RFID and its uses
...mpanies that have implemented RFID technology, in however fractured or complete an initiative each company has chosen to follow, are typically using it for tracking goods in the supply chain, parts moving through a manufacturing production line, reusable containment systems, high value tools, and other likewise assets. All of these are fairly generic, and exhaustively discussed uses for the technology, and most of which are being conducted on a relatively small scale due to the cost extremities. There are however some fascinating trials occurring all over the globe that are stretching the boundaries of these, and other, practical applications for RFID, and its uses in the supplier/manufacturing process. One such pilot study was recently conducted in a joint effort between FIATECH and the ChevronTexaco Marine and Transportation Group. ChevronTexaco was highly interested in upgrading their tracking abilities as they pertain to critical materials and supplies between their shore based warehouse operations and offshore field locations. Where FIATECH came in was in their provision of the RFID technology. Combined with the efforts of FIATECH, ChevronTexaco was able to travel further and faster along the learning curve than they could have on their own. Exhibit G shows examples of this process. The following two principle objectives were at the center of this study: · Assess the ability of RFID technology to significantly improve the efficiency, accuracy, and accountability associated with the movement of critical materials and supplies. · Gain knowledge about the practical use of RFID technology and its implementation in a real life industrial application. Thirteen shipments containing a total of 154 specific items were tracked in the course of their transport from the shore based terminal and the offshore platform. In the case of this study, the report concluded that the RFID technology was relatively easy to implement, and yielded high marks in functionality. This success was in spite of the treacherous marine weather conditions. The successful identification of tagged items was evident in the 100% identification rate in each shipment where RFID was in place. The only problems amounted from the high metal concentration of the offshore platform, which made reading all RFID signals difficult at first. Once the position of the reader was changed with respect to the RFID tags however this problem was corrected. This study indicated exactly how RFID technology can result in highly stringent, more robust, and error resistant work processes in tracking and documenting shipping. In addition to the obvious benefits for suppliers wishing to implement RFID relating to this finding, the fact that the study found that work process improvements regarding the technology can be easily achieved is beneficial to all members of the supply chain. RFID would also allow for faster, easier, and more accurate accountability, simultaneously reducing the amount of misplaced, misdirected, lost, and stolen items. The ramifications this would have on the shrink phenomenon for suppliers, specifically regarding misplaced and misdirected product are quite sizable. To briefly reiterate from earlier, this beneficial phenomenon can be extrapolated if a manufacturer is willing to adopt a widespread RFID policy throughout their supply chain, rather than simply in a few instances. Many wonder what types of companies tend to benefit from the implementation of RFID; large or smaller firms? The short answer is both. The long answer that we will now discuss is that while RFID technology can yield significant gains in supplier efficiency, the cost barrier (at present time) must weigh into the equation. The estimated costs for a supplier establishing a significant RFID operation range from $13 million to $23 million in the first year alone. Therefore the benefits for smaller suppliers once costs are taken into account become a little more opaque. The cost of technology in this case has however a significant return. Namely the ability of this new technology to eliminate all of the costly waste currently present in the supply chain. This is what suppliers must realize and focus on. If a company thinks only in the short term five inches in front of their face then they are missing the big picture. And the questions concerning the fact that the technology presently has some glitches, should be largely dismissed in light of the fact that these are largely operational deficiencies that should not get in the way of the main goal, namely, getting ROI out of an RFID investment. In the meantime companies will have to focus on figuring out a way to secure enough back-end infrastructure to handle the huge data dump that accompanies an RFID initiative of any size. But in return, RFID can deliver demand forecasting that is light years ahead of the curve we are on today. Manufacturers will be able to get accurate real-time data that is based not on sales estimates, but rather, on real-time demand. So basically while RFID is great for all manufacturers, the huge, often times prohibitive, costs involved with a first year initiative, coupled with the huge back-end