Radio frequency identification has become a hot concept, promising to streamline how businesses track and stock inventory.
But companies may need to rethink their software infrastructures in order to make RFID work as advertised, say analysts and technology makers.
RFID, a pumped up variation on the bar code that uses smart chips and wireless capabilities, could revolutionize data collection and inventory management. But some companies aren't prepared to deal with the data once it's been gathered.
Bottom line: Analysts say companies that resist a quick-fix attitude and that avoid being dazzled by the hype will be most likely to reap the full benefit of RFID down the line. That's because they'll take the time now to coordinate disparate databases and get their infrastructure together.
RFID tags, which combine chips that carry descriptive information and radio frequency technology to track inventory, could make it easier for businesses to track products and raw materials, and therefore reduce their operating costs over time. And with heavy hitters in the retail and consumer packaged goods industries, such as Wal-Mart and Gillette, already pushing partners to develop RFID capabilities, adoption of the tools appears inevitable.
Already the U.S. Department of Defense has said it will require suppliers to use RFID. And on Wednesday, the Food and Drug Administration issued a report urging RFID adoption among drug wholesalers, manufacturers and retailers. The technology is "needed to secure the integrity of the drug supply chain," according to a statement from the agency.
Early resistance to RFID adoption has come from civil liberties groups, which fear that the technology could lead to unprecedented surveillance of consumers. But industry watchers and technology vendors have identified a more mundane potential problem for RFID adopters. They warn that in the rush to launch RFID projects, businesses may be overlooking a crucial element necessary to allow the technology to work smoothly: Making sure back-end databases and business applications can handle the massive amounts of information generated by RFID-enabled systems.
"Companies are going to have problems when they drop RFID on top of shaky infrastructures," said Kara Romanow, an analyst at AMR Research in Boston. "In order to do RFID right, to see a true return, the first thing (a company) needs to do is finish a data synchronization initiative, and do it right."
Data synchronization means organizing the information stored in disparate company databases--often from different vendors--to make sure those databases are speaking the same language. For instance, one might calculate shipping costs in euros while another uses dollars. "Data synchronization is the hard work that these companies will have to do for themselves, especially when you talk about changing the data itself and rationalizing the data," Romanow said.
Romanow said it will be crucial for businesses getting involved with the technology to work out existing problems in their data policies. They should do so, she said, even before hiring vendors such as IBM that offer services from data management all the way through to RFID rollouts. "When you have the color black abbreviated 10 different ways in your systems, you don't really want (technology vendors) deciding what language you want to use to create one point of reference."
Rainer Kerth, RFID architect at IBM, one of the early leaders in the market, said that the oversight is a classic example of users getting caught up in a flashy new technology without considering underlying implications. He believes companies have been mesmerized by the futuristic handheld readers that will collect data from RFID chips, and haven't asked whether the information those tools are collecting has first been put into acceptable order.
"Most of the companies involved in RFID rollouts are focused on readers and the ability to manage those readers," Kerth said. "There's a lot of excitement around RFID, and rightfully so, but when you take a step back and consider the consequences, data management is one of the bigger issues."
Romanow believes that there are two popular scenarios among businesses working to develop RFID capabilities today: those doing just enough to keep demanding companies like Wal-Mart as a customer, and those with real long-term vision. According to the analyst, the first group will garner few returns other than short-term bragging rights to getting RFID up and running, while the second group will see true return on investment down the road.
Kerth points out that the ability to read an RFID tag on a pallet of products in a warehouse does a company little good if the information being garnered hasn't been organized, prioritized and cleaned up. For in order to provide an accurate snapshot of an essential and transient issue such as inventory, there must be a uniform data repository for RFID systems to communicate with.
"Keeping data consistent and accessible within the enterprise is the more immediate problem that needs to get solved," Kerth said. "And people will have to clean up their own acts internally before they can even think about sharing data across enterprises."
Tackling the problem
A number of technology providers are lining up to help customers get their data sorted out in order to make RFID more palatable. Among the data synchronization companies jockeying for this business are specialists including Global Exchange Services, Transora, Trigo and Velosel, in addition to IBM, which offers a range of software and consulting services. Other companies that stand to benefit from this effort are giant systems integrators such as Electronic Data Systems and SAIC, who aim to help aspiring RFID users pull together all the necessary pieces from various vendors.
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John Radko, chief technology strategist at Global Exchange, said RFID is just another means of benefiting from the data synchronization efforts already ongoing at manufacturers, suppliers and retailers. He points to the work being pushed forward by standards efforts such as the Uniform Code Council's UCCNet group, which is attempting to build a universal system for synchronizing product information, as evidence that this push was happening long before RFID came into vogue.
However, Radko said RFID will fail to deliver for many companies that neglect to address data synchronization before rolling out technology to warehouses. He compares the movement to the early days of bar codes, with companies scurrying to meet retailer mandates, such as the RFID orders issued by Wal-Mart to its suppliers, without properly linking with back end systems to garner far more substantial benefits.
"Companies have absolutely underestimated the importance of data synch to RFID, especially the suppliers, who don't understand how difficult it is to slap around the data until they start working on it," Radko said. "You tend to hear the excitement from the Procter & Gambles, Colgates and Gillettes, but if you go down one tier of suppliers, the enthusiasm wanes, and (RFID) is seen as yet another costly mandate from an important customer they can't afford to ignore."
The solution, as Radko sees it, lies in establishing companywide data standards focused on cleaning and organizing the information, and addressing enterprise applications integration (EAI) in order to pull disparate IT systems together.
Other big technology makers, including Microsoft, Hewlett-Packard and SAP have launched products targeting RFID, and in particular, retailers. Microsoft last month said it is testing new software that could make it easier for small and medium-size companies to better manage their supply chains using RFID.
To Jim Reynolds, national practice leader for wireless services at IBM's Global Services division, it's largely a matter of getting companies' priorities straight and looking past the whizbang aspect of RFID at the hard truth about underlying data.
"There is such a focus right now on the beep of the reader and the power of the tag, it's easy to overlook the big questions that remain; namely, what happens to all of this data," Reynolds said. "Companies need to ask themselves, 'Is there a network in place that's sufficient to hold all the data, can it be filtered, can SAP handle it?"
"Only then," Reynolds said, "can (end users) start considering the business value (of RFID), and understand what they need to do to get information moving, to provide better inventory visibility, better demand forecasting, and returns management--and everyone knows that's where the real value of RFID lies."