In the early 1980s retail giant Wal-Mart posted a large reproduction of a barcode in its vendor reception area. Underneath was a sign that read, "If your product doesn't have one of these, don't sit down," or words to that effect. At that time, few companies were using barcodes in the supply chain, but once Wal-Mart threw its weight behind the technology, the adoption curve quickly shot up. Within a few years, barcodes were ubiquitous.

Many think that scenario is about to repeat itself, this time with radio-frequency identification (RFID) technology. Last spring, retail's 800-pound gorilla announced that it would require its top 100 suppliers to incorporate RFID labels at the case and pallet level by January 2005. Suddenly this technology jumped to the fast track. While Wal-Mart has not yet specified what its mandate will actually entail in terms of compliance, vendors have little doubt that the retailer is serious about meeting its deadline.

"At Procter & Gamble, we think Wal-Mart's commitment to the technology will be a call to action," says Jeannie Tharrington, RFID spokesperson at P&G. "It will be a catalyst that will drive electronic product codes (ePC)s from concept to reality." P&G, an early and ardent ePC supporter, considers this very good news. "This technology has a lot of benefits for retailers, manufacturers, suppliers and the consumer," says Tharrington. "We think it is very encouraging that a company as large as Wal-Mart has gotten on board."

"What we are learning is that there really is no second 100, when it comes to Wal-Mart's suppliers," says Greg Gilbert, RFID strategist at Manhattan Associates, which develops supply-chain execution software. "Vendors want to please Wal-Mart, so even if they are not in the top 100 they are interested in this technology because they want to show they are ahead of the game."

Wal-Mart already has said that it will extend the mandate to additional suppliers in 2006 and will quickly move to implement it in Europe and then in the rest of its overseas operations. "This is absolutely a global directive for Wal-Mart," said CIO Linda Dillman when announcing the initiative at the Retail Systems 2003 conference in June.

Wal-Mart's top suppliers ship from eight to 10 billion cases a year to the retailers' stores, often through third-party logistics companies. Once these cartons are electronically tagged, experts say, intermediate providers also will want, or be required by their customers, to install an RFID infrastructure, adding to the adoption momentum. Similarly, Wal-Mart's competitors, who receive products from many of the same suppliers, are expected to quickly follow suit.

What Is RFID?
RFID technology already is in use in the supply chain to track assets like containers and trailers. This type of use typically involves a battery-powered transponder attached permanently to the asset. When the transponder passes stationary readers, installed at places like the entrance to port terminals or truck yards, the event is captured and sent to a computer server.

For cases and pallets, a much smaller and less expensive tag is required. Such tags have been developed and currently are being tested in a variety of proof-of-concept projects. They typically consist of very small RFID microchips and antennas that can be embedded in a cardboard carton or layered on a printed label. These tags do not have their own power source, but when they pass within range of a reader - usually several feet - the radio signal "wakes up" the chip, which responds by transmitting its unique identification code.

Since people first began looking at this type of application for RFID, it generally has been agreed that ultimate success will depend on adoption of a global standard for the electronic product codes that will be written to the tags. Much work in this direction already has been accomplished by the Auto-ID Center at the Massachusetts Institute for Technology, a group that was formed in 1999 by leading manufacturers, retailers and vendors. A few months ago, the center announced a significant restructuring. When completed at the end of October, research will continue as before at MIT, but responsibility for commercial and technical standards will be turned over to a new non-profit entity. Known as Auto-ID Inc., it will be run by the Uniform Code Council and EAN International, UCC's European counterpart, which already have responsibility for administering barcodes and other standards. Auto-ID Inc. was scheduled in September to formally launch the first platform of the ePC Network, a milestone that is expected to spur numerous pilot projects.