structural demands makes RFID at present time a bridge too far for many smaller suppliers. Standardization Practices of RFID The best example of an initiative to establish an emerging set of standards for the proper use of RFID technology can be traced back to the collaboration between the Massachusetts Institute of Technology and dozens of blue-chip companies who were also researching radio frequency identification technology. This collaboration ended last fall and the group communicated much of its expertise to what was then an emerging standards body in the shape of EPCglobal. Currently, EPCglobal is pursuing the goal of creating RFID standards within the existing communications network infrastructure already in place. These efforts will be incorporated with the electronic product coding system that assigns unique numerical identification to items. One criticism surrounding the effort is that EPCglobal has yet to publish its standard for the tech specifications to be used in RFID tags. According to Tom Laffey, chairman of EPCglobal’s action group, they are nearly at a point where they can establish at least a 96-bit tag standard. Basically the major dilemma was satisfying not only retailers and suppliers, but the defense department and anyone else who might want to produce the tags. Also a transition from Auto-ID Centre to EPCglobal as the central figure in RFID standardization, and the logistics of such a move hindered the establishment of any standards. Delays resulting from intellectual property issues, for one, halted forward progress. Now basically all of the major players look to be back on board securely and progress has resumed. Most likely the next standard EPCglobal will undertake, according to Mr. Laffey, will revolve around tag reader standards. Essentially when people get a place to interchange tags and readers, the costs will be driven down and integration will be simplified. In addition to the efforts regarding standardization in the commercial realm of RFID technology, AIM Inc widely regarded as the foremost authority on automatic identification and mobility has published the proposed guidelines established for the use of RFID labels in military logistics. The lead editor of this document, Clive Hohberger of Zebra Technologies alluded to the fact that even though this document is the result of a request by the U.S. Department of Defense, it contains enough practical information about the use of RFID labels in the supply chain that it has important ramifications to the commercial sector as well. While this document does not address ‘smart packaging’, where the RFID label is located within the container itself, it does discuss practical knowledge pertaining to the selection and use of RFID technology. A commercial equivalent of these guidelines is soon to come that will establish guidelines for the use of RFID in the supply chain. Manufacturer Advantages If we could return to the lessons learned from the FIATECH/ ChevronTexaco Marine pilot study for a moment. This study indicated exactly how RFID technology can result in highly stringent, more robust, and error resistant work processes in tracking and documenting shipping. In addition to the obvious benefits for suppliers wishing to implement RFID relating to this finding, the fact that the study found that work process improvements regarding the technology can be easily achieved is beneficial to all members of the supply chain. RFID would also allow for faster, easier, and more accurate accountability, simultaneously reducing the amount of misplaced, misdirected, lost, and stolen items. The ramifications this would have on the shrink phenomenon for suppliers, specifically regarding misplaced and misdirected product are quite sizable. To briefly reiterate from earlier, this beneficial phenomenon can be extrapolated if a manufacturer is willing to adopt a widespread RFID policy throughout their supply chain, rather than simply in a few instance Examples of RFID Use (Retailers) Competitive Advantages of RFID Implementation for the Retailer As a retailer, RFID technology can set you apart from the competition in several ways. As discussed earlier in this paper, reduction of theft, keeping the shelves in the store stocked and inventory tracking and efficiency are all significant advantages of implementing RFID in your store. Reduction of theft is a new way of reducing your operating costs that is not attainable with traditional methods of cost cutting, such as cutting the fat out of your budget by removing unnecessary expenses. Keeping your store shelves stocked at all times attracts a more loyal customer base. While increasing your inventory tracking and efficiency, it gives you the edge you need over the competition to deliver more reliable and on-time customer satisfaction with your products, as well as being able to pass the cost-saving on to them through lower store prices. In addition to these methods of using RFID to improve your supply chain efficiency, some corporations such as Wal-Mart and CPG brands such as Unilever have pioneered using RFID tags for marketing measurement. Integrated campaigns that involve stores are most successful when