By Brian Kilcourse, Managing Partner
4/1/2008
Several weeks ago we conjectured about the future of RFID in Retail. Look hard enough, and you’ll find examples of retailers experimenting with the technology for asset management, load routing/rerouting, dock scheduling, yard management, selling floor inventory management, special “closed loop” supply chain applications, perishables management, automated checkout, and loss prevention. There are even some well-documented examples of production rollouts, such as at Marks & Spencer in the UK. But the problem with asking about “RFID adoption” is that it’s a bit like asking someone about “EFT” – it covers a broad spectrum of use cases and technologies. For example, when one talks about “yard management,” the discussion tends towards companies like Wherenet, that use expensive “heavy duty” RFID tags capable of transmitting information at distances up to a few hundred feet. This isn’t the fabled “5-cent tag” that prominent retailers were demanding back in 2005.
The broad question is, in the “post-mandate” period, what is the attitude in Retail about RFID and where do we go from here? Many retailers today feel justified in the skepticism they expressed a few years about when the CIOs of Wal-Mart, Target, and others called on the industry to establish pilot programs for RFID-enabled supply chain applications. Obviously, these retailers didn’t want to spend their nickels making the new technology work. But its important to remember that if companies such as Ralph’s and Giant Foods hadn’t shown a willingness to invest up to $200,000 per store in that thing called “the electronic cash register,” we might not have achieved the level of acceptance we now take for granted with the barcode. The lowly barcode took about 30 years to reach full market penetration. Will that be the story for RFID too?
What’s RFID Good For?
Retail business leaders aren’t opposed to this (or most) new technologies – they’re just looking for the business case that makes it easy to say “yes.” “Closed loop” supply chain applications (such as the Dillard’s test for private label merchandise we mentioned in the 2/19 column) have continued, and other ideas such as using RFID on pre-built promo displays to ensure that they get put out onto the sales floor have cropped up – where they make business sense. There have been lots of discreet, well controlled experiments based on very specific business challenges. Budweiser is seeking retailers to work with them on an RFID application that will ensure that their beer doesn’t sit in an unchilled environment. U.S. drug store chain CVS has experimented with RFID technology to help ensure that customers pick up their prescriptions.
But with the notable exception of Marks & Spencer, most retailers’ experiments have been about tracking hi-value/hi-margin things that tend to get misplaced, whether in the supply chain by their own employees, or by consumers.
What are the “use cases” that will get beyond trial programs? For example, M&S’s program that tracks ready-to-eat and fresh foods really works and is in production with over 300 suppliers. Why haven’t U.S. retailers shown more willingness to go in that direction? Certainly there are some suppliers that are using temperature sensing RFID chips to ensure that such things as flowers, food, and pharmaceuticals are refrigerated properly – does this use case generate enough value to get retailers started?
What Tripped Up the RFID “Mandate”?
Greater acceptance of RFID-enabled opportunities has so far been inhibited by a couple of important factors. For starts, it wasn’t the retail industry that came together and said, “we have to get more efficient.” The RFID “mandate” did not follow the model established by the food industry years ago in the early days of the barcode. At that time, ten of the largest supermarket chains of the day (which made up most of the volume of the U.S. supermarket vertical) decided to push together for adoption of the barcode as a way to increase the efficiency of their store operations.
These retailers all agreed on the use case that drove the business benefit. In the case of the RFID mandate, the initiative was originally driven by standards organizations, who organized funding for the MIT Auto-ID Center. And even though large retailers and big suppliers were asked to pony up with commitments of $250,000 to fund (and close to 100 companies - including technology vendors-eventually did contribute), many continued to ask, “what do I get out of it?” What they got, in addition to the Auto-ID Center effort, was the UCCNet “Data Synchronization” platform (which cost an estimated $112M) and also large investments into ”exchanges” such as Transora, WRE, GSX etc. How these investments have translated into business benefit remains an open question.
A second inhibitor is the technology specification that was mandated. The “mandaters” pushed not only for the supply chain to be the first application, but also for a particular type of tag using a particular frequency range for transmission (that eventually became known as the Generation 2 Electronic Product Code, or EPC Gen2, tag). This of course was in order to drive the per-tag price down to something within spitting distance of the “five cents per tag” target. The problem was that insistence on a certain specification for the tag created warring factions that could only be resolved “in committee,” and that “committee” included technology vendors who each had proprietary reasons for pushing for or arguing against various details. So to a large extent what emerged was something that nobody particularly liked but everybody said they could work with. One important aspect of the standard is that it specifies a single frequency (UHF). This is in spite of the fact that MIT originally proposed three frequencies, not one, in the knowledge that one frequency wouldn’t work for liquids and metals for purely physics-related reasons (in other words, because of the laws of nature). Additionally, there were regulatory issues related to the use of the frequency band that was chosen, particularly in the EU. Even for ardent supporters of the “one tag” standard, this was (and continues to be) a big problem.
The $64,000 Question
So, now for the “sixty four thousand dollar” question: because of these notable inhibitors, is RFID “dead” in retail for the foreseeable future? The answer is, “no." Although we expect that retailers will continue to experiment with the technology to develop specific use cases that drive business value, it is also likely that other industries with more compelling opportunities for business benefit will “shake out” the technology itself.
A new strategy that consists of both a widely agreed-upon set of business cases and a technology that delivers that benefit has yet to emerge. The other alternative of course is that the price of the solution could come down sufficiently so that a business case is easier to make, but that hasn’t happened yet. Will either or both of these things happen? Because of other factors that RSR has commented on frequently, including the globalization of the retail “value chain” and the need for near real-time and accurate visibility across the entire chain, and vast reductions in process cycle times within retail itself, we continue to believe that “an internet of things” is not only likely, but inevitable. But as is always the case, the business will drive the technology, and not the other way around.
(Special thanks to Pete Abell, Founder of Kaleidoscope Technology Strategy, an organization focusing on bringing together technologies that make sense at the consumer level. Abell was formerly the Global Retail Analyst at AMR Research, and is a retail industry veteran.)
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