"Every can of soup will have a chip in its lid. Every light switch will have a chip. Every book will embed a chip in its spine. Every shirt will have at least one chip sewn into its hem. Every item on a grocery shelf will have a button of silicon stuck on or embedded. There are 10 trillion objects manufactured in the world every year and the day will come when each of them will carry a flake of silicon." —Kevin Kelly, Wired, 1997

When Kevin Kelly sat down to type these "New Rules for the New Economy" eight years ago, he probably didn’t expect the ramp-up that we’ve seen in the past two years. But it looks like his vision was on the mark. The millions of silicon chips in his future painting are what we now call an RFID tag.

A tiny sliver of circuitry that can vanish into a label, and carries enough information to identify, categorize and locate the tagged object.

So does RFID signal the dawn of a new age of wireless data for the enterprise? Or is it just another technology riding the peak of inflated expectations, waiting to fall into the chasm beyond?

A first look places the truth as somewhere in between—but RFID is clearly making an impact on real life applications.

A Business Case for RFID
The US Department of Defense (DoD) saw the first benefits of the technology accrue to it during Operation Iraqi Freedom. The one big challenge for the army was to keep track of the rapidly moving forces after the end of the combat phase. The army used data from RFID tags that were attached to all inbound material and other sources to track the movement of troops in real time. This real time information from the logistics management systems about the troops gave a holistic picture to the army. A picture that helped them make Operation Iraqi Freedom a success.

From 26 Hours to 2 Hours A US government department was working towards reducing the time to locate and ship parts for the repair of military hardware to site spread across the globe. The key challenge was getting to the right part in the warehouse, which actually is a complex spread across a 20 square mile (over 50 square km) area housing as many as 38 buildings. In the pre-RFID and wireless days the complex process took as many as 26 hours to locate and pick the part, an extremely long time when the part was mission critical or during times of war. With a wireless solution in place the part can now be located and picked in less than two hours. The Savings: $14 million

While Wal-Mart will not save lives, it will save money and a lot of it. Some analysts suggest that the retailer will save as much as 6% to 7% of the costs associated with supply chain including storing, transporting and keeping track of goods. Supply chain costs typically stand at about 10% of total sales. So if we were to fit this to the 2003 sales figure of $244.5 billion, the saving for Wal-Mart could range anywhere between $1.5 and $1.7 billion. Not a small sum by any standards.

Closer home, Chitale Dairy Farms have achieved considerable success with the use of active RFID tags. Each buffalo is tagged with a card that takes care of the feeding data, breeding data as well as milking record of the animals. (See: Milking Buffaloes, the RFID way). The ease of availability of information has enabled better decision-making, therefore improving yields by 15% to 20%.

The Chitale buffalo farm at Bhilwadi, around 240 kms from Pune also houses a manufacturing unit where the company manufactures RFID tags and readers.

Technology Adoption
One key benefit that will lead companies to adopt the technology is the ease of information flow along the entire supply chain and the resulting cross-organizational collaboration. An Accenture estimate suggests that items on a shelf are not available seven to eight percent of the times. This shelf stock-out rate for items running a promotional scheme can be as high as 20%. And this translates to nothing but losses that amount to billions of dollars annually. Gillette estimates this loss in the US alone to stand at around $30 billion a year. With real time information available to both the retailer and the producer the stock-out situations can see a considerable improvement.

Gillette has recently placed an order to purchase 500 million tags and is pioneering the cross-company use of these tags. It will help the company to track the tagged items, like razors and cartridges, from production to shelf. Using a combination of shelves equipped with readers Gillette will have real time access to the movement of its products. This will help Gillette control shelf stock-outs.

And the retailer using readers in the store will not have to additionally tag it to control shoplifting. The existing embedded tag will do the job. And to add to that the retailer will be able to control the losses due to misplaced items on the shelves, especially important for apparel retailers.

The US DoD will require all of its suppliers to tag shipments by 2005. And the DoD buys defense systems from the likes of Boeing, Lockheed Martin and Raytheon but also buys from consumer goods companies like Coca-Cola, Procter & Gamble, Pepsi and Sara Lee. In this very line the Combat Feeding Directorate for the US Army’s Natick Soldier Center is designing, building and testing a global infrastructure that will make it possible for computers to identify and track any object anywhere in the world instantly.

