Magazine Article | June 21, 2006

What Should You Expect From RFID Technology?

Source: Innovative Retail Technologies

RFID (radio frequency identification) can help you improve visibility, security, payments, and customer satisfaction. 

Integrated Solutions For Retailers, July 2006

The use of RFID is widespread in several industries. Are you evaluating the use of RFID in your operations? In this month’s Retail Solutions Forum, TagSys’ Director of Marketing and Public Relations Ken Reich, and VDC’s (Venture Development Corporation’s) RFID Research Program Director Michael Liard discuss trends and provide suggestions for RFID use in the retail industry.

What should retailers look for when selecting an RFID solution?
Liard: There are many considerations for retailers when evaluating RFID. Retailers must first decide what they would like to achieve by using RFID technology. Essentially, what is the application? In fact, identifying the application can help determine the value proposition and business case for deploying RFID. What business issues will RFID help resolve? Potential answers could include increasing visibility, improving security (e.g. anti-counterfeiting), providing alternative forms of payment, and enhancing customer satisfaction. Identifying the appropriate application also aids in determining which specific RFID technologies, frequencies, and perhaps even vendors are suitable for a solution. In addition, a retailer must understand that each RFID application and installation environment is inherently unique and will bring its own set of challenges and considerations.

Reich: Retail crosses a variety of verticals such as pharmaceutical, fashion, jewelry, and consumer packaged goods, to mention a few. Each requires a unique set of customer-driven, application-specific RFID solutions that are frequency-neutral and address the detailed needs of a customer scenario. Customer specifications and correlating requirements should drive the products used, and finding the suitable RFID equipment for the specific application requires considerable investigation. Field-proven and time-tested tag form factors, antenna configurations, innovative readers and reading stations, non-disruptive integration, actual real-world operating environments, and other salient considerations must be examined. Subsequently, an appropriate logic-based solution can be explored.

What is the most common use of RFID in the retail environment?
Liard: The most common application today is traditional security/access control that includes employee ID, employee access, and building access. However, the peak growth applications over the next five years are contactless payments and in-store inventory control to address issues such as out-of-stocks, misplaced items, and merchandise positioning.

Reich: Both supply chain and store-level inventory management are prime candidates for RFID. Shrink and theft occurs throughout the value chain from manufacturing, distribution, wholesale, and the back room of retail operations. Today, item-level and case-and-pallet applications are becoming more widespread, and early adopters are moving ahead with pilot studies on high-value goods from jewelry to sportswear. Of course, pharmaceutical manufacturers have captured recent headlines in moving the adoption process forward on item-level pilots.

What is the most common mistake retailers make with an RFID implementation?
Liard: I do not know if I would term them “mistakes,” per se, but there are many things to consider with a complex RFID system installation. For instance, we have heard about the payback associated with RFID. While the payback is extremely important, it is one piece of a larger puzzle called TCO (total cost of ownership). While understanding the TCO at every stage of deployment is critical, TCO becomes increasingly important when a retailer considers moving beyond the technology evaluation and pilot phase toward wider enterprise deployment.

Another crucial consideration and potential pitfall is determining which RFID data you will capture, manage, and share internally and externally. One of the promises of RFID is the availability of near-real-time and real-time data, but retailers need to understand how to effectively exploit that data to enhance business processes and efficiencies.

Reich: Retailers are looking to achieve immediate payback. Most retailers believe that one frequency fits all, and that frequency is UHF (ultra high frequency). Once again, a good deal of education and due diligence are vital to understand the benefits offered by both HF (high frequency) and UHF, depending on the application specifics.

What can we expect from RFID in the retail industry within the next few years?
Liard: We will see more tier-one retailers investigate, evaluate, and install RFID technology for in-store applications. However, not all retail items will be RFID-tagged in the near future. At present, several large retailers are determining which products may justify the cost of RFID. For example, high-risk and high-value items, such as luxury items, are initial product lines under evaluation for RFID. Additionally, some retailers are looking to tag boxes of shoes to improve customer satisfaction and reduce labor (which does not necessarily mean personnel reduction). Other items being examined are goods challenged by out-of-stock issues, such as Gillette Mach3 razors at Wal-Mart. It’s important for retailers to stock high demand items on the shelves. Retailers will also witness the convergence of RFID with EAS [electronic article surveillance] technologies over the long term to provide improved inventory control and enhanced security.

Reich: There’s little doubt that RFID will take on a life of its own. Imagination, end-user vision, and increasing consumer demand will drive future growth. New market-driven applications such as those found in the fashion/apparel and jewelry verticals are emblematic of the overall push toward automation. In addition to supply chain security, combating counterfeiting, and eliminating black marketing, inventory management is in the spotlight in terms of:

  • Near-real-time or real-time inventory    
  • Improving use of staff time
  • Just-in-time adjustments to store restocking
  • Potential for significant payback realized in terms of both fiscal performance and gaining a competitive advantage.

What can a retailer do now to ensure success  with RFID usage?
Liard: Simply put — educate yourself. Knowledge is power, and RFID technology is nothing new. It is not an emerging technology. The application uses are emerging. RFID should be viewed as another input technology similar to a bar code and as a business process change. Retailers must understand where RFID technology can add value to their operations. Accordingly, retailers investigating RFID technology must have internal champions — at least one from IT and one from operations. This is critical to the success of RFID deployment and essential to seamlessly integrating RFID throughout an enterprise. Similarly, start small, but think big. A pilot or site demonstration can help prove a business case and enable a retailer to learn a great deal about RFID technology and RFID system deployment.  

Reich: Retailers should conduct due diligence and explore their competition’s actions and those of other allied or similar retail markets, in terms of pilots. The early adoption process is well under way, and there are now numerous case studies providing vital statistical data in case, pallet, and item-level RFID implementation. Conduct internal audits and examine supply chain and inventory issues. These should be focal points for establishing preliminary parameters in pursuing RFID solutions.