Radio activated

This positive outlook for a technology which analysts acknowledge has so far been held back mainly by a lack of global standards, was expressed by Martin Swerdlow, ceo of London-based asset management specialist Integrated Product Intelligence at a recent forum organised by the e.centre – the UK association which works to foster widespread adoption of e-business – in London. The roundtable debate, also attended by senior Nestlé and Safeway personnel, examined current attitudes to a technology which the e.centre predicts will be used on pallets and cases by 2006 and at item level on some "lower value" goods by 2007.

In October 2003 EAN International and the Uniform Code Council announced the formation of a new joint venture, EPCglobal, whose key remit is to oversee development of open, global RFID standards based on unique Electronic Product Codes or EPCs. Since last October, EPCglobal, whose UK affiliate is the e.centre, has taken over the work of the Auto-ID Center, which has pioneered RFID standards in the past two decades.

Following EPCglobal's foundation, global RFID standards have finally begun emerging this year. The organisation is convinced, and its views were echoed by the participants at the roundtable, that these standards will overcome the biggest remaining hurdle to wholehearted, rather than the current piecemeal, implementation of RFID.

Confusion over standards does appear to have been a major worry, with 27% of the 125 leading European retailers questioned in a recent survey citing uncertainly over which would prevail as a barrier to adoption.

While such logistical and technical concerns and the still relatively high cost of tags have slowed progress, EPCglobal says the benefits to both retailers and suppliers of large-scale deployment will be "almost incalculable". Some analysts predict "near-term" RFID deployment at a pallet/case level alone could save users "billions of dollars" annually.

EPCglobal comments that while RFID's use has, until now, been "limited to closed systems and proprietary applications", the EPC Network has received "unprecedented support for its emphasis on an open and global standard."

What has been abundantly clear is that retailers, rather than suppliers, are driving RFID implementation.

High profile Tesco trials

In the past two years Tesco has undertaken its own high profile UK RFID trials on items including Gillette razor blades and DVDs – high value items prone to theft and shrinkage – at its stores at Sandhurst and Leicester. It says the evaluation showed the technology had "significantly improved both product availability and stock control".

Wal-Mart in the US, an even bigger retail giant which owns Asda in the UK, has said it expects its top 100 suppliers to EPC tag pallets and cases by next January. Other retailers forging ahead include Marks & Spencer, which trialled EM Microelectronics tags on clothing items at its high street stores earlier this year, Selfridges, for whom Exel launched a trial involving inbound and outbound temperature-controlled thermocontainers, Metro in Germany and Target in the US.

The e.centre believes it will not be long before all the major supermarkets and many other retailers adopt RFID on pallets, cases and other returnable assets. Predicting this could happen by 2006, it says that just a year later, provided tag prices fall to US 5c or below, we could see item-level tagging of some "lower value" items.

Representing the retailers at the roundtable was Safeway business systems manager for supply chain Andrew McLean, who agreed with IPI's Martin Swerdlow and Nestlé's business technology manager Paul Roberts that a collaborative approach is essential for RFID to succeed.

"Many companies in the retail sector don't want to raise their heads above the parapet, but Safeway is willing to share information on how we see RFID's advantages and on want we are doing," said McLean. "I believe the new EPCglobal organisation can play a valuable role in promoting information exchange". "There has always been an antagonism between retailers and suppliers, but there needs to be more collaboration over RFID and realisation that the technology can benefit the entire chain's profitability and business efficiency," concurred Swerdlow.

McLean believes the next two years will see EPC codes widely adopted for use on pallet and cases, although he feels the days of retailers item-level tagging goods like TVs, DVDs and videos are still "some way off". Safeway sells over 25,000 different consumer products, has 485 stores in four trading formats and employs 96,000 personnel. Its 23 regional distribution centres are served by 3,000 suppliers, all seeking to move goods efficiently through the supply chain.

The company, which handles an estimated 550m cases annually, recently undertook a Home Office-backed trial, in conjunction with distribution partners including Wincanton and Tibbett & Britten and supplier Lever Fabergé, which sought to prove the principle that products can be tracked throughout the FMCG supply chain". Safeway also hoped to identify opportunities for more efficient stock management and responsive store replenishment, and to identify vulnerable activities, locations and processes that lead to loss of goods.

Among the conclusions the trials revealed is that 96% of out-of-stocks were not actually not in store – just "in the wrong place at the wrong time." Interestingly, Safeway does not receipt its goods into store – 98% arrive from within its own distribution chain. "Where RFID can really help us is in confirming how many pallets are going into the right store," explains McLean. "Also, it currently takes every supplier about one and a half hours to make a delivery to us, but we believe that using RFID portal readers we could reduce this significantly."

McLean feels the technology will benefit supermarkets by giving them a better understanding of what's in-store and what is and isn't selling. He adds: "Reduced stockholding could also be a big advantage. Currently we have to hold ambient food in stock for an average of seven days – but why? What is critical is good supplier/retailer collaboration – I can't control the RFID initiatives of our 3,000 suppliers myself – everyone needs to work effectively together."

Retailers likely to fund infrastructure

Arguing that Safeway's trials were "a first pragmatic step on the blue sky future often associated with RFID", McLean says the key issue of who pays for implementation has not yet been answered. However, he thinks it likely retailers will have to fund the infrastructure – "taking the pain to get the gain". "What is clear is that it's no longer a case of revolution, it's more about evolution – I haven't found one major retailer who's against RFID," he adds.

Nestlé's Roberts agrees that retailers will "probably pay for the infrastructure and suppliers for the software and tags". Nestlé's own research has concluded that while FMCG companies will incur significantly increased initial costs, they may indeed not feel the benefits "for some time". "Implementing full-scale RFID programmes will be highly complex for companies our size," Roberts admits. "There are currently few skilled resources available and, as retailer momentum get behinds RFID, timescales could be short."

He feels adoption and development will accelerate as tag prices fall and that, for a company like Nestlé which, in the UK, supplies a large proportion of its goods to five leading supermarkets, universal tagging standards will make a complex task "a little easier".

Benefits of RFID not immediately quantifiable, but anticipated by Nestlé, include improved productivity, elimination of unnecessary stock counting, more automation, reduced wastage – of both time and materials, and better control and identification of returns. In addition, Roberts says, Nestlé could significantly improve its control of "grey market activity" and reduce counterfeiting and shrinkage.

For an FMCG manufacturer competing in an increasingly cut-throat market, however, implementation costs remain the overriding issue. Depending on the quantity purchased, Roberts says tags still cost between 20 and 30 cents each, and readers anything from US$400 - US$2,500. "We have 60-70 lines manufacturing products in the UK, and to fit reader portals to all the dock doors at factories and at our distribution centres, pay for the readers and a whole host of other infrastructure, will require a significant outlay if it all falls to us.

"The worst of all worlds would be a drip, drip scenario where the retailers all move to wider RFID adoption at different speeds," he adds. "Closer co-ordination between them will help – those who have made their intentions clear and those who have not – yet!"