Smaller companies are bracing themselves for the edict to adopt radio frequency identification (RFID) tagging. Based on past experience of supply chain mandates, the expectation is that when a large customer announces plans to apply RFID, the costs, and much of the grief, will be passed onto suppliers.
At first glance RFID may not seem much of an advance over barcodes: information is encoded on tags, which are attached to products and scanned by readers. The significant differences are that once activated to transmit radio signals, RFID tags can be read at a distance, no line of sight is required and multiple tags can be read at the same time.
Each tag contains a unique Electronic Product Code. This is the key to the tagged product's life history, which will be stored on a central database.
The technology makes it easier and faster to pick and pack orders, and goods can then be tracked automatically across the supply chain. Suppliers are also promised faster feedback, enabling them to improve forecasting, production and distribution.
In a report earlier this year, the market analysts In-Stat said RFID tags were poised to become the most far-reaching wireless technology since the mobile phone. Worldwide revenues from the tags will rise from Dollars 300m in 2004 to Dollars 2.8bn in 2009. Another analyst, Juniper Research, says the western European market for RFID will reach Dollars 1.1bn by 2007.
Such forecasts highlight the amount of investment that will be required by all parties, says Steve Baxter, managing director of Ross Systems, a supply chain software company. "We are working with lots and lots of food manufacturing companies dealing directly with large retailers who don't like RFID because they know it will cost them money."
Nor is cost the only obstacle, according to Nigel Montgomery, European research director of market analysts AMR Research, who says the technology is not yet stable. "It will be 2006 before RFID starts to gain traction - there is no plug and play, and despite large companies like IBM and Oracle positioning themselves in the SME market, (the technology) is still not packaged well enough."
Chris Adcock, president of the RFID standards body, EPC Global, points out that international standards for tags and readers were agreed at the end of last year, while other protocols and standards covering the operation of RFID data networks, links to enterprise systems and to a partners' systems will be finalised this year.
"Greater global standardisation will see the IT industry able to move more quickly and prices will come down. For SMEs now is the time to put the team together and get to grips with how RFID works," says Mr Adcock.
Faye Holland, worldwide RFID leader at IBM Global Services, argues SMEs will see more immediate returns than larger users because they find it easier to adapt processes to get the full benefits. "RFID is a catalyst for change, and is absolutely as relevant for mid market as for large companies."
In September IBM launched a range of RFID products and services tailored to smaller companies. An initial workshop to examine opportunities for adopting RFID costs Dollars 15,000, while installing a pilot system is Dollars 100,000.
Ms Holland says SMEs are getting an instant payback in being able to check goods faster with fewer people. She cites a European consumer products company that tags goods with unique customer numbers, meaning fewer people are needed to pick and pack orders, whilst at the same time throughput has increased by 30 per cent.
But this so-called 'slap and ship' approach does not capitalise on RFID's potential to capture and share information throughout the supply chain, and to improve internal processes.
Beyond attaching tags and installing readers, significant investment in networks and systems will be needed to transmit and process RFID data, says Olivier Vairon, head of supply chain at SAS UK. "Quite simply this heavy infrastructural investment is placing RFID out of the reach of most SMEs, for whom the operational and financial benefits of RFID are dwarfed by the implementation costs."
Nor are all the elements needed to extract the value from RFID data in place, according to Keith Gile of the market analysts Forrester Research, who says software vendors are sleeping through RFID's arrival. "The technology will soon impact the supply chain in a big way, but to date neither the business intelligence or the enterprise application vendors have a legitimate road map for leveraging RFID data."
Mr Baxter at Ross agrees the main challenge is dealing with data overload. "If every item was tagged the average supermarket would generate seven terabytes of data per day. We are looking at a spectrum, from no RFID to where every single item is tagged. Somewhere along this scale lies the pragmatic answer."
Large customers are seen as the RFID bogeymen, putting pressure on small suppliers to pay for yet more supply chain technology. But compliance and regulatory issues will also drive investment in RFID, according to Mr Montgomery.
"If you are only assessing an RFID investment from the point of view of a customer mandate you are missing a trick. You need to look at how you will comply with new regulations to do with traceability." An example is pharmaceuticals, where some regulators think RFID would be a good way to combat counterfeit drugs.
A pilot run by Aegate, a spin off from PA Consulting Group, has shown that using RFID to authenticate medicines at the point of dispensing reduces the risk of patients being given the wrong drugs and alerts pharmacists to illegal, expired or recalled products.
During the pilot more than 180,000 products were scanned by 50 pharmacists across the UK. Medicines were authenticated if they matched details on a secure database. The average scanning time was one second.
Whether or not they are under immediate pressure, SMEs need to prepare for RFID says Mr Montgomery. "They should work out what their strategy is going to be. At present people are going to conference after conference and learning lots about it, but they still haven't built a business case."
"I think there will be a return on investment as long as the technology is deployed at a sensible level and you don't tag everything that moves."
