RFID: Making sense of sensor-based technology

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. The potential applications are vast as it is relevant to any organisation engaged in the production, movement or sale of physical goods. This would include retailers, distributors, logistics service providers, manufacturers and their entire supplier base.

While manufacturing across the region is still a latent sector, the Middle East's booming retailing and distribution industries, could derive significant advantages from RFID.

RFID has the potential to improve efficiency and visibility, cut costs, deliver better asset utilisation, produce higher quality goods, reduce shrinkage and counterfeiting, and increase sales by reducing out-of-stocks. It can even help improve the safety of the food
and pharmaceuticals we buy.

The key to delivering all these benefits is cost. Just as plasma TV screens didn't start to take off with consumers until the price dropped from an initial £10,000 to £2000, so the plummeting price of RFID tags is a driver for the technology.

One Canadian consumer products manufacturer has established that RFID becomes revenue-neutral at 15 cents per tag, at which point the prospect of RFID as a replacement for barcode labels becomes very real indeed.

Tag pricing is critical. Industry is hoping that tag manufacturers can hit 5 cents per unit, and that is being regarded as a breakthrough level. Yet even that is still too expensive for, say, an individual can of Coke, which is why packaging companies and other researchers are looking at innovative ways to apply this technology. The cost of creating a barcode is virtually zero.

So far so good. But the path to RFID nirvana is not without its obstacles. Wal-Mart laid down its marker as a pioneer in its use and accelerating adoption by issuing mandates to its suppliers throughout the entire supply chain. Wal- Mart, Metro Group and US Department of Defense have all told their top suppliers to incorporate RFID tags in all pallet shipments by 2005. In March, Wal-Mart relented a little because its suppliers would find the deadline near-impossible to meet and so would Wal-Mart itself.

The deadline may have changed, but the intent is crystal clear: RFID is very close to being The Next Big Thing. IDC predicts spending on RFID software, hardware and services for the US retail supply chain will increase from $8.5 million in 2002 to nearly $1.3 billion in 2008.

The Wireless Data Research Group forecasts that the global RFID market will grow to $3 billion by 2007. The significant investment this represents for business makes it critical that companies consider how they can reap long-term rewards beyond simply ensuring compliance with customer mandates.

Interest in RFID is also peaking at a time when Middle East-based organizations are increasingly looking for ways to streamline their supply chains, and increase both the efficiency and transparency around that aspect of their businesses.

What RFID generates is data- mountains of it, encompassing all aspects of the business value chain. This will push the boundaries of information management in terms of scalability, reliability and security and will create information silos to handle each specific application.

To protect the initial investment and realise maximum longterm returns, businesses need to ensure that they base their RFID strategy on sound information architecture - an architecture that adapts to changes in technology, standards and business dynamics, providing an integrated 'single source of truth' that ensures all parts of the business benefit from what RFID has to offer.

A key value proposition of RFID technology is the ability to provide near real-time tracking of any RFID tagged item without human interaction. Turning this capability into a sustainable competitive advantage depends on how effectively all this RFID data can be translated into valuable operational intelligence, such as forecasting and inventory management, and made available to all enterprise systems, applications and users. This capability can provide businesses with visibility into their whole supply chain and corporate assets with little or no human labour cost.

Oracle's Information Architecture
Oracle believes that the right information architecture is the key ingredient to greater returns on RFID expenditures. Oracle delivers RFID-enabled applications, software infrastructure and tools that can get users up and running quickly and cost-effectively by exploiting the powerful data and application integration capabilities of Oracle's information architecture.

Oracle also brings the power of grid computing to its RFID solution. With grid computing- the coordinated use of many small servers acting as one large computer-you don't need to worry about spikes in demand and the high cost of maintaining excess capacity.

Oracle's newly announced Sensor Based Services provide a transparent method of integrating RFID and sensor data into a business software infrastructure.

With interfaces to Oracle Database 10g, Oracle Application Server 10g, Oracle Enterprise Manager 10g, and Oracle E-Business Suite, Oracle Sensor Based Services are designed to capture, manage, analyse, access and respond to the information that will soon be flowing through company information systems.

Customers gain greater operational visibility through a unified workplace so that they can manage by exception to reduce risks and maximize opportunities. Extensive collaboration tools and the ability to notify anyone, anywhere, provide the other key components for the responsive enterprise.

By integrating RFID technology into their business processes, companies can revolutionise their supply chains. RFID enables the creation of an open global network that can identify items automatically to provide near-perfect supply chain visibility.

If widely adopted, RFID has the potential to eliminate human induced data collection errors, reduce inventories on-hand, minimize wasted resources and improve safety and security, ultimately providing companies with the insight to make better business decisions at a low cost.

There is often a reluctance to embrace technology that is subject to more than its share of hype. Yet those companies prepared to invest in long-term data management solutions will reap the benefits.

Jeff Woods, principal analyst at Gartner, says: 'Enterprises that can leverage RFID to create RFID-centric processes in order fulfillment manufacturing and warehousing will achieve strategic differentiation from their competitors.'