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    TECHNOLOGY: Still hard to read

    RFID will offer unprecedented supply chain visibility, says an expert panel. But first, retail managers must be able to see the way to strategic employment and real ROI.

    It's clear that growing numbers of organizations in a wide variety of vertical niches are adopting radio frequency identification (RFID) technology. The technology is generating operational efficiencies and strategic advantages within supply chains -- but also considerable concerns among nontech managers, including retailers, about what it all means for their businesses.

    To address those concerns, Potomac, Md.-based research and consulting firm Larstan Publishing Systems gathered some of the RFID industry's top experts in December, to gauge where RFID's development is right now and discuss the promise and perils ahead. Larstan shared the resulting report with Progressive Grocer. Here are the highlights.

    The panelists agreed easily that RFID systems can be used anywhere along the supply chain, on nearly anything -- from clothing to food to animals to military weaponry. The tags can convey information as simple as the location of a product on a warehouse pallet, or as complex as instructions on how to assemble an automobile. The real challenge for nontech business managers is the need to build a specific case for RFID adoption in their companies.

    This point was underscored by Robert Clarke, professor at the School of Packaging at Michigan State University in East Lansing, who said RFID is still undergoing a rocky transition from broad theoretical applications to real-world practicality. The technology is still surrounded by unrealistic expectations, said Clarke, and a lot of hard work still remains to be done.

    "Wal-Mart has started backing off [from] a lot of their plans and applications," he said. "Why is that? One, the technology, as developed, doesn't work well in a lot of applications, and until they find out how to make those things work so that they can synthesize the data into actionable information, there's just not a good enough business driver in terms of ROI."

    Clarke hastened to add that any RFID deployment must receive the input and buy-in from business unit directors who are nontechnologists. Winning over such stakeholders helps to manage expectations and ensure success down the road.

    "The best way to achieve, develop, and implement RFID is through a cross-organizational team, so that you bring in, just like this panel discussion, different viewpoints of where it can work, how it can work, and where the benefits will accrue," he said. "RFID can't be stove-piped in the IT department. It's key that you have top management buy-in. However, a lot of companies aren't doing this, and those are the ones that are floundering when it comes to deriving a business case from RFID. The best way to get that buy-in is to demonstrate the quick ROI achievable in certain applications."

    A major hurdle, however, according to Clarke, is the limitation of current technology. "The problem is that RFID physics don't always allow you to easily synthesize the data, and that's what many companies are running up against right now, including Wal-Mart," he said.

    But RFID is already proving its mettle in certain niches, he added, such as automotive manufacturing.

    The 'early adopter' phase

    Walt DuLaney, c.e.o. of Wheaton, Ill.-based Adaptive RFID, said he sees an organizational problem. "If you go look at a company, you don't see a v.p. of RFID job that's been around for awhile," he said. "It's a lot like [what] we saw with the supply chain. Today there are v.p.'s of supply chain in most major companies, but back when I started in the '80s, there weren't. I have one client where RFID has gone through three hands so far this year. Nobody wants to grab RFID, because they're not quite sure there's enough of a business case to justify their promotion to being v.p. or s.v.p. by taking on RFID."

    However, Tom Gibbs, director of worldwide strategy and planning at Santa Clara, Calif.-based Intel, offered a contrary view. He noted that users are getting tangible ROI from RFID without waiting, through targeted applications of the technology. The key is to solve specific problems that are relevant to a user's respective niche.

    "The customers we're working with now are getting ROI today from RFID," he said. "So there may not be a business case for somebody selling consumer packaged goods where they make two cents on a dollar profit margin. But hospitals, for example, are making good ROI today by RFID-tagging patients. For users that come out of the gate early, there is a solid business case."

    According to Gibbs, a company must define the value it provides to customers and products. "Technology by itself will not add business value," he said. "One of the companies we work with is actually seeing a 10 percent improvement in returns, with an overall impact of millions of dollars."

    Greg Gilbert, director, product management at Atlanta-based Manhattan Associates, pointed to other promising early results. "A lot of our customers have conducted several pilots, and already work with the exchange of the data," he said. "That's really where the big benefit is. It's not what you do physically on the distribution center floor, but it's the ability to see both forward and backward into the supply chain, information that they've never seen before. By using RFID, one client was able, for the first time ever, to know exactly, from node to node, the dwell and transit times for every single node in their supply chain. They started addressing the bottlenecks, and they cut that time in half."

    Joseph Tobolski, senior director at Hamilton, Bermuda-based Accenture, suggested that RFID is not merely about reading sheer volumes of data, but also about that data's interpretation. For an RFID system to deliver the greatest benefit, it must include sufficient middleware tools and applications to provide an analytical overlay to make sense of the data in real time.

