People not technology the key to RFID

24 Feb 2005

Business leaders from more than 90 countries, including senior executives from some of the world’s largest retail and manufacturing firms, came together to discuss radio frequency identification (RFID) and other product-coding technologies at a major conference in Brussels last week.

The issue of how best to develop, implement and market these electronic systems that identify and track goods through the supply chain is arguably one of the most important issues facing global business.

The conference was organised by GS1, the new global body responsible for driving standards and the uptake of bar codes, RFID and other intelligent electronic product coding systems. GS1 comprises 101 national organisations that represents more than 1.1 million member firms. GS1 Ireland has more than 2,700 member companies, including household names such as C&C, Diageo, Johnson Brothers, Atlantic Homecare, Glanbia and BWG Foods.

Before GS1 was formed there were two separate standards bodies for electronic product coding: the Uniform Code Council that set standards for the US and EAN International, which did the same in the European market. The two organisations have joined together and agreed common standards for bar coding.

The daunting task now is agreeing the standards that will underpin the development and rollout of RFID systems around the world.

Exactly what is at stake was spelled out by Miguel Lopera, chief executive of GS1 (pictured). Describing the development of GS1 standards and systems including RFID as “key pillars for global commerce”, he said that their universal acceptance would have major benefits for society. “We need to eliminate the inefficiencies of the supply chain that add unnecessary cost to the final price of products.”

Tim Smuckers, president of GSI and co-CEO of jam giant JM Smucker Company, added: “At the end of the day GSI is about simplification — simplifying global commerce through global standards.”

Bob McDonald, vice-chairman for global operations at Procter & Gamble, estimated that manufacturers could save themselves the equivalent of 1-3pc of revenues using RFID. “These little-sounding numbers,” he pointed out, “amount to multiple billions of dollars.”

Jim Bracken, chief executive of GS1 Ireland, who also attended the forum, believed that Irish organisations were beginning to wake up to the importance of standards.

“It’s happening because of the new European track-and-trace food law and the competitive pressures coming into the economy.” He added that GSI Ireland had formed an expert advisory group to support Irish industry in adopting the technology.

Although the forum dealt with a range of product-coding systems, RFID inevitably dominated the agenda. A growing number of leading retailers and manufacturers are throwing their weight behind the technology and some, including Wallmart, Gillette, Metro and Tesco, have begun RFID trials. All of them see the electronic tagging of products as delivering one priceless thing: lower supply chain costs.

Dick Cantwell, a vice-president of the Gillette Company and chairman of the board of governors of EPC Global, a GS1 subsidiary charged with setting technologies and standards, said that RFID would allow Gillette to reap huge savings in the out-of-stock area alone.

He estimated that the company could comfortably increase its turnover by US$100m (or 1pc) if it were to cut out of stocks by a small percentage.

Cantwell also saw RFID as a potent weapon in the fight against “shrinkage” — product that goes missing in the supply chain — and counterfeiting. “The technology will eventually enable us to close the loop and minimise counterfeiting and as we get visibility right through the supply chain it will be less likely that products will go missing.”

According to Cantwell, it is the huge savings associated with RFID that is driving industry interest in the technology. “The opportunity is large enough to get the attention of manufacturers and retailers,” he smiled.

However, just because the interest is there, it does not guarantee the success of RFID. Bill Grize, CEO of Ahold US and a member of the management board of GS1, offered an insight into the problems facing the rollout of RFID technology worldwide.

“What is the big challenge facing RFID? Ourselves and time,” said the engaging, grizzled veteran of the US retail industry who, as head of Ahold US, controls a retail and food service operation turning more than US$44bn annually.

Grize’s thesis was that people were always the biggest barriers to progress. He saw a schism among the businesses that were embracing RFID — between those that had a short-term outlook and those that were more visionary about it. The former group sees RFID as a way to cut costs; the latter sees it as the bedrock of future business relationships. “If you apply RFID and don’t give it back to the customer, it’s a short-term kick to your business,” Grize claimed.

Grize also felt that too many businesses were still locked in an adversarial mindset, seeing RFID as an opportunity to get one over on their competitors rather than improve the efficiency of the industry as a whole. Co-operation rather than competition was needed instead to make RFID a success, he contended.

His conclusion was clear: products and standards are only one part of the equation. RFID will never take off unless businesses — primarily retailers and consumer goods manufacturers — agree to work together towards this common goal.

What is RFID?

RFID technology has three elements. First, a tag containing a microchip that is attached to a pallet or case of products. RFID tags can be seen as supercharged bar codes. They give an unprecedented level of information about a particular product. The other two elements are a reader that can extract data from the tag and a network that receives, stores, interprets and synchronises the data so that a product’s status is always seen in real-time. Although RFID technology has been around for about half a century, modern RFID technology was born in 1999 when an Auto ID laboratory was established at the Massachusetts Institute of Technology with funding from P&G and Gillette.

By Brian Skelly