the retailers execute the program correctly. CPG brands are experimenting with emerging technologies like RFID for alternatives to costly in-store audits of the campaign effectiveness. The tags can track and increase visibility into in-store promotion compliance, as well as ensuring that retailers execute the program correctly. For example, RFID tags can timestamp when a retail display is moved from one location in the store to another. This would benefit marketers to know that their display was actually inside of the store and set up during the promotion, instead of in the stock room. However, as good as RFID may sound, experts say that there it is not a solution to supply chain visibility. Many user companies of RFID believe that it will help to product more data, but they believe that their networks still suffer from lack of visibility with customers and suppliers, which results in mismatches between supply and demand. Top suppliers are adopting RFID to appease their retail customers, but they still struggle with the fundamental problem of matching supply to demand and continue to seek more supply chain visibility to resolve supply-to-demand mismatches. In other words, if you don’t have good visibility into your supply chain now, RFID is not going to help you unless you implement a significant portion of supply chain research and data integration upfront. It is not going to create visibility that is not already there. Additionally, since the technology is so new, there is a shortage of experts who know how to apply the technology into a business strategy. Even with the recent pilot activity with Wal-Mart and other retail companies, there are few who have multi-company or even multi-site experience with RFID systems. Top RFID Middleware vendors are still creating the rules for compliance. This leaves retailers currently with one sure option, commonly referred to as “slap and ship” in which a supplier tags the package, case, or pallet in the distribution. This is the only available known method to offer education of the technology while containing costs. (See Exhibit H) In addition to advantages from the retailers point of view, RFID also has many advantages from the perspective of the consumer, as noted in a March 2004 Forrester Research report , (of those consumers that are aware of RFID technology) “Sixty-eight percent of these consumers believe that RFID will reduce theft at stores, and 37% think that RFID helps retailers keep the shelves stocked with goods.” These consumers believe that RFID will benefit retailers, and in turn, this increased inventory accountability, stocking, and overall efficiency will in turn benefit them. If there is a perceived value in RFID implementation in a department store- that it will improve a customer’s experience at that store and increase the likelihood that a customer will visit and purchase goods at that store, then it definitely serves as a competitive advantage for that retailer. If between two competing stores with a relatively substitutable product base, one has RFID and one doesn’t and consumers perceive this to be a valuable benefit for them, they may be more likely to visit one store over the other. There are also disadvantages of using RFID in stores, according to consumers. Of the population surveyed in the March 2004 Forrester Research report, 21% worry that retailers will use RFID to track everything that you buy, 18% are concerned that retailers will track what consumers do when they are outside the store. (See Exhibit I) Since the majority of consumers who aware of RFID technology also believe that it has been used for years, retailers must be responsible for keeping a good image for the technology. For example, maybe include fliers in shopping bags or put up signs around the store indicating that the store uses RFID and how it will benefit its customers. In addition, the signage should include a few sentences pointing out that the RFID is no longer active after the product leaves the store. Wal-Mart has taken methods similar to these to help to educate its customers. Wal-Mart The implementation of RFID at Wal-Mart is “Very” Important, as stated by Wal-Mart President and CEO H.Lee Scott in February 2004. “Through RFID, we can drive excess inventory out of our business, we can decrease the back size of our store, and we can lower prices. We will get more efficient as an industry, and savings will be passed on to the customer.” Wal-Mart has challenged its suppliers to become RFID compliance by January 1, 2005 in order to remain one of its suppliers. As spoken by H.Lee Scott in the preceding paragraph, Wal-Mart’s vision of this project is to make the industry more efficient through RFID, and in turn, pass these savings on to the consumer. Sounds like a great vision, but just what does “compliant” mean by Wal-Mart standards? Well, the first requirement is that top suppliers must tag all cases and pallets shipped to Wal-Mart and Sam’s Club top three Northeast Texas Distribution Centers, as well as ensuring that tags are 100% readable. However, suppliers are allowed to focus on specific SKUs for the January 2005 deadline to get their systems working and in compliance