While RFID is one of those technologies with a potentially sinister side, it has been proven in the field as an
important tool for companies who need to track their assets and reduce costs. Malavika Srinath looks at how the
technology is developing
Every organisation in existence is a victim of technology. For a company to be 'high-tech' however, it requires a lot of positive thinking. This is an expensive label to earn and few are willing to take the risk of investing in a technology that hasn't yet proved its worth. Yet, how can worth be proved unless the technology is put to use? This question has remained unchanged over decades.
And one more victim of the market's 'chicken-and-egg' view on technology is RFID.
So far, big retail giants like Wal-Mart have spear-headed the pro-RFID movement by issuing mandates to their suppliers, resulting in half-hearted attempts by companies to introduce this technology into their operations. But with new packages on the market introduced by ERP software vendors like SAP and Sun Microsystems, RFID has become infinitely more attractive.
Why? Simply because now, thousands of customers the world over can adopt these packages almost seamlessly. Therefore, a technology that was previously "too expensive" now doesn't seem such a waste of money and resources after all.
What is all this fuss about RFID?
The technical process of RFID mystifies many. But in reality, the principle behind RFID reminds me of biology lessons at school. In essence, the RFID scanner is like a bat, sending out radio waves to track the location of a truck, or pallet. The tag embedded in the object sends a message back to the 'bat', detailing its location. This message zips back to the system, to be read by operators and line managers.
Simplistic as this may sound, RFID can save a company millions of pounds in wastage and loss of goods. The technology was initially used to track livestock on farms, but for the companies that have been brave enough to extend this system to their business operations, the results have been phenomenal. Tighter inventory control, time saving and increased transparency in operations along the supply chain are just a few examples of the benefits that they have seen with the use of this technology.
Given the nature of the RFID mandates, the earliest adopters of RFID were in the retail supply chain. It is estimated that spending to track retail products alone will grow from $91 million in 2004 to $1.3 billion by 2008. Within retail, perhaps the sector that benefits most from the use of RFID is food retail, especially in cases of food and drug safety and product re-calls.
Undoubtedly, the market is growing more positive about the technology but companies still need convincing that they can generate tangible business value through integrating RFID in their business operations. No one wants to be first to act and the atmosphere is one of "let's wait and watch".
The apprehension behind the adoption of RFID is not unjustified. Costs are high now, and benefits are not fully visible. The possibilities of misuse and breach of security seem more plausible at this point, especially to a company that does not have funds to invest in hi-tech systems.
In addition, as with any technology, there are always drawbacks: it is expensive, it can be inaccurate due to external elements, and scanners can only read tags from particular distances.
Also, once companies have seen the benefit of this technology, there is a possibility of it being used in areas outside supply chain management. It is scary to think that these scanners could make their way into daily life, intruding on privacy and scanning private details -- for example, the contents of one's handbag when inside a store.
But realistically, given the cost of single tag, RFID is most likely to remain in the back room well into the future. It needs to be viewed, therefore, merely as an opportunity to make operations faster, more efficient and certainly a way to keep customers happy.
It is therefore critical that software providers are attuned to changes in market requirements.
For most vendor companies, whose yearly business objective includes the introduction of new functionality and packages, software innovation can make or break yearly revenues.
The question really is: what do customers want?
The next logical step
Many customers who are already on enterprise resource planning (ERP) software packages have been interested in RFID for some years now, either because they are proactive or merely because of compliance. Software vendors have simply tapped into this burgeoning need for faster, more efficient systems.
The result: new software packages, encapsulating the RFID functionality. Easy usage, effective results.
Several attempts were made in the past to simplify the integration of data collected via RFID into other software applications. With these new packages, one of the biggest hurdles faced by the tag in managing large amounts of data could be done away with. Â©
Packages were initially offered to pilot-test customers, then opened to the entire market in mid-2004 and customers who were the early adopters are already seeing results.
Focussing on unique industry demands, vendors encourage customers to capitalise on the competitive advantages offered by their respective packages. For example, SAP even helps its customers implement RFID in a step-by-step approach, making the whole process less daunting for the customer. So far, things are going right and the industry seems to have delivered to its eager customers.
So what's the down-side?
It's that customers on various ERP systems run more than 90,000 installations. Will they all be able to integrate RFID into their operations with equal ease? Naturally not. So this means that customers will have to invest further in their systems in order to be able to run these new RFID packages. Although the benefits of adopting RFID into one's operations cannot be denied, it could be years before companies see tangible benefits.
In addition there are other systems available in the market like RFID-enabled Warehouse Management and Asset Tracking that could offer very similar, if not such elaborate, RFID functionality. These are even likely to be marginally cheaper, given that more and more software providers are starting to run the RFID race.
With so many software vendors climbing into the sad-pit, the tug of war for the top spot continues as heavyweight vendors like SAP and Sun Microsystems release RFID packages within weeks of each other.
Despite being in a fiercely competitive market, the bigger players in the industry seem confident that they won't be losing customers because of their prices. In the end, the belief is that the benefits of using RFID will outweigh all the initial costs of implementation.
Interestingly, companies like Kimberly-Clark (an early adopter of RFID due to the Wal-Mart mandate) are starting to play major roles in helping to push the concept of RFID further, while cutting back on their own costs. This is reflected in Kimberly-Clark's suggestion that SAP and OAT work together to create a productised interface to ensure that companies would not be required to develop their own custom software, thereby reducing costs.
The market is highly likely to see more and more of this kind of initiative, as customers in industries such as high-tech, retail and pharmaceutical become increasingly convinced that RFID is the way forward.
A market set to grow
It is not at all surprising that despite currently averaging on a price of 50 cents a tag, the market for RFID is set to grow. Eventually, the costs saved because of RFID will have an impact on the price of tags and by 2007 businesses could well be shelling out over $260 million for the integration of RFID into their systems.
With the introduction of their new RFID packages, bigger vendors like Oracle, SAP and Sun Microsystems have already bagged themselves a fair share of this future revenue. It is unfortunate that smaller software providers like RedPrairie and HID Corporation who began to deploy RFID solutions several years ago may have missed out on this pot of gold. The key factor governing the success of technologies like RFID is in the time of introduction: the market is unlikely to be receptive to technology when it is not ready. In biding their time, the bigger players have scored.
Increasingly, it is starting to look as if RFID is the key to winning the race for technology. n
Frost & Sullivan is currently carrying out strategic research in the RFID market with a specific focus on logistics. For more information or to give us feedback on this article, please contact the author at firstname.lastname@example.org
Malavika Srinath is a Research Analyst, Logistics and Supply Chain Management, Frost & Sullivan