This edict will have a huge spillover effect. For instance allies of the US will adopt a similar technology to enable systems to talk to one another. Incidentally the United Kingdom has already signed a deal with a company to use the same technology that the US uses to track freight containers.

The big daddy of retail-Wal-Mart has issued a similar deadline to its suppliers. All pallets and cases coming in to the Wal-Mart distribution centers and stores will be RFID tagged from beginning of 2005. Not to mention the likes of Target, CVS, Home Depot and Tesco are also backing the technology and have already drafted their rollout timelines. The ripple effect of these will go way beyond the confines of these stores. Analysts feel that the Wal-Mart’s backing of the technology will give it a push like no other. Estimates suggest that as many as 20 billion items come into the Wal-Mart warehouses and stores per annum.

And this is not the first instance that Wal-Mart has backed a technology. Bar codes are just one case in point. It was in 1973 that the bar code standards were approved. And 15,000 suppliers were using bar codes on their products by 1984. And it was in 1984 that Wal-Mart issued a similar edict and within a short span of three years, 75,000 suppliers started to use bar codes. The RFID story could be similar.

A Word of Caution
2004 is being touted as the year for pilot RFID projects. Full-scale rollouts will happen the next year. And the issues, both technology and business, that face the infant industry will get solved along the way.

An Auto-ID Center pilot study found that only 78% of the tagged pallets were read accurately and three percent of the double-tagged items could not be read.

The cost of the lowest price passive tag has fallen from $2 to 20 cents in four years. Analysts estimate that in a short span of time the price point will hit 5 cents a tag which will ramp up the market for RFIDs

Post the various pilot, do we see a boom in RFID based solutions. Not really, for one, price of the tag is what may be holding the smaller players back to adopt the technology full fledged. The cost of the lowest price passive tag has fallen from $2 to 20 cents in the last four years. Analysts estimate that in a short span of time the price point will hit 5 cents a tag. And that they feel will explode the market for the technology. But the price of the tag should not be the only consideration to adopt. Adoption of the technology will call for a considerable investment in complementary infrastructure like the ERP upgrade.

And opponents of the RFID technology are already talking about issues of privacy related to the source tagging. They feel it could translate to the companies knowing a lot about the consumers and their shopping habits. But the panacea has been found in technology already.

Massachusetts-based Auto ID Center has developed readers with a kill command. This permanently disables the tag. The Center works with 87 member companies and is currently working on the draft of a privacy policy that will give the customer
the right to have the tag killed at the checkout point.

The Momentum is On
The Auto-ID Center is working to address a number of these issues and so are the companies that have been the early adopters of the technology. Interestingly, the DoD and Wal-Mart are already collaborating to develop applications that take the technology beyond.

Back home, Analytica India, a Bangalore-based company is surprised at the number of enquiries coming in. Says Sampath Mani, chief operating officer, Analytica India, "Based on the nature and number of enquiries, the market is surprisingly active."

The company already has a solution for hospital security and asset management. Come June 2004 the company will launch a middleware framework that will help organizations, representing a wide spectrum of business activity, to develop RFID applications.

For the Chitale Farms’s parent company, BG Chitale, RFID is a business now. A new group company, Chitale Digital, will sell RFID apps in India. It has a tie-up with X-ident Technology, GmbH, a German manufacturer of RFID labels, tickets and tags, for the automatic identification and tracking of objects and for access control systems.

Vishwas Chitale, partner, BG Chitale says, "The market is growing and new avenues are emerging rapidly." So far, the Chitales have sold 1,000 systems with applications in

access control, ticketing, asset tracking, passenger ID, animal ID, retail purchase, and mass transportation. The Chitales have completed installations at the Bhabha Atomic Research Center, IRCON and Philips, among other places.

So tomorrow morning, when you swish your access card past the RFID reader at your office entrance, consider a world where every object around you will be tagged, as you are. More important, think of how you can use this nifty piece of technology to change the way your supply chain, and your other enterprise apps, can work this year.

Mohit Chhabra in New Delhi With inputs from Nanda Kasabe in Pune

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