with Wal-Mart. The 100% readability goal is more long-term. Suppliers can’t add the cost of RFID to their prices to Wal-Mart, according to the mandate, so Wal-Mart challenges its suppliers to investigate and implement ways to increase the efficiency in their own organization to gain benefit from the technology. Wal-Mart suppliers have different views of the mandate. While some are still struggling to see the business case, some do have a positive view now that they have started the implementation. These positive suppliers have worked closely with Wal-Mart to agree on tagging plans for January 2005. For example, one supplier focused on getting its most “difficult” SKUs to work with RFID in order to create a learning experience for the company. In addition, some suppliers have visited the retailer’s Bentonville RFID lab to see how their efforts will fit into the big picture of the project. Wal-Mart’s Bentonville facility is essentially a prototype of the RFID project with a replication of a distribution center and its technology. In some cases, Wal-Mart has even offered to lend support to suppliers to help them implement their most problematic SKUs. Since the announcement of this project there have been criticisms. Forrester Research originally predicted that Wal-Mart “can’t get what it wants, by 2005.” Due to initial view the only viable way to achieve Wal-Mart’s standards is by “source-tagging.” This method of RFID deployment requires a huge capital outlay and due to this, only the largest adopters will be able to front the investment for the project. (Forrester used Gillette as an example of a company that would be able to realize the benefits from RFID of the 25% they predicted.) An RFID pilot for the typical supplier would cost nearly $10 million! In addition, Forrester also forecasted that many suppliers’ efforts would fall short of Wal-Mart’s goals because of immature technology and the lack of a near-term ROI. However, in May of 2004, Forrester revised its statement to “2005 Compliance is Broadly Attainable” due to the SKU focus discussed earlier. With the realization that suppliers are not required to have a 100% read-rate over all product categories (and instead can focus on getting their more difficult SKUs working) and are working with Wal-Mart to ensure compliance for as many SKUs as possible for 2005, the goals set by Wal-Mart are attainable. The tagging part of the project accounts for the largest portion of capital outlay. By focusing on specific SKUs in the pilot phase, suppliers can save some of the variable cost that was originally anticipated. Industry analysts believe that the supplier focus on SKUs in the case of Wal-Mart will help them to complete quality RFID deployments in the short-term and enable them to sustain into the long-term for other roll-outs. In addition, a quality initial roll-out, will allow them to remain flexible for future enhancements of the project. Target In summer of 2004, Target Stores met with its suppliers to initiate an RFID Project of its own and discuss requirements. In February of 2004, Target followed Wal-Mart in announcing its own plans for RFID requirements. Target is giving its suppliers until spring of 2007 to be fully compliant with its mandate. It’s not clear at this time which of its suppliers will initially participate in the first wave of deployment, although factors such as the size of the supplier and whether or not they provide any unique items will definitely play into the decision. Target has told suppliers that its RFID project will begin with one distribution center in Texas and 10 nearby stores in the Dallas/Forth Worth area in the late fall, with the intention to quickly expand to more than 50 stores by June. Requirements identified to date are similar to Wal-Mart. They include applying RFID tags to cartons and pallets shipped to regional distribution centers and using 96-bit tags based on EPCglobal standards. An EPCglobal logo is required on cartons and pallets, all current markings and bar codes for pallets and cartons will continue to be applied, and EDI ship notice manifests will still be required. Benetton Benetton has also started using RFID tagging in its Sisley clothing line. In 2003, Benetton was the first retail store to push item-level RFID out of pilot and into its 5000 stores. The Tag (which has adopted the name “smart-tags”) communicates its location to the company’s supply chain network. This allows the retailer to make quicker decisions by giving them their inventory status automatically via computer network. Benetton’s computerized supply system reaches from the initial manufacturing stages right through to the retail store to assist with inventory control in the store and ordering. The Chip is imbedded in the clothes; it’s actually smaller than a grain of rice. When an item is returned and the tag is scanned, the item automatically re-enters the store’s inventory. In addition, to inventory and ordering efficiency, Benetton has been researching smart tags for anti-theft and anti-counterfeit purposes. Time and Cost of Implementation of RFID Initiatives at the Retailer Retailers are spending more money on technology in general, and as