One of the key attributes of ePC that gives it an advantage over barcodes is that it is a unique identifier. The ePC on a case of Tide, for example, will identify itself not only as a case of the detergent, but as a specific case, with the ability to attach a considerable amount of additional information about that case's genealogy and status. The tag will not transmit all that information, however. Rather, it will transmit the ID number, which will serve as a pointer to a site on the internet where the full information will be stored. This information will be written in a new Extensible Markup Language called Product Markup Language (PML). With up to 128 bits of data in the ID number, there reportedly are enough variations to give every labeled item a unique identification for a long time to come.
"The biggest development in this area is in the standards for ePC," says Alan Melling, RFID specialist at Symbol Technologies, a leading barcode infrastructure provider. "Now, for the first time, we have a standard that a whole bunch of people can get around to drive the volume necessary to make this really implementable, which will push down reader and tag costs. Without that, there is no way to build critical mass, so ePC standards are really a very important development. Without that, we wouldn't be talking about RFID solutions in the supply chain."

The ePC Network clearly is designed to scale up for the day when every item will carry an ePC tag and shelves will be equipped to self-report on their replenishment needs, but that still is years in the future. For now, the focus is on case and pallet initiatives, where ePC information in the early days may provide little more than is currently available from barcodes. Indeed, the two systems are expected to co-exist for many years and ePC tags actually will be embedded in the barcode labels that routinely are printed as part of warehouse operations.

The resulting "smart label" will look just like a barcode label does today. "The tiny little tag chip and printed antenna is so small and thin it doesn't in any way change the face of the label," says Chris Hook, director of RFID market development at Zebra Technologies, which makes barcode printers. "You wouldn't even know it is there."

RFID labels are different, however, and when used on cases and pallets they can provide benefits not available from barcodes, even without adding richer product information. "The reality is that if we don't get any additional data, [RFID] is still a great technology that adds value," Dillon said at the retail conference. She added that Wal-Mart would take advantage of the enhanced data capabilities of RFID only gradually and over time.

No Line of Sight Needed
One way RFID adds value is by improving efficiency in warehouse operations, due to its ability to read tags without a direct line of sight. Readers at dock doors, for example, may read every case and pallet, as they are loaded onto a truck, without individual scanning; receiving at destination can be similarly streamlined. At either end, RFID information can, at least theoretically, be used to automatically create advance ship notices or proof of delivery receipts.

"It's all about being scan-free and hands-free," says Diane Magidson, RFID specialist at RedPrairie, a provider of supply-chain execution solutions. In addition, she adds, eliminating point-and-shoot means "there doesn't have to be as much focus on where you put the label on the box, or on how you place the box on the pallet. It will just streamline the whole process of flowing product through the facility."

That likely will translate into fewer bodies needed to staff warehouse operations. "One of the biggest motivating factors for people looking at RFID is the elimination of labor," says Melling. "They want the ability to know where everything is without having to pay a warehouse guy to constantly go and scan it, which is too expensive and too time consuming."

Comprehensive, 24x7 visibility is another RFID benefit. "Improved visibility and tracking means better responsiveness in the supply chain," says Warren Hausman, professor of management science and engineering at Stanford University. Stanford has initiated a research project to identify optimal inventory control policies in an RFID-enabled supply chain. With the ability to really know where everything is, "we see an opportunity for entirely new and much more complex inventory policies compared with standard inventory theory of the past 90 years," Hausman says. "This work is just beginning, but we think it could be seminal."

Closely tied to visibility is inventory accuracy. "Because each case is now uniquely identified and easily read, you really know exactly what is on that pallet, including mixed pallets," says John Pulling, vice president and COO at Provia, a supply-chain execution provider. "When we all are RFID capable, we will be able to get data ahead of time about what is coming and then quickly check what is received against that, without scanning each piece. So we can say, 'OK, we are short a case, and the missing case is this specific one with these specific products.' It enables us to verify things a lot better."

Being able to check and verify at key points in the supply chain also helps eliminate shrinkage. Now, when an order comes up short, it is very difficult to determine where the shortage occurred and to take preventive measures. "Just being able to prove that this exact case got to the back room of a store is a pretty big savings, right there," says Pulling. "Identifying where shrinkage occurs is really important."

Having a unique identifier also will help ensure that the freshest product is used first and will greatly ease the headache caused when products have to be pulled out of distribution because of a quality problem.

