Cost Estimate

I. RFID Advantages

Radio Frequency Identification provides a valuable service that is capable of revolutionizing the way companies track products. There are many benefactors of this technology: the military, retailers, suppliers, consulting firms, producers of the technology, and consumers. RFID provides companies with a better alternative to bar-coding because no line-of-sight is needed to read a pallet, a carton, or a product with a RFID tag. RFID tags also contain information on the product that is easily readable and accessible for the reader. RFID will also begin to automate company’s supply chain, reducing labor costs, human error and time spent checking in products.

In 2005, manufacturers and suppliers requesting new bids from the military must be RFID compliant on four different levels: packaged operational rations, clothing, tools, and weapon system repair parts and components. The military requires that all cartons and pallets are shipped with a Military Shipping Label which displays shipping data. The Department of Defense has created the RFID Military Compliance Solution as a way to help suppliers and manufacturers meet the military’s new standards for RFID. The program is run by Avery Dennison Retail Information Services, and they were commissioned by the RFID Military Compliance Solution. Avery Dennison Retail Information Services sells the RFID tags to companies which must be affixed close to the Military Shipping Labels to comply with Department of Defense regulations.

The U.S. military is saving an enormous amount of money by using active and passive RFID systems. By using RFID for communication and transportation systems in Iraq and Afghanistan, the military is able to diagnose and fix problems much faster than before. The implementation of RFID in just this area will save the military close to half a million dollars this year. The U.S. government has contracted IBM to do research on the current RFID being used currently in the military and the potential future applications for RFID in the military. The military has been successful in creating better visibility throughout their supply chain increasing their productivity and stability.

Retailers and other companies that have a demanding supply chain can gain an advantage on the field by using RFID in the supply chain. By demanding that all levels of their supply chain be RFID capable is a sizable investment. The productivity increase that follows the initial investment and implementation for companies will pay for their investment. Wal-Mart was the first retailer to use RFID in their distribution centers and warehouses, prompting many companies to follow in their footsteps once Wal-Mart’s success was realized.

RFID is very successful with retail companies because it improves productivity, saves on human labor costs, and gives companies real-time visibility with all their products. RFID tags use an Electronic Product Code (EPC) which is an upgrade and a replacement for the Universal Product Code (UPC) system. “EPC has a 96-bit code that has digits to identify the manufacturer, product category and the individual item. Manufacturers obtain registration numbers & assign them to products. Each number is unique to a given item.”

The cost of a tag is anywhere between twenty-five to fifty cents. In the next five to ten years it could be reduced to five cents per tag. At some point in the near future tags could fall to one cent tempting companies to use RFID tags on every product in a store. Wal-Mart says that since their stores now have RFID, it makes it easier to keep store shelves stocked allowing employees to interact with customers.

Target was able to save on their investment for implementing RFID, following in Wal-Mart’s footsteps as Wal-Mart had already paved the way and suffered the pitfalls of implementing a new technology. In addition to the lower implementation costs, many of Target’s suppliers had already begun preparing for the switch over to RFID assuming Target would follow Wal-Mart. Target as a large retailer knows how important it is to be able to provide real-time data on pallets, cartons and shipments up and down-stream through their supply chain.

A break-through in RFID technology was made by Intermec, Inc. in May of 2006, with new rugged and reusable RFID tags. These tags can be written thousands of times; it can handle hazardous chemical exposure, and withstands temperatures from -50 degrees Fahrenheit to 250 degrees Fahrenheit. In October of 2006, Intermec released a new version of the rugged, reusable RFID tag, including wide-band antenna that can be used on any surface in any part of the world.

RFID makes the business world seem like a smaller place, even companies like Wal-Mart who are very big and have a large integrated supply chain. RFID enables companies to be more efficient with their time and space. Companies that combine some newer supply chain technologies with RFID could see great results. Combining auto-picking with RFID would reduce man-power needed, time needed to move pallets and cartons around a warehouse, and time needed to send pallets to their proper destination. The goal of a company’s supply chain should be to reduce time needed to be productive, by automating as much of the supply chain as possible. It reduces human error, and machines are capable of running twenty-four hours a day and cost less than human labor. The

application of RFID for a large company like Wal-Mart or Target, as well as smaller retail stores can ensure a better shopping experience with more in-stock items and a more knowledgeable store.

