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The applications of RFID are many and run across different industry segments. Examples include: fleet management, theft and counterfeiting protection, inventory and asset management, warehouse automation, hazardous material management, packaging, security and access control, advertising and promotion, and smartcard payment systems. The ROI for RFID can be seen in terms of increased efficiencies, reduction in losses due to better counting and handling, improved inventory management, theft prevention, enhanced CRM, superior quality control, and reduced stock-outs.
Where the technology is headed
RFID technology adoption can be seen happening in two stages. In the short to medium term, RFID tag costs will not have dropped enough to apply the technology for item-level tagging. According to estimates by Forrester Research, it is only after 2007 that RFID costs will have fallen to the 1-cent level, and item tagging will have become economically viable on a large scale. At these price levels, new market opportunities will open, especially in sectors such as apparel, manufacturing, delivery, and pharmaceuticals. In the meantime, item-level tagging may be used in relatively high-cost items. RFIDs are currently available from around 28 cents (passive) to over $20 for rugged, high-performance tags. At that price level, you can expect that RFID tagging in the short to medium term will be used in container, case, or pallet applications.
Initial RFID trials have raised several technological challenges that must be addressed for larger adoption. In the next few years, RFID technology will evolve toward addressing issues, such as tag costs, large-scale production, accuracy of sensing, improved read-write performance, reader costs, and interoperability. Privacy is also an issue that has received media attention. Recently, publicity has surrounded potential privacy breaches because of the RFID tags embedded in objects that consumers wear or use. In early July this year, Wal-Mart dropped its item-level RFID pilot. The primary reason was complaints from privacy advocates.
One of the major problems with large-scale RFID adoption is the lack of standardisation across many fronts, ranging from the different data formats used, to interoperability between RFID readers and tags from different vendors, to interference problems between RFID products from different manufacturers. To overcome such problems, several standardisation activities have started.
The key standardisation bodies that are working on these issues include the American National Standards Institute, the International Organisation for Standardisation, Global Tag (a joint initiative of EAN International and the Uniform Code Council), and MIT's AIDC. Recently, the Uniform Code Council and MIT's Auto-ID centre inked a deal to commercialise the electronic product code (EPC) platform. The EPC platform is very important to large-scale adoption of passive, low-cost RFID. EPC provides a standardised mechanism for assigning an electronic product code (and, optionally, a wealth of other information) to individual items of a particular model or make. The EPC standardisation should also enable development of low-cost packaged software necessary for RFID adoption in item-level tagging.
Large-scale RFID adoption
Large-scale adoption of RFID rests on several factors, such as lowering of tag and reader costs, RFID standardisation, addressing of RFID privacy concerns, integrated support for RFIDs in all popular enterprise software (ERP, SCM, CRM), and commitment for RFID adoption from leading supply chain vendors and influential marketers like Wal-Mart. Progress is happening, and the point to be emphasised is that RFID pilots and rollouts can begin today. The success will depend on choosing the right application area.
In the short to medium term, the focus should be on your supply chain areas. Within the supply chain itself, logistics and warehouse operations may be more suitable candidates in the short term compared to inventory management. Item-level tagging or smart shelf applications, though not suitable today, should start becoming popular within a few years. Forrester estimates indicate that tag costs may reach 5 cents with over a billion chip production capacities by 2004. EPC will also have sufficiently matured by that time. This would make the technology suitable for item-level tagging of several products. After 2007, it will be feasible to apply item-level tagging across all items in a retail store environment.
Cheaper solutions
The cost of RFID solutions is much more than the cost of tags and readers. A large part of an RFID solution's cost lies in the software infrastructure and the enterprise application integration. Even in the supply chain market, a key application area of RFID technology currently, the cost of solutions is higher today because most are customised. However, the cost of the RFID solutions is expected to fall in the next couple of years as supply chain vendors begin integrating this technology into their product portfolio.
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