European retailers, food manufacturers and logistics companies have given radio frequency identity (RFID) top priority in terms of planned IT investment and plan to deploy RFID pilot projects throughout 2004, according to a LogicaCMG study of 50 companies in Ireland, the UK, France, Germany and Belgium.
RFID technology is based on a relatively simple concept. It consists of two elements that communicate through radio transmission – a tag and a reader. The tag contains a small chip and an antenna and can be placed on any object. The information on the tag, such as an identification number, can be transmitted to an RFID reader over a distance of a few meters. The readers are placed in various locations throughout the supply chain. RFID allows objects to be electronically identified and followed throughout the complete distribution chain.
The study shows that half of the 50 companies interviewed in Europe have or are planning to deploy RFID pilot projects throughout 2004, with the vast majority planning to start implementing the technology within the next three years.
A number of major retailers, such as Tesco in the UK and Metro in Germany will initiate large-scale rollout of RFID. Whilst these projects will be finalised by 2007, the research indicates that companies will not begin to tag consumer products until 2008 when prices of tags will have naturally lowered.
The focus for the moment is on Returnable Transport Items (RTIs), such as crates and pallets. The tagging of these RTIs will be standard as of 2005. The research highlights when and how RFID will be used on a large scale for RTIs within European retail supply chains. Due to the large variety of RTIs in retail supply chains, the management, recording and administration is both complex and labour intensive. RFID is set to eliminate these concerns.
Since RFID will have great impact on the processes and IT systems of companies, it is necessary that they thoroughly prepare themselves. The use of RFID with RTIs will only take place if the financial benefits are greater than the cost of implementation. The cost/benefit analysis part of the research showed that based on a tag price of 50 cents the handling cost per pallet could decrease by 8.5pc. This leads to a payback period of between two and three years, LogicaCMG claims.
According to Paul Stam de Jonge, director of sales and marketing at LogicaCMG, the majority of companies that have tested RFID prefer the EPC (Electronic Product Code) network as standard for information exchange and UHF (Ultra High Frequency) as frequency.
“In the short term there are a number of issues that should be solved before RFID can be broadly adopted. First, the EPC network has not been finalised yet. Second, limitations in European legislation mean that the use of UHF technology is currently restricted. Finally, the software to integrate RFID in the existing IT infrastructure is not mature yet. LogicaCMG anticipates that by the end of 2004, the main issues will be resolved. As volume deployments will increase in the next few years, the cost of RFID tags will be naturally lower.
“The research shows that we are on the threshold of a breakthrough of RFID technology in the European market. The quick introduction of the EPC network is key for the broad acceptance and implementation of RFID. For this reason we, together with many organisations within the sector, have put a lot of effort in the definition of the EPC network,” de Jonge said.
By John Kennedy