The RFID market is booming and many technological companies have gotten in the game producing RFID parts and systems. In many cases being a producer of RFID components and systems also allows you to become a consulting firm for the technology. Hewlett Packard (HP) is one of the largest companies developing RFID systems. HP’s goal is to make it as easy and affordable as possible for a company adopting RFID technology. HP has experience in the RFID field, as they were one of the early adopters of the technology and have been very successful integrating it into their business. HP began with two larger clients, Hasbro (produces children’s toys) and Conros (a large Wal-Mart supplier). Hewlett Packard has created two RFID Centers for Excellence, one in California and one in Taiwan, to demonstrate new potential uses for the technology, as well as how it can be implemented into a business. More centers are slated to be opened throughout the world, including Great Britain, Singapore, and Tokyo RFID Centers for Excellence.

The RFID market sits at roughly one billion dollars in 2006 and has varying estimates as to the growth potential of the market. Estimates of RFID market size in 2008 vary anywhere from $1.3 billion by IDC, to $4.2 Billion by the Yankee Group. As shown in Figure 1 in the appendix, most of the industry is made up of sales of hardware, tags, readers and other physical products of RFID. Roughly 20-25% of the market is made up of consulting work for the technology and the last 5% is made up of software for RFID. The two biggest areas firms are concentrating on are the production and consulting sides of RFID.

The biggest challenges for producers and consultants alike are the reliability and durability of RFID systems and products. It is hard to simulate the wear and tear a product will experience over time. HP has made testing RFID products one of their benchmarks, providing intense field-testing of RFID to ensure its durability and quality. A competitor of HP is IBM, who according to AMR Research is the market leader in RFID. IBM has over eleven years experience working with RFID, and like HP, they were an early adopter of RFID technology. The advantage that IBM has over HP is there world-renowned consulting services, coupled with their immense networking capabilities. IBM’s services promise more results than HP’s RFID systems mainly because of IBM’s consulting expertise. IBM works with companies to locate the best avenues to implement RFID, attempting to maximize Return on Investment (ROI) by reducing one person per shift from manually tracking products allowing them to focus on value-added manufacturing activities. IBM also focuses on other ways to improve ROI including, offering a one-time savings of $230,000 in operating costs, continuous fabrication line operations, better customer service providing real-time information on products, and less errors and delays cause by human error.

RFID began to take off once companies like Wal-Mart and Target, and the U.S. military demanded that their top 100 suppliers must adopt RFID technology. Many suppliers were not ready for a move like this, a move that would completely retrofit their current operations at a high cost to the supplier. There were some suppliers that welcomed the change in technology and already began implementing RFID in anticipation of Wal-Mart and the U.S. military’s demand that their suppliers adopt the new technology. Wal-Mart demanded that their top one hundred suppliers would need to be RFID ready by January 2005, and to Wal-Mart’s surprise, twenty three extra suppliers have volunteered to make the change to RFID. There is a new generation of tags that hit the market in 2005, called the Gen 2 Standard, which make RFID more appealing to suppliers who have no RFID systems in place. The Gen 2 RFID improves on the first generation of RFID by increasing read times, increasing read ranges, and read tags more accurately.

Suppliers and manufacturers will notice the benefits of implementing RFID into their organizations streamlining parts of their operations. Return on Investment is the most important factor for a business implementing RFID. Suppliers will see their ROI increase as human labor hours are decreased, human errors are decreased and interoperability is increased. RFID increases the visibility of the suppliers so they can do their job in real time, assuring that the correct package is sent to the correct location. It also saves money in the long-term for manufacturers and suppliers because RFID will save time spent inventorying and tracking products. An advantage for suppliers and manufacturers using RFID is customization of products in a shorter period of time. Smaller suppliers and manufacturers will have a harder time implementing RFID, as costs range from $100,000 to $5 million to implement the technology, but as costs go down more companies will adopt RFID.