much as 38% of their annual IT budgets can go towards new initiatives. Among this new spending, Procurement Software and RFID tags are among the top three new spending initiatives. Firms in the retail industry are twice as likely to make these investments, but since they are still in the early stages of RFID adoption, only 22%. (See Exhibit J) The costs of RFID tags are currently the largest upfront capital investment in the implementation project, but as the technology is more widely adopted, experts predict that volume purchasing will begin to drive these costs down. Even with the Ship and Slap approach described earlier, suppliers should expect the costs of compliance to exceed $9.1 million, including infrastructure, software, consulting, and new warehouse labor. These costs will range from as little as $2 million to more than $20 million based on a supplier’s distribution network, warehouse operations, and total Wal-Mart volume. Still, the biggest costs remain constant from supplier to supplier, and they underscore the major challenges that still impede RFID deployments. (See Exhibit K) Standardization of RFID Tagging Mike Duke, Senior President and CEO (U.S. Division) of Wal-Mart stores announced at a Retail Systems event in Chicago in May that Wal-Mart was collaborating with working groups under the Business Action Group within EPC Global, and industry group that develops standards for RFID technology in the global supply chain, to promote a single standard for using Electronic Product Code technology within the retail industry. "We can’t go it alone," he said. "What’s important is all of us working together" to promote industry adoption and achieve the business benefits. Wal-Mart will be marking its items with an EPC global symbol, signifying that they are abiding by global privacy standards set by this organization. Another Senior Executive at this same meeting stressed that Wal-Mart wanted to work with Target, Tesco PLC in the U.K., as well as various airlines and pharmaceutical companies through EPC Global to define standards that would work not just for retailers but also for their suppliers. EPCglobal, the leader in RFID standardization, is a nonprofit joint venture between EAN International and the Uniform Code Council. According to EPCglobal spokesman Jack Grasso, the electronic product code (EPC) technologies standards define the types of tags to be used, the frequency of the tags, and the read rates of the tags. There are at least four types of standards in development including the EPC Code design that was agreed upon on June 14, 2004. The Electronic Product Code is the next generation of product identification that uniquely identifies objects (items, cases, pallets, locations, etc.) in the supply chain. The EPC is built around a basic hierarchical idea that can be used to express a wide variety of different, existing numbering systems, like VIN, and other numbering systems. "Grasso acknowledged that the new protocols don't solve all the problems in creating global standards for RFID technologies, but said 'it's an evolutionary process. This is the first set of formal standards and others will follow. In fact, EPCglobal has begun creating standards for the next generation of tag specifications called UHF (ultra high frequency) Gen 2." Companies who want to implement the standards must subscribe to EPCGlobal- the subscription amount is dependent on the company size and revenues. To date, EPCGlobal reports 200 subscribers who fall mainly into the larger company category. Wal-Mart will be announcing additional RFID rollout plans in the third quarter of this 2004, with the U.K. and Canada being likely markets. The retailer is interested to use the technology in Europe but is waiting for tags that include a global RFID standard, which is expected at the end of 2004. Disadvantages of RFID Many new technologies that have great benefits also are faced with multiple weaknesses. RFID technology provides retailers and suppliers with multiple advantages from reducing costs to managing inventory. This technology has multiple substantial disadvantages that cause concern over the widespread use of RFID. There are three large platforms that need to be weighed before making a final decision if this technology is a benefit to a company. In a recent study by Forester Research Inc., various consumer product goods and retail companies were asked about the major barriers to the uptake of RFID. These companies viewed RFID as an “immature technology that needs to be revised” as the largest problem with the technology (Exhibit L). Privacy, cost, standardization, and product limitations cause many companies to question the viability of RFID. Cost: The first main disadvantage to using RFID technology is the cost. The average cost per tag is around 20 cents. Retailers will also need to buy readers for the tags, which can cost around $1,000 per unit. Industry consensus is that the tags must reach a price of about 1 cent per tag in order to make financial sense. Consumer Privacy: The second disadvantage is perception about consumers’ privacy issues. There are debates about retailers or other companies knowing too much information