Visibility and accuracy at the case level may actually help retailers achieve better on-shelf availability without having to wait for item-level tagging. Simon Ellis, supply-chain futurist at consumer packaged goods company Unilever, reports that this was the outcome of a pilot test in the U.K. In this test, Unilever tracked cases as they were moved from back-of-store storage to front-of-store display, by having a reader at the door through which the cases passed. By comparing that information to point-of-sale data from the store register, "we found we could actually improve on-shelf availability significantly," he says. "This was obviously a small sample, but at a store level it may be that you don't, in fact, need item-level tagging to make a big improvement in shelf availability. It may be that by doing case-level tagging and comparing that to POS data, you can get much of the benefit without all the additional cost." And, he adds, without the privacy concerns over item-level tags that have some consumers up in arms.

Issues Remain
Before electronic tags can become prevalent in the supply chain, there still are many issues that need to be resolved. Wal-Mart's Dillon noted that the company has not yet found readers that meet all of its various needs, for example.

Most users will need both stationary and mobile readers. Manufacturers like Symbol and Intermec are developing handheld readers that work with both barcodes and electronic tags. In addition, stationary RFID readers may need to be installed in the floor or above dock doors or on forklifts. "The important thing is that it will be a mixed world and people need to be ready for a mixed world and have solutions that work well with both systems," says Melling.

Issues also remain relative to the quality of the reads, says Gary Cannales, senior vice president for global business development at OMI International, which provides supply-chain execution solutions. "Can they read cases in the middle of a pallet and can they read through liquids?" he asks. "These still have to be resolved in order for most of our customers to have confidence that they will get a high level of accuracy."

Much work is being done in this area by the Auto-ID Center. Tharrington reports that P&G ran a successful proof-of-concept test in conjunction with the center on Panteen shampoo. "Panteen is one of our hardest products because the cases are very small with hardly any air and the product itself is liquid," she says. We wanted to test one of our hardest cases and we were very encouraged by the result."

Another issue is that readers have to be carefully positioned and tuned so that they read the designated area and don't interfere with other wireless systems. "Every applications is an engineering task in terms of how you position antennas and readers," says Pulling. "But we believe all these problems can be solved, at least in most environments."

For Ellis at Unilever the "cloudiest issue" is whether software application vendors will be able to effectively incorporate RFID information. "What seems very clear to me is that tags and readers aren't going to provide any of us with competitive advantage," he says. "Competitive advantage will come from how you integrate this technology into your systems, and the software is where the bits and pieces will have to come together and work." He says Unilever is working closely with RedPrairie, its WMS provider, on this issue. "I have no doubt it will be resolved but right now it's still a murky area," he says.

And then there is the cost. At the often-quoted price of around 20 cents each, Wal-Mart's suppliers will be spending well over $1bn a year on tags along, though the price is expected to drop quickly when the impact of Wal-Mart-driven purchases kicks in. Gillette announced last year, for example, that it would buy half a billion tags from Alien Technology over the next five years at a cost of 10 cents a tag.

All of these issues will be worked on in pilots over the next 18 months, and vendors are ready to be part of that process. Many already have announced products aimed at helping clients get their feet wet with RFID.

Manhattan, for example, offers RFID-in-a-Box, in conjunction with Symbol and Alien. "This is our way to help the industry move forward with adoption," says Gilbert. "Customers can set up a pilot program that allows them to start using the technology and get up to speed before they have to make any huge investment and do a full rollout." The package includes two pieces of Manhattan software on a limited test license, including a web-enabled solution that allows their suppliers to create RFID shipping labels. The other component is new RFID middlewear that will be installed at the purchaser's site to handle RFID transactions as they come in. "When the supplier prints a shipping label, that creates an automatic advance shipping notice that is sent back to the retailer," he says. "So when that shipment arrives, readers set up at the receiving door record the arrival and send a transaction to our middlewear component, which then does filtering and data validation. That data can then be interfaced with a Manhattan warehouse management solution, or a solution from another vendor."

