Has RFID found a home?

The story was supposed to go something like this: On June 11, 2003, Wal-Mart Stores quietly ignited the RFID revolution. On that day, the mega-retailer issued its now-famous mandate decreeing that its top-100 suppliers be ready to place tiny radio-frequency identification (RFID) tags on certain incoming shipments by 2005. Anxious to avoid being tossed off the shelves of the world's largest retailer, most suppliers swallowed hard and fell in line. They invested hundreds of thousands of dollars in tags, readers, and software that would eventually transform supply chains worldwide, and an era was born.

Except that it wasn't.

The reality was that the RFID revolution failed to unfold according to the script. Despite the technology's promise—think absolute inventory accuracy, labor savings, and enhanced sales through better product availability—RFID adoption progressed in fits and starts. Part of the problem was that the technology of the time was buggy. Another part was its cost. In the face of supplier resistance and mounting technical problems, Wal-Mart revised its strategy and expectations. And the vaunted RFID revolution stalled.

Now, 12 years later, that picture has begun to shift again. The explanation lies largely in the emergence of omnichannel commerce. To succeed at omnichannel fulfillment—whether that means offering in-store pickup for online sales, shipping items from store shelves, or funneling orders from phone, catalog, store, and website through a single DC—companies require 360-degree inventory visibility and 100-percent accuracy. RFID can provide those precise stock-tracking capabilities.

Although RFID itself dates back to World War II, its use in the supply chain is a relatively recent phenomenon. Where logistics and supply chain applications are concerned, the rollout of RFID has come in three major waves, says Justin Patton, director of the RFID Lab at Auburn University in Auburn, Ala. The first was sparked by Wal-Mart's famous 2005 deadline for retail case- and pallet-level tagging. That was followed in 2010 by a surge in item-level tagging of apparel and footwear, sparked by the improved performance and falling cost of RFID tags and readers. The latest wave is a rise in tagging driven by the demands of omnichannel fulfillment.

"Omnichannel is a major driver of RFID adoption," Patton says. "Without RFID, you can't tell a customer to go drive to the store and get a specific item, because you don't know what items are there with (sufficient) accuracy."

The use of RFID in the warehouse as a way to boost product-tracking capability is a relatively recent development. Until now, distribution centers have typically used RFID tags for three specific applications: inbound audits for quantity, outbound audits for quantity, and to confirm the contents of parcels in pick/pack operations, he says.

However, as they venture into the world of omnichannel commerce, DCs have discovered new benefits, ranging from simple out-of-stock monitoring to more complex tasks such as opening up inventory visibility to online shoppers.

The pressures of omnichannel fulfillment have given rise to a surge in RFID adoption in the last 18 to 24 months, agrees Melanie Nuce, vice president of apparel and general merchandise at GS1 US, the supply chain standards organization.

"If you talk to any retailer, they'll tell you that RFID is fundamental to omnichannel performance. The retailer needs the right item in the right place at the right time," she says.

It's important to note here that this kind of visibility is predicated on what's known as item-level tagging—that is, affixing RFID tags to individual items, as opposed to cases or pallets. Typically, the process begins when a manufacturer attaches a tag to each object as it's assembled, Nuce says. Assigning a unique identifier to every item is the strategic foundation that allows users to do outbound reads at a manufacturing site in Asia, inbound reads at a U.S. DC, then do another outbound read as each shipment heads to a retailer. Building that complete chain of visibility lets users perform downstream inventory reconciliation, tracking products all the way to store shelves and stockrooms.

"Then, they can integrate that data with their existing enterprise resource planning (ERP) software and go from saying 'This is a hammer or this is a small pink T-shirt' to saying 'This is hammer #1 or hammer #2, and this is small pink T-shirt #3 or small pink T-shirt #4,'" Nuce says.

That ability to reconcile inventory shipments by tracking specific items can be enormously valuable when a client complains that a shipper failed to deliver an entire order. Aided by item-level RFID tagging, the shipper can follow the trail of digital breadcrumbs throughout the supply chain, locating the allegedly missing items, whether they were forgotten on a dock, stacked with pallets, or deposited on the wrong shelf in a retailer's backroom.

One sector where RFID has made great inroads is apparel, with an estimated two-thirds of the top 30 U.S. apparel retailers using the technology in either a proof of concept trial, pilot project, or full deployment, according to Bill Hardgrave, a professor at Auburn's Harbert College of Business and co-founder of the university's RFID Lab. But it's not just the mega-retailers that have rallied under the RFID banner. When you look at the top 100 U.S. apparel retailers, about half are now using RFID in some form, Hardgrave says.

Retailers turn to RFID for a variety of reasons. In some cases, they're looking to boost inventory accuracy in order to do a better job of replenishment and reduce stockouts. In others, they're using the tags for purposes of loss prevention or shoe display compliance—i.e., making sure every footwear style stocked in the back room is displayed on the retail floor.

As for why RFID has made such headway in the apparel industry, there are four basic reasons, says Patton. First, the sector has a large variety of stock-keeping units (SKUs), as each style of item typically comes in an array of sizes and colors. At the same time, it has low substitutability, which means that customers are loyal to certain brands and sizes. Many retailers have found that RFID tags allow them to deliver these unique apparel items to customers by tracking every unit.

Third, most apparel items—from jeans to dress shirts—have a big enough profit margin to support the cost of implementing RFID. And finally, clothing materials typically lend themselves to simple attachment of the tags.

While much of the focus has been on RFID adoption in the apparel industry, the field is set to expand. New investment for omnichannel applications has helped RFID overcome some of the obstacles that hampered its first full-scale rollout, like the cost of tags and readers, performance problems in challenging environments (radio waves can't penetrate liquid or metal easily), and the cost of training employees to work with the technology.

In RFID's early years, the price of tags was a major problem for all but the largest adopters, hovering at 50 or 60 cents apiece in 2005. But as production has ramped up (global sales of ultra-high frequency passive tags—the most common type—reached 4 billion in 2014), the cost per tag has fallen to the 7- to 10-cent range, according to the Auburn RFID Lab.

Likewise, although technical problems persist for certain applications, the technology has come a long way in the last few years. Radio waves are absorbed by water and reflected by metal—a real problem if you're trying to read tags attached to beverages or makeup in a warehouse with aluminum-clad walls and steel racks. But those challenges can be surmounted for a slightly higher cost with tagging technologies like near-field communication (NFC) or active RFID.

Security has proved to be another stumbling block. Some companies have expressed concern that hackers could steal the digital data they collect by scanning tagged items as they flow through a warehouse, says Mario Vaccari, who teaches courses on transportation and logistics management at American Public University. To address that fear, researchers are working to devise stronger software protection protocols.

Despite the recent progress, RFID's day has yet to truly arrive. That will only happen when manufacturers, carriers, warehouses, and retailers begin sharing the data they harvest, experts say.

"We've been doing RFID in retail for five years at the item level, but no retailer requires suppliers to send them the data, so retailers are still blind-receiving items," says Auburn's Patton. "The most fundamental link is the relationship between the manufacturer and the retailer, but we haven't made that jump."

Shipping and logistics operations could see a great impact on their visibility when they finally make this connection.

"When the supplier and retailer have gotten to the point where they're making that data handshake and jumping that gap, that will be the spark, the catalyst for real growth," Patton says.