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Monday, Nov 9, 2009
Radio frequency tagging is not exactly new technology. According to Bill Allen, a marketing executive at Texas Instruments, which makes key bits of RFID systems, radio tags were first used in the Second World War. "Each Allied aircraft was fitted with a transponder, which sends and receives signals," Allen says. "This was done to prevent friendly air battles -- if you get a friendly signal from an aircraft, you do not shoot." Conceptually, the tags have not changed a great deal since then; the main difference between the tags of today and the tags of the 1940s is size. Today's tags are tiny -- as big as a dime or as small as a grain of rice, though the size varies with the specific application.
Not only are radio tags not new, but they're also not very strange. Millions of people already use radio-tagged devices every day. RFID is found in electronic toll systems such as FasTrak and EZ Pass, and in gasoline quick-pay systems like Mobile's Speedpass; and millions of cars are equipped with RFID immobilization, which prevents the engine from starting unless an RFID reader senses a radio tag embedded in the key.
Perhaps the largest application of RFID today is in agriculture. Cows all over the world have radio tags embedded in their shoulders or lodged in their second stomachs, and as they move through the various stages of their factory-farm lives, the radio tags let farmers know how they're doing. "You're recording data points," Allen says. "You record the cow's lineage, its shot records, feed lots that it may have visited." This sort of tracking becomes indispensable when problems arise. If you're trying to isolate a sick cow, or trying to determine which of your animals may have feasted on some mad-cow-infected rendered-protein feed, RFID will help.
It was only in the 1990s that businesses began thinking about using radio technology in retail sales. At the time, Kevin Ashton, the Auto-ID Center's director, was a brand management executive at Procter & Gamble. "We started to notice some fundamental problems in our business," he says. "It first manifested itself in products not being on the shelves. I would go to check the stores, and I noticed some of the best products, our beauty products, would be out of stock in four out of 10 stores at any one moment. That's a real moment of clarification. The average industry out-of-stock number is 10 percent, but what we actually found was that the extreme cases tended to be bigger, and that was usually the case for the products that we cared about the most. If the product is really good, that's going to drive it off the shelf."
He adds: "The root of the problem turned out to be information. There wasn't enough information about where things were to make good decisions."
All the apparent orderliness of a typical retail store, with a place for everything and everything in its place, is a bit of an illusion. Once a product gets out into the din of a busy store, it could go anywhere: Customers or employees may move it about, putting it in the wrong section, or they may steal it; or the employees might forget to restock the shelves, or they may make some other error. Keeping things orderly is very costly, and it's slow. In most stores, Bill Allen says, "an inventory is periodically taken where they have to shut down and pay people overtime. It can be very labor intensive and cost inefficient, and even then, the Gap says that any type of physical inventory they do, they guess it's only about 93 percent accurate."
The supply chain, the back-end machine of major retailers, is also prone to errors. Paul Fox, a spokesman for Gillette, one of the main sponsors of the Auto-ID Centers, explains: "Imagine I ship you 100 cases, but when you record it you put it down as 10. So now your inventory system has effectively lost 90 cases." This means that your computer will tell you that you've run out of the product long before you actually have, so you'll order more than you need -- and your supplier will draw erroneous conclusions about the demand for the item in your store, giving a distorted picture of how the product is doing. Companies are loath to operate in this dark, data-less void; they'd do anything for more information, because any data they get could save them millions.
"At any given point in time, the Gap knows where 85 percent of their inventory is," Allen says. "You might think that's pretty good, but then you wonder what that 15 percent represents for a company as large as the Gap. What it multiplies out to is $1.7 billion of inventory that they don't know where it is. It could be stolen within the supply chain and they'd never know it, and on and on and on. What it means is they have to buy more inventory to make sure they have their supply stocked -- and that is a cash-consuming type of situation."
At least for the next couple of years, most companies are looking at this back-end part of their businesses as a main target for RFID improvements. In the retail world, Wal-Mart's supply chain is regarded as by far the most advanced, and its decision to use radio tagging is likely to spur its rivals to do the same. Tom Williams, a company spokesman, says that Wal-Mart is convinced it can see huge savings by switching to this system. "We have 103 distribution centers throughout the U.S.," he says, "and many of them are over a million square feet. When products come into the center we track them -- today, we primarily rely greatly on bar-coding, and as you know, bar code scanning is a step-by-step process. RFID is all at once, and for us that's really crucial for fast-moving merchandise."
The company -- which has asked all its suppliers to put radio tags on pallets and cases they ship to Wal-Mart within the next two years -- will also track RFID-tagged merchandise as it moves on trucks around the country, which will allow it to more efficiently route stock to where it's needed most. In addition, Williams says, the mountains of data the firm gleans from all these tagged cases moving through its operations will "give us a lot of numbers to crunch, and we'll be able to spot trends we don't even know about."
