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Commentary: The year of living RFID

A focus on the electronic product code overshadows the broader context--and power--of radio frequency identification. Smart companies will test EPC now and link tests to process change and other Internet technologies.

Commentary: The year of living RFID
By Forrester Research
Special to CNET
January 26, 2004, 1:15PM PT

By Joshua Walker, Research Director

RFID is one of many technologies that will extend the Internet to the physical world.

Unfortunately, the focus on the electronic product code (EPC) overshadows the broader context--and power--of RFID, or radio frequency identification. Smart companies will test EPC now and link pilots to process change and other extended Internet technologies.

In 2004, many companies will need to adopt RFID. Retailers like Wal-Mart Stores and Tesco and organizations like the U.S. Department of Defense and the Food and Drug Administration are asking companies to use RFID to track assets, products and materials. Some high-profile mandates and initiatives originate from companies and organizations like:

• Wal-Mart. The retailer has mandated that its top 100 suppliers mark pallets and cases with EPC tags by 2005. It requires the use of a UHF tag that holds a 96-bit EPC tag containing a Global Trade Identification Number. As soon as the specification is solidified, Wal-Mart will require suppliers to move to Class 1, version 2 of the EPC, a tag that will carry a 96-bit serial number and be field-programmable. Additionally, Wal-Mart has asked pharmaceutical manufacturers to tag bulk containers of class 2 drugs like OxyContin by March 2004.

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• Department of Defense. The agency has required its suppliers to put RFID tags on freight containers, pallets, cases and big-ticket items by 2005. Using active and passive tags, it plans to make use of the EPC but will also comply with ISO standards.

• Tesco. Beginning in April 2004, the British retail giant will put RFID tags on cases of nonfood items at its distribution centers and track them through to stores. Some of its suppliers will begin putting tags on cases of products delivered to Tesco distribution centers in September 2004.

• Healthcare Distribution Management Association. The nonprofit organization for health care distributors recommended that manufacturers and wholesalers of pharmaceutical drugs and other health care products begin putting radio tags carrying EPCs on cases beginning in 2005. It also expects the adoption of EPC tags at the selling-unit level by 2007.

Is RFID ready for adoption?
Since these requests are new, companies fear that they must adopt an immature technology. But RFID is mature: The U.S. military and companies like Scottish & Newcastle have used radio frequency technology for years. What's new are widely adopted data standards like the EPC, which will track products as they pass between partners in a supply chain and across borders. To work, the code requires:

• Agreement on what is stored on the tag. EPCglobal--a subsidiary of the Uniform Code Council and EAN International--is finalizing a specification for the size and content of EPC tags, which typically use a 96-bit numbering scheme to identify individual objects throughout all parts of the supply chain. This specification is getting broad support--the Defense Department is poised to extend the EPC tag, not compete with it. This alignment should make companies like Pfizer and Johnson & Johnson, which sell to Wal-Mart and the government, less anxious. Flexible readers are already being designed to handle EPC tags as well as longer Defense Department tags that include its unique code.

• New RFID hardware and software. Country-specific frequency and power regulations prevent a global tag standard that would provide instant economies of scale for production. Manufacturers like Alien Technology are using low-cost methods they hope will position them to fill massive orders. Hardware manufacturers like ThingMagic and Symbol Technlogies are racing to introduce readers that support multiple protocols and frequencies, read both bar codes and RFID tags, and provide accurate readings in various physical environments. Also, software vendors like SAP and RedPrairie are tuning their applications, building middleware, and aligning with service partners like IBM Global Services to do implementations.

What to do in 2004
With high-profile EPC mandates, most companies need to pay attention to RFID in 2004. Here are some must-dos for the year ahead:

First, pilot EPC now. Companies that will be affected by these mandates need to test the technology immediately. Why? The competition is taking these mandates seriously. For example: Companies like Intel and Procter & Gamble now have vice presidents of RFID research and development. IT decision makers at companies that have run pilots say they've already determined ways to improve their operations. Even those companies not directly affected by these mandates should begin pilots to gain advantage over their competitors. For example, Michelin was one of the first companies to develop RFID-tagged tires. Its pilot gave it insight into how radio waves travel through rubber. This knowledge will enable it to be one of the first companies to offer innovative services like roadside assistance for flat tires.

Second, explore other uses of RFID and X-Internet technologies. Companies need innovation centers to evaluate RFID within the context of a larger trend: the extended Internet, a set of technologies that connect companies' information systems to physical assets, products and devices. The reason: Many benefits--such as supply chain visibility--can happen only when RFID works with complementary technologies like Bluetooth and GPS (Global Positioning System). Case in point: Third-party logistics provider DHL International used both RFID tags and existing satellite tracking systems to monitor the movement of Nokia phones throughout its distribution chain.

Third, use pilots to model implementation costs based on process change. Studies have measured the costs of RFID deployments based on requirements like billions of tags, new network equipment, readers, printers and storage hardware--and with some suppliers still quoting more than $1,000 per reader, technology costs add up quickly. But Forrester believes that companies will spend much more on training workers, analyzing data and optimizing processes than they will on technology. Companies should use pilots to plot where processes will change. In the end, this technology is a bigger boon for re-engineering consultants like Accenture and IBM Global Services than for tag manufacturers like Philips Semiconductor and Texas Instruments.

What to expect in 2005
What can companies expect from RFID, as more sectors adopt the technology?

• RFID traffic will flow to existing applications and over existing networks. Eventually, RFID data will travel over an Internet Protocol network, but it is clear through conversations with Wal-Mart and its suppliers that the bulk of the early data communication will occur across existing value-added networks and go directly from readers to enterprise resource plans or warehouse management systems. Why? To switch from their existing EDI (Electronic Data Interchange) networks or start streaming RFID data over the Internet, companies need to see real benefits. Despite plans for a UCC/EAN/EPCglobal- or VeriSign-sponsored registry and increasing EDI over the Internet data transfers, the earliest that companies will even have access to this new network service will be late 2005.

• The bulk of the return on investment will come from using RFID data to trigger events. Capturing, segmenting and acting on RFID data is a process management and business intelligence problem--not a data storage problem. Companies will turn to hardware vendors like RF Code and Intermec Technologies that are improving data filtration on their readers and tags, so that only valuable data is transferred from readers to databases. But vendors like BEA Systems, IBM and Sun Microsystems--as well as a crop of new start-ups--will do the real work of organizing the data to help trigger transactions and business rules.

• Privacy concerns won't derail in-store RFID. Early pilots like Benetton's and Gillette/Tesco's failed to address privacy concerns and therefore became a target for privacy groups. But companies have learned their lesson quickly, and there are now good examples of how to address consumer fears. Marks & Spencer and Metro Group lead the way with responsible communication of consumer data practices. And Wal-Mart will ensure that the pallets that wind up on Sam's Club floors have removable tags.

© 2004, Forrester Research, Inc. All rights reserved. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change.