) have in common? Virtually nothing except a strong interest in radio-frequency identification (RFID) technology.

That's an interest, not a consensus. Wal-Mart considers the technology, which uses radio waves to identify items, to be the biggest supply chain breakthrough since the bar code. In June, it rocked the industry by mandating that its top 100 suppliers use RFID tags to identify all incoming cases and pallets by January 2005. (The remaining vendors have until January 2006.) Bentonville's bet is that it can slash billions of dollars from its distribution costs (the company runs 108 distribution centers,with an annual throughput of nearly five billion items), largely by eliminating the need to manually scan cases and pallets.

CASPIAN, on the other hand, sees the rise of RFID as something far more ominous. The group and other privacy advocates view the practice of tagging pallets and cases as a step down the road toward the wholesale embedding of tiny RFID chips into individual consumer products—chips capable of transmitting info to anyone with a reader without your consent. They see endless possibilities for misuse of the technology in the future—whether it's a corporation snooping into your buying habits, a thief finding out what's in the trunk of your car (and its value), or a government tracking your whereabouts.

It's hard to argue that RFID won't ever reach the consumer level. The tagging of individual items is already being tested in the U.K. And earlier this year, Gillette announced plans to include the tags in its consumer packages here in the United States, though it later decided to postpone the step to 2013. (Gillette had become the target of a worldwide boycott because of its participation in pilot tests with Tesco, a U.K. retail chain.)

All this brings to mind a time 30 years ago when I was part of a food-industry task force studying the use of another technology. Then, as now, emotions ran high. Convinced the technology would cut labor costs and transform their inventory management practices, retailers made impassioned pleas for its adoption. Manufacturers, worried about shouldering the high implementation costs of an untried technology, dragged their feet. Rumors circulated about customers and checkers who were afraid to stand next to scanners. The controversial technology? The bar code.

Those fears are now history. Bar codes today save the food industry over $17 billion annually, which is 50 times the original forecast. And indications are that widespread use of RFID is inevitable as well, now that it has Wal-Mart's backing.

This is a good thing. When it comes to supply chain efficiency, the RFID tag trumps the bar code every time. Take ease of use: A bar code requires a clear line of sight to be read. An RFID tag can be read from 10 or 20 feet away. It doesn't even have to be visible; it simply has to be in radio range. Or consider capacity: The standard bar code identifies only the manufacturer and the product—one box of cornflakes scans the same as any other. An RFID tag, which can carry 60 times as much data, can tell you whether it's a 12- ounce or a 24-ounce box, where it was packed and its expiration date.

RFID tags have their drawbacks, of course. There are legitimate privacy concerns. But the tags can be disabled at the checkout station (and Wal-Mart has indicated it will do just that). Critics argue that tags can fail, which they can; and implementation will be expensive, which it will. But farsighted distribution center managers and logistics service providers will get their implementation plans under way immediately —before their clients decide to throw the RFID switch. When it comes to RFID, the future is now.