    While most of the panelists agreed that it's important for an RFID infrastructure to feature middleware capable of pinpointing and analyzing real-time patterns in fast-moving data, some questioned whether companies eyeing RFID adoption possess sufficient in-house expertise.

    "I think that's another thing that's still evolving as well," said Michael Crane, senior director, advanced services at San Jose, Calif.-based Cisco Systems, "because that middleware functionality will give you the ability to filter out and separate the noise from the true data that you need to get, how you can prioritize it, and then how customers can leverage their infrastructure or their systems architecture to actually enable the middleware to make those intelligent business decisions and do real-time business decisions within the network itself."

    To get this real-time actionable information, the panelists say, requires interpretive analysis whereby users aren't only reading the information as it's being scanned, but also simultaneously putting it into historical context. "We need to start with the end in mind and ask what we want to accomplish with the data," said Joseph Sifer, principal of McLean, Va.-based Booz Allen Hamilton.

    "People talk about this mountain of data," said Sifer. "We already have mountains of data. People have business warehouses and they say, 'Oh, I've got all these terabytes of data. What are we going to do with it?' And the question I like to pose to people is, let's just say I'm going to give you this technology. It's going to be free. It's going to work perfectly. You will have 100 percent visibility and certainty of anything you want in the supply chain. What are you going to do with it?"

    One answer could be, communicate. Said John Persinos, Larstan editorial director and panel moderator, "RFID is a way to facilitate information-sharing capabilities, especially as enterprises become more extended and increasingly deal with partners and suppliers across the globe on a 24/7 basis. RFID is one of the best ways that organizations can achieve this sort of efficient communication."

    Gilbert concurred, noting that RFID is a medium for carrying a unique identifier. He referred to EPC Global, a subscriber-driven RFID "community group" that's leading the development of Electronic Product Code (EPC) standards to support the use of RFID.

    "EPC Global is working on what those data exchange standards should be between enterprises and between applications," said Gilbert. "EPC Global plays the important role of letting the user community drive the nature of the problem."

    Clarke raised a caveat, however. "EPC's scope is limited by the nature of the user body," he said. "There are other applications in other industries that are being left aside."

    Tobolski said EPC is facilitating RFID adoption. "The mandates have actually opened the floodgates for a lot of other people who have better business cases to implement, because now they can piggyback off EPC, they can piggyback off cheap tags," he explained. "Tags wouldn't be nearly as cheap as they are today if it weren't for the EPC stuff. But the guys who are using RFID in pharmaceuticals and automotive and in other vertical markets can take full advantage of that."

    Setting standards

    Gibbs addressed the nettlesome nature of standards. "You could look at almost any technology in history, and the current standards basically are key to a pervasive adoption," he said. "They can be de facto standards, or they can be standards by a standards body. You need both. The de facto standards for technology haven't really emerged yet, but the mandated standards are emerging. And I think they're demonstrating a value proposition, because you can be safe in knowing if you operate at the 900-megahertz frequency range, you're going to be cool with EPC, so people can begin to do XYZ. The error would be in assuming that the standards are going to fix everything."

    Panelists remarked on the unexpected spinoffs of RFID research and development -- a common phenomenon with a new technology. "Gillette has talked several times about the unexpected benefits of RFID that they've seen," noted Stan Drobac, v.p., RFID strategy & planning at Pasadena, Calif.-based Avery Dennison. "They went into this on blind faith, they admitted, but they've seen benefits in places that they weren't looking for."

    According to Gilbert, while retail may not realize for some time the benefits that other industries are seeing, the food and agriculture sectors can already see advantages. "We're seeing a lot of agribusinesses trying to perform the same type of e-pedigree that the pharmaceuticals are doing," he said. "Because they're already doing it at the livestock level, you can determine the transition from being able to track the livestock at the farm to being able to know where it ended up in the supply chain. If there's a bio threat, you can at least track livestock back to where it came from, and try to avoid the mass hysteria caused by pulling everything off the shelf. Livestock can be withdrawn in a very tactical or surgical manner."

    One factor that may help speed up RFID technology development is its increasing role in antiterrorism activity, panelists added.

    Clarke cited the example of RFID's ability to enhance situational awareness during a domestic crisis, or on the battleground. "I'm working with a company that's using active tag technology to encode first responders -- whether they be medical, police, or military -- so that when they get to a location, they have a sense of not only who's there, but what assets they brought with them, where they've gone," he said. "That's something driven by the Department of Homeland Security, which is opening its pocketbook right now for new technologies, many of which RFID can assist, if not lead."

    The Pentagon's involvement in RFID is providing a catalyst for the technology's maturity. "Now that DoD has a clear stake in this game and is committed toward implementation and evolution of RFID policies, this involvement could be a forcing function that helps drive past some of these complex problems that we've talked about here, where we're seeing a little bit of a slowdown perhaps in the commercial sector in some places," said Sifer.

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