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Ted Fichuk
Senior Vice President
ACNielsen
In 2003, Radio Frequency Identification (RFID) has gone from an emerging new technology that could potentially replace the barcode within the next 10 to 12 years, to a real technology that has the largest retailer in the world committed to its implementation by January 2005. Will this commitment result in complete deployment of RFID across the supply chain? And will it go all the way to the shelf for the consumer or will it remain as an efficiency tool to be used on pallets and cases, one retailer at a time? These questions have many in the industry talking, but today the answers are anyone's guess.
As ACNielsen's global business leader on this initiative, I have recognized some of the opportunities and excitement this technology presents, and I realize the enormity of the task at hand to allow RFID to deliver on it promises of a more efficient and profitable future.
Update
As of November 2003, the Auto-ID center at the Massachusetts Institute of Technology (MIT) has transformed into a pure development laboratory, while oversight of the commercialization of RFID has been given to EPCglobal, a new association representing the Uniform Code Council and EAN International. The joint venture is charged with helping to drive global, multi-industry adoption of the Electronic Product Code (EPC) Network, and linking RFID and Internet technologies to help build a more efficient supply chain.
ACNielsen's Participation
ACNielsen recognized the potential of RFID technology and was one of the original top 20 sponsors of the project at MIT's Auto-ID Center. We were there to provide input and expertise on considerations around the levels of harmonization necessary in the areas of product descriptions, standards and category hierarchies. Our role was an advisory one, as well as to be an observer of its progress on behalf of our clients.
ACNielsen's expertise—what we're lending to the process—is centered around our knowledge of content and descriptions of products worldwide. The type of content necessary for this technology is complex, and just as the industry did with the barcode, there is already much discussion around understanding how products should be described and categorized in an EPC environment. ACNielsen's ultimate intent is to understand the structure of the content so that we can extract deeper and more elaborate marketing insights for our manufacturing and retailer clients.
Deeper Consumer Insights
When (and some would say if) RFID reaches the level where tagging at the product item level on shelves is a reality, the potential for unleashing new insights into consumer buying behavior would grow beyond what is possible with today's barcode technology. Tagging at the product item level would give deeper insight into consumer purchases at the point where many decisions are made—in the store itself. An information provider such as ACNielsen could be able to measure our Homescan panelists' in-store behaviors such as browsing, indecision or direct product comparisons. The potential for measuring things such as products that are picked up and then returned to the shelf would represent a great leap in understanding consumer choice. And these capabilities could completely alter clients' promotional decisions.
Beyond the consumer, RFID will also have the potential to track static inventory in any part of the store in "real time." Finally, we will have a means to automatically evaluate one of the industry's most significant issues—out-of-stocks. RFID will not only provide the means by which the industry can reduce this occurrence, but will also help us to understand its dynamics as well.
Implementation Ready
There has been a lot written recently about ways that RFID is being used for tracking and inventory management purposes that don't have much to do with the interaction of consumers. And it is being implemented and used very successfully. For example, RFID is used in the tagging of automobile tires, large cargo shipping containers and items used in the supply chain for the Department of Defense. In fact, the technology is less of an issue than the commercialization of it within our industry. Perhaps one way to describe it is that the industry understands how the technology works and is now trying to figure out the implementation.
Implementing the EPC
One of the key implementation hurdles is still cost. It is a chicken-and-egg dilemma for RFID tag manufacturers and the CPG industry. The focus for tag manufacturers is to efficiently produce tags, and do so across many different products and packages. The tag makers can do that much easier if they have large orders, but they can't get large orders unless the cost of the tags comes down. We still need to reach a critical mass, after which the issues around cost of production and usage will diminish.
In addition, the manufacturers of the tags have some very strict guidelines on quality. And that quality goal is 100% efficiency—which is really needed for this technology to be successful—because unlike a UPC, the EPC is item specific, not type specific. For example, with current UPC codes, a 12-ounce can of Diet Coke has a barcode that is identical to the next one in the same case. With RFID, however, those two duplicate cans would have two distinctly different codes—almost like a social security number. So if one EPC tag fails, then that item doesn't "exist."