RFID does have another potential benefit for suppliers that could give them invaluable information. For Wal-Mart suppliers, readers are set up at the back door so suppliers know when their shipments have arrived increasing visibility for both entities. A second reader is placed at the entrance to the sales floor so the supplier can see what is on-hand on the sales floor and in the stock room. This will allow the supplier to see which products sell better than others so that they can be replaced, and it also allows the supplier to develop more accurate sales forecasts. A secondary benefit of RFID is that the promotions that merchandisers spend a lot of money to set up are often left in the stock room for too long or are improperly placed. Now merchandisers and vendors can make sure their promotions are being handled correctly. Suppliers and manufacturers have the potential to save money on production costs, while making money on customized products.

Consumers should be the ultimate winner with RFID being implemented throughout a company’s supply chain. In the long-run, stores will save money throughout their supply chain, thus bringing down costs to consumers. Consumers should also expect to find more helpful and more informative customers service with companies that have RFID. These companies now have real-time data to share with the customer. A consumer complaint about retail stores has always been that there are too many out-of-stock items; however, with RFID in place many of these stores should see a significant decrease in out-of-stock items. Having RFID tags on certain products can also make people’s lives much easier, such as a microwave that is a reader and recognizes the tag of the food you put in and will automatically cook it according to the directions on the tag. It also helps environmentally because companies will use resources more efficiently, benefiting everyone. Once RFID tags are able to be used on food products it will make a recall on a certain item much easier and it could potentially save lives.

Consumers use RFID everyday and many do not realize the benefits they are receiving from the technology. Contactless payment is a developing technology, the card being used contains a tag and the payment area contains a reader. Mobil and Exxon use a “Speedpass” as their contactless form of payment allowing customers to wave the card in front of a reader to pay for gas or anything in the convenient store. Visa and Mastercard are the two biggest developers of this technology, claiming that it will benefit everyone from consumers to businesses. It allows people to have preset money on a card (either debit or credit) which decreases waiting time at check-out stands and increases loyalty to companies that offer this feature. Another use of smart cards is keyless entries, which is becoming a popular trend in America, using just a card and swipe it over the sensor to allow entry. RFID is a beneficial technology for consumers saving time and offering conveniences traditional bar codes, credit cards and keys cannot offer.

RFID contains many advantages over traditional ways of coding pallets, boxes and products. It allows for non-line of sight reading of the tag which stores all the product information. RFID reduces human labor costs and human errors through the supply chain saving companies money, as well as reducing theft in the store and warehouses. RFID can save lives as well if there is a recall and the recalled food item or product is tagged, then it would be easier to collect all the units.

II. Disadvantages

Radio Frequency Identification has been around for over fifty years, but it has been the rapid development and deployment of the technology over the last five years that has raised people’s awareness and understanding of the technology. While there are many potential benefits for RFID, there are many pitfalls as well. Every level that could benefit from RFID can also reap negative rewards from the technology.

The U.S. military was one of the early adopters of the technology using it for over ten years in a limited area of their operations. In 2003 they upgraded their usage of the technology by demanding that all suppliers must affix a RFID tag to every pallet, carton and big-ticket item being shipped to the military. The biggest problem the military faces is an issue of security. With complete product information on a tag it is easy for an enemy of the United States to pull information off a tag. This could result in loss of life of U.S. soldiers or even U.S. civilians if the wrong product ended up in the wrong hands. The tags could inform enemies of potential weaknesses and strengths of our military and give them a view on how to attack us at our weakest points.

Large companies like Wal-Mart and Target who use RFID face many potential problems with the technology. RFID has no proven infrastructure making it difficult for suppliers to keep up with these company’s demands to become RFID-ready. If the suppliers cannot effectively implement RFID into their business, then retailers cannot fully view their supply chain. If retailers cannot get all their information in real time across their entire supply chain, then the issues they are trying to solve will remain problems. Out-of-stock items, first-in-first-out products and last-in-last out products will still cause problems for these large retailers.