about a customer. The use of RFID in apparel or any other industry is like a tracking device. To overcome that fear the Auto-ID Center has researched the privacy issue and recently issued a paper that establishes some policies that RFID users should follow. Exhibit 3 shows these policies. Placement of tags: A third disadvantage comes about with the involvement of the tags themselves when put on certain products. “A supplier can’t simply slap a smart label- one with an RFID tag embedded in it- on 60 cases of coffee cans, stack the cases randomly on a pallet and read every tag as a forklift carries the pallet through a dock door at five miles per hour.” Due to the high frequency waves, some of the tags will bounce of metal and be absorbed by water. This is where a great challenge exists in implementing RFID. This factor might change how packaging industries work and what materials are used. Adoption: A fourth disadvantage for RFID is the complication of its adoption. The fact that there is no standardization across companies presents a problem. Lack of standards could be a problem when putting the RFID technology together from many different sources such as different manufacturers and connecting to different employers. Eventually, RFID users will develop industry standards much like there are with the current UPC standards. Privacy Analysis As Wal-Mart pressures manufacturers to place RFID tags on individual goods, there are many privacy issues that begin to be raised. RFID tags are so small they can be placed in between cardboard layers in a package of razor blades or inside the tag on a shirt without being noticed. RFID tags are becoming so small, that they just look like a tiny piece of dirt that is almost unnoticeable to the naked eye. As tags get smaller and more unnoticeable, consumer advocacy groups begin to question where this technology will go in the future. If all consumer product goods are now tagged, will the government use this technology to track your whereabouts? Does RFID allow “big brother” to track you and everything that you do? These are just a sampling of the questions that many groups are beginning to ask as retailers continue to pressure manufacturers to place RFID tags on their products1. One of the largest consumer advocacy groups that is worried about this technology is CASPIAN (Consumers Against Supermarket Privacy Invasion and Numbering). In a Time Magazine interview with Katherine Albrecht's, founder of CASPIAN, she describe her nightmare, “her grocer scans her credit card — at the bottom of her purse — and tracks her around the store recording her selections. Police come knocking after tracing an RFID-tagged soda can found at a crime scene to her credit card.” This appears that it could become a reality in the near future if the soda can was purchased at Wal-Mart because they will have a record of the 100 most purchased consumer product goods in their stores by 2005. These questions are all good to ponder, but is there a strong enough worry that this will become a problem in the future? According to a recent Forester study, “23% of US consumers are aware that RFID technology is being used in the US”. Of those consumers that aware that the technology is in place, “21% of people are worried that companies will use RFID to keep track of everything I buy and 18% are worried that retailers will track an item I buy with an RFID tag after I leave the store” . These statistics indicate that there is a large portion of people that are concerned how this technology will affect their privacy. RFID tags have the ability to hold much more information compared to the standard UPC that is on most products sold today. The worry of many consumer advocacy groups is that this information will be used to track everything they buy or even worse track them after they leave the store. It is difficult to imagine that companies would violate consumers trust by selling or giving this information to others but there are examples of companies that have made this mistake in the past. According to Nee, JetBlue Airways made a major mistake by in 2002, giving passenger records to Torch Concepts, a Department of Defense (DoD) contractor, so it could do a trial study for the DoD on potential terrorist travel patterns. JetBlue turned over valuable passenger information, including name, address, itinerary, and social security numbers. JetBlue CEO later publicly apologized for this incredible breach of consumer privacy. This type of consumer privacy violation has led people to question what would happen if companies began selling information collected by RFID readers. It becomes difficult to place a monetary value on a company’s equity of keep consumer information private. The Royal Bank of Canada conducted a study to “demonstrate that privacy can contribute 7 percent to that institution’s overall shareholder value” according to Peter Cullen of the consumer privacy group at the bank. Proctor & Gamble’s chief privacy officer Sandy Hugues found that “half of the customers who visit a Web site and read the privacy statement will leave if they don’t like the statement”. Companies are recognizing that consumer trust is a large