RFID: Making sense of sensor-based technology (page 1 of 3)

It was 12 years before the first plasma-screen TVs hit the shops, and another six before they became even vaguely affordable. Today, they dominate many retailers' showrooms and the manufacturers are adding extra capacity to meet demand.

Much the same is true with radio frequency identification (RFID) technology, which has been around since World War II but is now poised to go mainstream on the back of three concurrent developments.

First, semiconductor technology allows the chips that form the basis for RFID to be produced at viable prices; secondly, the Internet has evolved to the point where data can be shared easily around the world; and thirdly, mobile communication technology has evolved so that the huge amounts of data from mobile readers can be distributed.

There are already many small-scale RFID solutions implemented around the world, but these three developments in tandem will enable global supply chain solutions with potential benefits totalling $150- 300 billion a year (source: AutoID-Center, 2003).

Indeed, RFID has been described by industry commentators as one of the few truly disruptive technologies to merge in recent years. Yet here in the Middle East, we've seen almost no commentary on the benefits of RFID.

This seems a good point, therefore, to ask a few pointed questions. What exactly is RFID? How does it work? What benefits will it bring to business? How much will it cost? And how do I make it work for me?

The answers to the first two questions are surprisingly easy. RFID is a system of small electronic tags (comprising a tiny chip plus an antenna) that transmit a radio signal, radio signal readers and related hardware and software infrastructure.

The transmitters can be placed anywhere that tracking the movement of goods adds value to the commercial process: on containers, pallets, materials handling equipment, cases or even on individual products.

The tags are recognised when they pass by a radio signal reader, and that movements captured and managed by the infrastructure. Whatever actions are then triggered depends on the individual application, from basic stock replenishment at one end of the spectrum to facilitating the ultimate lean supply chain at the other.

Given the Middle East's long tradition as a trading hub, and its growing status as a logistics center between East and West, the adoption of RFID becomes an extremely interesting prospect for this region.

Financial benefits
The benefits that RFID promises to the business community are potentially enormous, which is why there is so much excitement around the technology at the moment.

It's been estimated, for example, that retail giant Wal-Mart alone could save $8.35 billion annually with RFID—that's more than the total revenue of half the companies in the Fortune 500.

The estimated Wal-Mart savings breaks down as follows: $600 million through avoiding stock-outs; $575 million by avoiding theft, error and vendor fraud; $300 million through better tracking of a billion pallets and cases; $180 million through reduced inventory; and a huge $6.7 billion by eliminating the need to have people scan barcodes in the supply chain and in-store. Small wonder, then, that Wal-Mart is investing $3 billion in RFID over several years and is one of the main drivers of RFID implementation.

Generally, then, RFID promises to revolutionise supply chains and usher in a new era of cost savings, efficiency and business intelligence.