EPCGlobal is a start to an international standards body for RFID. It has yet to be approved by the International Organization for Standardization (ISO) and there is still not a global frequency standard. While 900 MHz appears to be the best frequency due to its long read-range capability, 13.56 MHz is still used delaying the standardization of global frequency for RFID. High costs of RFID implementation is the reason many mid-size and smaller retailers have not adopted the technology. The short-term outlook for companies who use RFID isn’t impressive, although long-term benefits will be realized.

Privacy issues are the number one pitfall for RFID and retailers. As long as the tags are only affixed to pallets and cartons then the retailers would not have any specific information on the consumer. However, when RFID tag prices fall, companies like Wal-Mart and Target plan on using RFID tags on individual products which they can trace consumer’s buying habits and other information consumer’s wish to keep private. It was privacy issues that force Benetton to cease their pilot RFID system. They wanted to embed a tag in articles of clothing to stop theft, determine consumer buying habits and keep their inventory at an acceptable level. Privacy advocate groups such as the Consumers Against Supermarket Privacy Invasion (CASPIAN) fight companies using RFID to track consumer behavior. A study showed that up to 78% of America was against RFID based solely on privacy issues. It will be difficult for companies in the future to tag individual items without a public outcry without some form of protection for the public’s privacy rights.

Consumers have the largest disadvantage of any other entities involved with RFID technology. There are five privacy issues that consumers must try to protect themselves from: Hidden placement of tags, unique identifiers for objects worldwide, massive data aggregation, hidden readers, and individual tracking and profiling. Hidden placement of tags by companies is an easy way to get information from consumers. The consumer will feel safe buying a product with no knowledge of an RFID tag embedded in their clothing. These tags theoretically could track a person around the world if there were readers in specific locations throughout the world. Personal information may also be embedded in these tags giving information as detailed as your medical history. Prada and Swatch use embedded tags in their clothing, and Benetton did as well, but a boycott of Benetton was successful and they removed their tags. There is no law against companies embedding tags, and only California and Utah have made official requests to change the situation.

Companies who use RFID can compile massive amounts of data on consumers, including product likes or dislikes, buying power or even prescription history. RFID makes it easy to amass this data and to designate correlations. If a corporation owns many stores they can combine data between companies and create new data on buying habits.

Hidden readers violate people’s privacy much the same way hidden tags do. Gillette and Accenture are introducing “silent commerce” which embeds tags on people’s products and readers in strategic locations without the consumer’s knowledge. These companies have experimented with different reader locations ranging from secret carpet locations to shelve locations and even hidden in floor tiles. Readers could even be installed in doorways on street lights, anywhere that people have to pass through, and instantly all information embedded in the tag is broadcast to the reader. If this were to happen privacy would be impossible because you would never know if the products you have contain tags, and you never know when you are within proximity to a reader.

The disadvantages of RFID hinge mainly on privacy concerns, technological imperfections, cost of the technology and no proven way to set up an RFID system for a company. The government and corporations are the two groups that offer the most concern for privacy issues. Hidden tags and readers threaten to take away human mystery, offering a world where people see, feel and hear only what the government and large corporation want people to.

III. Future of RFID

The future of RFID is uncertain, however, the technology is here to stay. Companies have many obstacles to overcome to make the technology a feasible option to be implemented. Privacy issues and will persist, although cost for RFID systems will decrease. In order for RFID to be successful, companies must work with privacy advocate groups to develop a fair way to implement RFID without alienating their customers.

Technology will continue to develop for RFID and many new applications will be realized. Automation will be a side-effect of RFID development, in the supply chain and in everyday activities. Contactless payment methods are already available, as well as automatic keycards to open doors. RFID tags installed in cars with readers on the roads and freeways will alert the authority if you are breaking the law. Supermarkets will eventually be able to realize their shopping cart checkout system once prices fall to a more affordable price. Fresh foods, metals and liquids will all be RFID compatible in the near future. If privacy issues are not watched closely, people will become tagged and there will always be someone watching and analyzing every person’s decisions.

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