The buzz about RFID may make it sound like the new, new thing, but the technology dates back to World War II. What's new about it is that it's becoming cheap enough to put on pallets and cases of merchandise, says John Parkinson, chief technologist for Cap Gemini Ernst & Young. Today, tags cost between 25 and 30 cents, down from 40 cents last year. And as the price falls, more applications are developed.
Even if it's just applied to pallets, cases and cartons of merchandise, RFID will cut warehouse and distribution costs - some 3 per cent to 5 per cent of retailers' revenue - according to management consulting firm Kurt Salmon Associates. Readers placed throughout warehouses will pick up signals from tags without the need for a human to point a scanner at the tag, which is the way it's currently done with barcodes. This will enable retailers to reduce warehouse and distribution centre staff.
RFID's fans also claim that it will help solve some of the most complex and costly problems in retailing, including loss and theft of merchandise and out-of-stocks, which cost grocery stores as much as 4 per cent of their revenue. Armed with more accurate information about what's on their shelves, in their stockrooms and on its way from factories or distribution centres, retailers will be able to make out-of-stocks the exception rather than the rule, and that in turn will enable them to sell more, satisfy demand, improve service and increase inventory turns.
Truly universal adoption and implementation of RFID technology depend on the cost of tags dropping to five cents, a level analysts believe will be achieved in three to five years. Once that happens, it will be possible (and profitable) to tag every pack of Dentyne and every box of Tim Tams. Until then, item-level tagging is more realistic for high-margin items, such as consumer electronics, jewellery and haute couture. A Best Buy or a Gucci can easily justify the cost of putting a 30 cent tag on a $1000 sound system or $250 silk shirt if that tag will help track lost merchandise and prevent theft.
While RFID may present a compelling value proposition to retailers that sell high-ticket merchandise or that wish to tag at the case, carton or pallet level, there are technical obstacles to widespread adoption that still need to be overcome. For example, the radio waves by which tags communicate are absorbed by liquids and distorted by metal, making RFID useless for tracking, say, cans of orange juice. (The Auto-ID Centre at MIT is working to fix these problems.)
More important, to prepare their stores for RFID, CIOs need to take a long, hard look at their IT infrastructures.
RFID Storage: An Avalanche of Data
Limited Brands CTO and group vice president Starkoff believes the influx of data that RFID will generate will force CIOs to rethink their data warehousing strategies, much as she's doing at her company. CIOs will have to get smarter about what they store and how they store it. They'll have to measure the data's ROI and decide what should be trashed and what should be saved based on the data's age and the cost of storing and retrieving it. "We'll get rid of some data that we've been storing that maybe doesn't have the return," says Starkoff.
She adds that the determination of what data to retain will be tied directly to business processes. For example, once an item is sold, a company may want to retain data indicating that fact, but it may want to purge the RFID-generated supply chain data about the item's journey from the factory plant to the store.
Starkoff also thinks that CIOs may find relief from the data glut through software being developed by Manhattan Associates, SAP and other vendors that collects the reader data and turns it into clear and concise messages that say that the shipment is as it should be or that there is an exception to the order.
To mitigate the impact of all this data on Limited Brands' network, Starkoff plans to leverage the network management tools the company currently uses to optimize the bandwidth she has today. Also, because the tags allow storage of data specific to each unit - whether pallet, case or garment - it's possible for readers to determine the content of a box or the origin of a particular shipment without having to make a network connection to a central database. She says this will minimize bandwidth demands.
Starkoff realizes that if Limited Brands has to spend for bandwidth and storage upgrades on top of its investment in tags and readers, the total cost of an RFID implementation will skyrocket.
"If you deploy RFID technology without thinking it through and without optimizing your infrastructure, you can see where the ROI would just dissipate," she says. So, to minimize her investment and mitigate the impact of all this RFID data on Limited Brands' infrastructure, she's trying to figure out what information needs to be transmitted in real time and what can wait 24 hours for a batch update. Right now, she believes inventory and replenishment information will be most valuable in real time. "When RFID moves beyond the supply chain and onto the sales floor, real-time RFID information could make for a dynamic, sales-driven replenishment system," she says.
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