issue form many consumers. The United States Congress has been forced to deal with the privacy issues of RFID due to legislative action being discussed. Rep. Jan Schankowsky, D-Ill., raised the issues that “soon we could have Big Brother and big business running to the same frequency, where not only will they know where you are, but they’ll know what you’re wearing.” The American Civil Liberties Union is putting large amounts of pressure on congress to discuss the issues of a “surveillance society” . Legislation has been proposed or has been considered in California, Utah, Massachusetts, Maryland, and Virginia to deal with the privacy issues of RFID. The issue of privacy has spawned new companies to develop a way to deactivate RFID tags when a consumer leaves the store. According to Kaliski, chief scientist and director of RSA Laboratories, “RFID tags could be used to track people and objects, surreptitiously. These concerns have motivated our scientist to work on a new generation of technical solutions that match these challenges.” RSA Laboratories are currently developing a special RFID tag designed to prevent readers from performing unwanted scanning and tracking without any disruption to normal RFID retailer supply-chain operations. The RSA tag is only a research concept today and the company is counting on RFID not becoming a widespread technology at the individual product level until it can launch its RFID tag concept. Privacy issues have forced many companies to discuss the most effective way to use RFID technology. Consumer advocacy groups have forced both suppliers and retailers to recognize the incredible value of personal information and the potential negative impact if that information ends up in the wrong hands. Congress will be forced in the near future to make decisions on the privacy laws regulating RFID tags in order to guard the privacy of the American consumer. Cost Analysis There have been many different quotes about the amount that it will cost to implement RFID technology into the production of goods. There are huge differences on everything from the cost of the tags, to how much is will cost to install the RFID readers in the warehouse. These costs will ultimately be passed from the manufacturer to the consumer and can pose significant losses of unit sales. When Wal-Mart first rolled-out the RFID project to manufacturers, it was stated that the cost for a RFID tag was only $0.05 per tag. Current estimates today for the purchase of $10 million passive, read-only RFID tags costs $0.47 per tag. Based on the current RFID tag costs, it only makes sense to use item level tagging on luxury goods. Examples of luxury goods that are sold at Wal-Mart include video games, jewelry, and personal care products. These are not nearly as price sensitive and since most people that are purchasing these items are using discretional income, the person is not nearly as price conscious. An increase of $0.50 on a video game is not nearly as noticeable as a $0.50 increase on a 2L bottle of soda. A $0.10 increase on the retail of a 2L bottle of soda will lead to approximately a 5% decrease in volume. Thereby, a $0.50 increase in the retail of a 2L soda could be detrimental to the sales of soda. High volume, relatively inexpensive consumer goods tend to have efficient supply chain systems and processes already in place so these companies will struggle to benefit from the additional costs imposed by RFID tags. The use of item-level RFID tagging still appears to be a number of years in the future. According to a recent Forrester Research Inc. study, “forty percent of the CPG and retail firms that we spoke with believe that they will start putting RFID tags on individual items in two to six years from now. But the majority of users either think it will take significantly longer or don’t know if they will ever tag at an item level.”29 Granted Wal-Mart is pushing for the implantation of this technology in the products that it sells, there is still a significant majority of customers that do not require these tags in order to sell their products in the stores. Due to so few customers requiring RFID tagging, it causes many senior level managers to question if the manufacturer should implement RFID tagging on all of their products. Instead of using RFID tagging at the item-level, manufacturers should strongly consider focusing the attention to tagging at the pallet level. Pallets can be reused in the future and the retailer will avoid all of the privacy issues faced by item level tagging. According to Homs, “the European Union is introducing legislation to deal with electronic waste. Although these rules are not strictly enforced yet, European law makers will certainly scrutinize non reusable RFID tags and potentially force CPG firms and retailers to for alternatives.”29 The use of RFID tagging at the pallet level avoids environmental issues and reduces the significant sunk costs of RFID tags at the item-level. There are multiple factors that will influence the future prices of RFID tags. Based on responses of 13 RFID tag manufacturers, assembly costs are the largest cost driver that led to the prices of these tags. According to