RedPrairie has a multi-stage approach that begins with a stand-alone module focused exclusively on compliance, says Magidson. "That means being able to read RFID tags and convert that read into an ASN record so Wal-Mart can receive the product and reconcile it against the ASN that we generate. The goals of our solution are to be able to work with any WMS - it doesn't have to be RedPrairie - and be able to take a RFID read and convert it into the data that Wal-Mart wants."

Later stages in RedPrairie's program include migration to a full rollout of RFID in an environment in which barcoded labels and RFID tags live side by side. The third stage is full-blown "scan-free" use of RFID. "At this stage, you don't have handhelds, but readers embedded in a truck on the dock floor or in pallet racking and piece-pick locations. That technology is unproven and the Auto-ID Center is not to that phase in their testing, but we wanted to put out a strategy that included all three to show we will be ready."

Pulling says Provia will release products in the fourth quarter for full case and pallet RFID tracking throughout the warehouse. "We are adding RFID support to the classic warehousing transactions of receiving and picking and trailer loading," he says.

ACSIS, a supply-chain execution provider for SAP users, is helping clients in a more hands-on way. It has a product readiness lab at its headquarters in New Jersey, where it evaluates cases or pallets of goods for their RFID "readability." "The RFID technology, due to its nature, is environmentally sensitive," says Steve Brown, vice president of marketing and business development. "Things like liquids and foil can change the characteristics of the read rate, so the first thing you have to look at is product readiness."

Highest Read-Rate
When a customer ships ACSIS a pallet of cartons, he says, they get an evaluation of how cases should be stacked on the pallet and where the product should be tagged to get the highest read-rate, as well as other suggestions to optimize RFID use. "Some products may have no issues at all, but some may have issues depending on metal content, for example," he says. "Pills in blister packs have different read characteristics than ones that come in a bottle." Most problems can be resolved with various adjustments, he says. "We seldom recommend a complete change of packaging, though we might do that if the packaging were all foil."

Next, ACSIS evaluates the shipping environment. "You want to be sure the pallet isn't read by two readers, for example," he says. In some cases, shielding between readers might be required. "We prepare a report on all the physical aspects, including where to put the readers to make sure they get the best read," he says.

Finally, ACISIS looks at the readiness of the ERP system to use RFID information. "How do you update the materials master when you are tracking individual cases and how do you transmit that information to Wal-Mart and update your own data base?" he asks. While ACSIS specializes in SAP, it can do such an evaluation on any system, Brown says. When this evaluation is complete, ACSIS typically recommends a pilot program involving one or two shipping lanes with a limited number of products. "What we are offering is a road map companies can follow to become RFID-ready," he says.

Cannales says OMI's applications are ready for RFID today, "in that we are able to read RFID tags and to use that information. We will be able to do some different processes now around this, in terms of receiving mixed pallets and quickly redeploying pallets across the DC from one door to another," he says. "So, yes, we are ready today, but we don't yet see enough critical mass out there to do anything with this capability."

Equipment vendors also are preparing "ready kits." Intermec's kit contains "a little reader, some software, a smattering of tags and a day of professional services to help set it up," says Scott Medford, vice president of business development. "It's a low-cost project and enough to get a lab environment going so our customers can say, 'OK, I now have a fundamental understanding of how RFID is going to work.' This allows them to play with it a little and to learn about it. Then they can come back to us and we can discuss what they really need to deploy to solve their business problems."

Medford predicts that over time RFID will be as revolutionary as barcodes have been in the supply chain. "I think it will change the way we do business in ways that we are not even thinking about now," he says. For example, he says, "a manufacturer in Asia can put containers on a ship and as it heads for the U.S., information can be written to RFID tags on those containers that change the ownership. Or you might rewrite the tags and direct the shipments to another destination. There are lots of possibilities, not this year, or next year, but long term."

When Wal-Mart gets behind something, however, things can scale very quickly. Barcodes were patented in 1952 and endorsed by a then much-smaller Wal-Mart in 1984. By 1987, 75,000 suppliers were barcode users. RFID was patented in 1973 and endorsed by Wal-Mart in 2003.

A tsunami could well be on the way.