The Durability of Readers
There are also some issues to be resolved with the code readers themselves. Companies like Intermec and Matrics produce the RFID readers, and they come in all shapes and sizes. There are large ones that fit over warehouse doors that have massive power. And there are portable units that that can fit in your hand. For each of these readers, the manufacturers are trying to understand and consider the environments in which these readers will exist.
For example, in a warehouse, how can the reader be protected against the daily bumps and dings from fork lifts and other heavy machinery? Does it get built into the door, or into the frame of the warehouse? To implement the technology, it has to work consistently.
Meanwhile, portable readers have different issues. They have to be as efficient as the large ones, but given the fact that they have to be able to go anywhere, there are other concerns, such as interference. Since the user can't control the environment in which portable readers are going to be used, the technology needs to be tested in many different locations. And from the tests that have been occurring, they are finding that there is a lot of interference from other readers and from inappropriately tagged cases and pallets.
All the unexpected things that don't appear in the lab are happening in tests in the real live world. In essence, all the typical bugs associated with implementing a new technology are now being ironed out. These groups have spent a lot of time driving forklifts around and using readers in live locations.
Consumer Acceptance
Perhaps a larger issue is that of consumer acceptance. Much has been written about "smart" clothing, medicine and food, and while there are many benefits of these items, some consumers have concerns that the items they buy may be too smart...leading us to a Minority Report-type future. It is clear that there is much to be done to educate consumers to the usage and benefits of RFID-coded products, as well as ease their concerns over privacy issues. EPCglobal is addressing this through proposals to alleviate this concern, possibly by requiring the EPC to be disabled at point of checkout. However, consumer advocate groups are persistent in their fight against this technology.
Content and Network Challenges
For the EPC to be usable throughout the supply chain, there needs to be an agreement on sharing of common content. The industry has to have common descriptions that are used throughout the process. One shampoo manufacturer can't do it differently than another. Things have to be categorized in the same manner. Obviously, they can still do their customization of those characteristics internally, or within their own systems, but there have to be standards overall. Otherwise, the system will not provide the benefits and efficiencies that the industry is hoping for.
One way the industry has begun to implement this, without infringing on the issues around sharing information, is to have implementation that only involves a manufacturer and a retail partner as we often do today. For example, Gillette may decide they're going to work with Wal-Mart, and Wal-Mart opens their system up to Gillette, and then they separately open it up to Procter & Gamble, Johnson & Johnson or Coke. However, allowing this technology to really come to fruition represents a complete industry change in the way we share information.
So, When Will It Happen?
RFID is coming, but it's not coming tomorrow, at least for the product item level. There will be several years of testing, implementing and running systems in parallel with both barcodes and RFID. Nobody knows for sure how long it will take, but most believe that it will likely be a decade before RFID tags are the sole means of product identification, because smaller manufacturers and retailers are not going to come on board until later.
The wild card in all of this is the leading retailer—Wal-Mart. Their announcement saying that their top 100 vendors have to have tags on cases and pallets by January 2005 and others by 2006 before coming into Wal-Mart's dock doors is a huge motivator for these manufacturers. Given this progress, the tags will most likely start becoming a reality sometime in late 2006. Of course, all of that will be driven by the success of this initial tagging of just cases and pallets.
What Should You Be Doing?
So what should the industry do now? Plan. Prepare. The change is coming, and it will be inevitable. Manufacturers and retailers should not be looking on from the sidelines anymore. There should be a dedicated person or team within your organization looking at this full-time. Of course, Wal-Mart is forcing the issue for the big players, but now is the time to begin, even for smaller manufacturers. Do not hesitate to engage in third-party help. Don't try and learn it all from scratch just by reading articles in newspapers and on web sites. Go to your technology partners—the ones that have been in it from the beginning—have them tell you what they are doing in their area, and ask them to advise you on products that they have and industry issues related to how to get started.
There are now quite a few "early adopter" packages available, and these partners may be very helpful in providing technology, since there is a great potential return for them as well.
The early adopters—the board members who helped form the council—would say to begin working with RFID immediately in any shape or form. Test kits are available that provide experimental tags, computer and software. Try it in a factory location with tags on cases and pallets, and internally within your factory, warehouse or distribution center.
Start testing it on a limited basis across maybe one item or one case or one pallet to begin to understand it. It's the kind of thing you can't just read about.
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