Homs, “RFID tag assembly costs make up, on average, 35% of total production costs. Tag manufacturers hope to use cheaper chips and antennas over time but struggle to identify cost savings in the RFID tag assembly process.”29 Tag manufacturers are teaming up with companies such as Avery Dennison to develop adhesive labels, which add even more cost to the assembly of the tags. Wal-Mart has predicted a 10% to 20% improvement in labor efficiency in its distribution centers by implementing RFID technology. These efficiencies do not appear to be translating into a savings for suppliers for a number of years. According to Brandel, “the vast majority of suppliers will take at least two years to see any return from their RFID implantation. In fact, if the Wal-Mart mandate hadn’t occurred, analysts say RFID would likely have followed an adoption and maturation cycle similar to that of bar codes, which took at least a decade to achieve widespread adoption.” It is difficult for many suppliers to spend between $10 million to $20 million to implement RFID technology into the production of goods and not see a return for multiple years. There are still considerable cost issues when evaluating the proposition of implementing RFID technology. Until the cost of the chip declines sharply, it is going to be cost prohibitive to effectively use this technology for inexpensive high velocity goods. Luxury items that are easily stolen would be good candidates for the use of this technology to track items and reduce shrink. In the near future the cost for producing RFID tags will eventually come down, but until then it will be difficult for many companies to take advantage of this technology. Standardization As RFID technology blossoms there are multiple different uses of these chips from tracking inventory in a Wal-Mart to tracking the latest outbreak of mad cow disease in Western Europe. Through all of these possibilities for this technology, there lies a problem with determining which type of chip is right for each of these situations. This has begun to raise the problem due to the lack of standardization with RFID technology. As companies explore the possibility of implementing a RFID package, companies need to be certain that the readers that are installed are the most appropriate for their use. According to EPCglobal there are multiple different classes of RFID tags that create various amounts of confusion when evaluating RFID technology. There are six different types of RFID tags that are targeted for retail use29: Class 0 Class 1 Class 2 Class 3 Class 4 Class 5 Description Factory programmed read-only tag User-programmed read-only tag Read-write passive tag Semi-passive read-write tag Active read-write tag Active autonomous read-write tag Passive / Active Passive Passive Passive Semi-passive Active Active Read / Write Read-only Read-only Read-write Read-write Read-write Read-write Transmission Reliability Low Low Low High High High Battery No No No Lithium / manganese Lithium / manganese Various types possible Life Span High High Short High High High Communication Range Low Low High Mid High High Wireless mesh network No No No No No Yes The lack of standardization is causing havoc for managers as decisions need to be made as to the extent of RFID technology implementation. Manufacturers are forced to evaluate RFID implementation procedures to satisfy all of the different needs of their customers. Metal and Liquid Issues Metal and liquid have been shown to interfere with the reliable ness of the RFID transmission. Tag manufacturers are still working on how and where to mount RFID tags on products that are primarily liquid based such as laundry detergent. According to Woronka, “tag manufacturers are making progress in this area by using different substrates to mount the tag antenna and using insulators between the tag and the metal surface on which it is to be mounted.” These changes need to be implemented to improve the reliability of the transmission as to ensure that these tags are correctly read by the antennas. RFID tags are also susceptible to issues radio frequency emissions. According to Woronka, “Tags can also be susceptible to the electromagnetic interference from computer equipment, lighting fixtures, etc. These emission sources must be taken into consideration when designing the RFID system to avoid adverse effects.”13 Electromagnetic interference needs to be taken into consideration because of the presence in all situations of computer equipment. Once these factors are taken into account, it will help to improve the reliability of RFID technology. There are serious RFID technology disadvantages that need to be taken into consideration before there is wide-spread implementation. The idea of “big brother” watching over people becomes a strong reality with the implantation of RFID. There is a concern that companies will begin to track products even after the products have left the store. There are also severe cost factors that need to be flushed out before manufacturers can place RFID tags on all of their products. It could cause smaller companies to go out of business and high volume items to become uncompetitive with what...