The key findings of an international study undertaken by LogicaCMG reveal that Radio-Frequency Identification (RFID) is high on the agenda for European retailers, food manufacturers and logistic service providers. A majority of the companies interviewed in the Netherlands, UK, Ireland, Germany, France and Belgium, gave RFID top priority in terms of planned IT investment.
RFID is seen as the successor to barcoding. By using RFID it is possible to electronically identify and track objects, such as supermarket goods, without time delays or the need for human intervention. As a result, supply chain logistics are more streamlined and efficient and this ultimately leads to lower costs and higher revenues.
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 (UK) and Metro (Germany) will initiate large-scale rollout of RFID. Whilst these projects will be finalized 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 labor 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 eurocents the handling cost per pallet could decrease by 8.5%. This leads to a payback period of between two and three years.
A majority of companies that have trailed 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 finalized 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.
Paul Stam de Jonge, Director Sales and Marketing of LogicaCMG: '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 organizations within the sector, have put a lot of effort in the definition of the EPC network."
Since the whole supply chain is involved, the RFID implementations of the large retailers in 2005 will have a great impact on the food manufacturers, logistic service providers and retailers. According to Paul Stam de Jonge 'the RFID implementations will lead to an irreversible process in the retail market. In the short term, it is therefore of the up most importance for companies to gain knowledge and experience with RFID'.
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.
There are two main reasons for the application of RFID technology in RTIs. On the one hand it allows RTI pool organizers and logistic service providers to electronically follow the RTIs. On the other hand it allows manufacturers and retailers to follow and identify products. Both reasons result in a higher cost-effectiveness.
The dominant position of the retailers in the supply chain means that they have a leading role in the uptake of RFID. The study shows that retailers are particularly interested in tracking at an individual product level. Tagging at pallet level is not as crucial as they are often only used to transport the goods to the distribution center, as opposed to throughout the entire supply chain.