Perhaps the most valuable contribution to the lexicon by the Gartner consultancy is the notion of the hype cycle. The term describes the developmental phases through which every advance in technology must pass. Following an initial breakthrough, it enters a period of intense interest by industry, the public and the media. At this stage, success stories are greatly outnumbered by failures, and real-world applications are overwhelmed by large volumes of hot air. The inevitable result is disappointment and waning interest in the discovery, before it finally catches on and becomes part of everyday operations.
The development of radio frequency identification technology has followed that pattern precisely. Although it can trace its routes to the 1970s, RFID didn't become a major topic of discussion until the early 2000s, when Wal-Mart Stores, Inc. and the U.S. Department of Defense issued mandates to their suppliers about the inclusion of RFID tags on all cases and pallets. The road to that goal has been a rocky one, causing some observers to question whether the technology would ever fulfill its promise or be economically feasible to deploy on a large scale.
While RFID isn't grabbing headlines anymore, there's no doubt that it's here to stay. Today, the use of tags on cases and pallets by manufacturers and retailers is widespread. And developers are making headway on applying RFID to products at the item level - the ultimate goal of the technology's advocates.
Much of the standardization work is being carried out by two organizations, the Voluntary Inter-Industry Commerce Solutions (VICS) collective and GS1 US. The first is tackling business processes, while the second is focused on developing underlying technical standards. Together they have been instrumental in launching a series of pilot programs that have spurred significant progress toward the widespread adoption of RFID. Says VICS president and chief executive officer Joe Andraski: "We are well beyond the point where it's a dream."
It's been about four years since VICS and the Council of Supply Chain Management Professionals joined with the University of Arkansas to conduct basic research that led directly to item-level RFID pilots involving stores operated by Dillards, Inc. in Dallas; J.C. Penney Co., Inc. in Columbus, Ohio; and Macy's and its upscale subsidiary Bloomingdale's in New York City. The results are only now beginning to pay off. By the third quarter of this year, the Macy's organization plans to have some 900 of its stores (including 50 Bloomingdale's outlets) equipped with RFID equipment. Other retailers deep into RFID include Saks Fifth Avenue and The Hudson's Bay Company. In all, says Andraski, about 75 percent of general-merchandise retailers are into some stage of item-level RFID. VICS, though its Item Level RFID Initiative (VILRI), expects to nudge things along by issuing an implementation road map around the middle of this year.
Why progress now? It's not a case of the technology needing to come up to speed; the hardware and software have been present for several years. Supporters always knew that item-level application was the end game, but as with any major advance, the maturing of RFID had to happen in stages. Formation of the RFID Research Center at the University of Arkansas was a major step, as was the leadership shown by Wal-Mart and the DOD, and the willingness of different entities to come together in groups such as VICS and GS1 US.
The lack of standards in the early years of RFID was a big obstacle to broader adoption. There was always the danger that various parties and countries would go their separate ways in devising "common" terminology and protocols. Witness the split between global and U.S. standards that held back the acceptance of electronic data interchange. But that hasn't happened in the world of RFID, Andraski says. In a rare display of global cooperation, companies from Asia and Europe have joined those from the U.S. in pushing for a single standard.
Given the nature of modern-day supply chains, that's an attitude of vital importance. As Andraski points out, China is poised to shift from a net exporter to a net importer in a relatively short period of time. Anyone aiming to serve that massive emerging consumer market will need a coherent system for identifying and tracking product that's acceptable to all trading partners.
The potential benefits of RFID are too compelling to mess it up with provincial squabbling. The technology allows for the rapid inventorying of goods in stock. Andraski says store staff can count between 200 and 300 SKUs per hour using line-of-sight barcodes. Compare that with the 15,000 or so items that can be tallied in that same period with the use of RFID. Stores can react with much greater speed and accuracy when a popular item is in danger of being out of stock, avoiding lost sales. Customers who come in looking for a particular item rarely buy something else when it's not on the shelf; they're more likely to seek out a rival store that better meets their needs.
From the standpoint of the manufacturer or distributor, RFID slashes the occurrence of exception processing, product returns and delayed payment on invoices. For transportation providers, items equipped with RFID tags become cheaper and easier to track, giving the customer a clearer picture of product in transit and in the warehouse. The ability to identify each product uniquely helps global brand owners to fight counterfeiting, a problem that is costing them up to $1tr a year.
There's still plenty of work to be done before RFID becomes a reality at the item level. Macy's flagship store on 34th St. in Manhattan alone houses some 3.5 million SKUs, and tagging them all is "a long way off," Andraski says. For now, major retailers and manufacturers are taking the effort in pieces. Apparel is a good place to start, because it's relatively easy to manage and highly dependent on replenishment cycles. Other strong candidates for tagging include batteries, tires and parts for automotive and aerospace. According to Andraski, the Mexican department-store chain Liverpool was able to display expensive jewelry outside of protective glass cases because of the security afforded by RFID tags.
As item-level RFID catches on, it will become more economical to deploy. Passive-tag costs are currently running between 10 and 12 cents apiece, Andraski says, but should get down to the 5-cent range within two or three years. Eventually, apparel manufacturers in China and elsewhere will routinely be tagging items at the source, eliminating an expensive step for buyers.
Andraski views the maturation of RFID at the item level as a 10-year effort. That might seem like a long time, but now that the technology has passed through the hype phase, the path seems clear. Think of it as a painful but necessary transition. Sort of like surviving your teenage years.
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