The ABCs of RFID

By Courtney Macavinta

Bar codes are stamped on almost every product in the world, yet this pervasive system for keeping tabs on assets in the supply chain is not exactly a hot topic among CIOs. But the next-generation technique for tracking goods -- the radio frequency identification tag (RFID) -- certainly is. This wireless technology transfers product ID data from an RFID tag to a reader anywhere around the globe.

Compared to bar codes, RFID tags don't require an unobstructed line-of-sight to be scanned, and offer organizations more detailed tracking of items within their supply chain or other corporate assets. Already, RFID has been adopted across sectors from retail to pharmaceutical to government contractors. Wal-Mart Stores, Boeing, and the U.S. Department of Defense (DoD) are among the early adopters.

"The main point CIOs are thinking about is why they should replace bar codes with RFID," says Datamonitor analyst Adam Jura, who specializes in manufacturing technology. "An RFID tag can have more numbers than a barcode and can provide more specific information pertaining to a specific product. RFID costs are decreasing quite a bit at the moment, too."

RFID has been in existence for decades, but because it's more expensive than bar codes -- ranging from 20 cents to $15 per tag, depending on how robust a tag is -- it's been slow to gain acceptance. However,  analysts say RFID is gaining ground: RFID spending will surpass $3 billion by 2010, according to Gartner Research. And Datamonitor predicts that including software, hardware, and other market services, the RFID market will hit closer to $6.1 billion in five years.

The RFID market is no doubt growing because organizations like the DoD have actually mandated that their suppliers implement the tags. Both Wal-Mart and Target, meanwhile, require supplies to tag cases and pallets of goods destined for their distribution centers. Moreover, the standards body EPCglobal has released new protocols for more easily implementing the tags. When it comes to large worldwide markets, such as the pharmaceutical industry, RFID is gaining popularity because it can help cut losses and counterfeiting by authenticating where a product originated.

Analysts say that although RFID is often called "the new bar code",  it will not replace bar codes outright --  1 million organizations worldwide use bar codes, according to EPCglobal. Still, there are many applications of RFID for CIOs to consider:

Security The U.S. Department of Homeland Security  is deploying RFID in new passports and encouraging the shipping industry to use the technology to secure containers. A growing number of companies now issue their employees ID badges with an RFID chip that doesn't require swiping or checking but can automatically police and track access to secure facilities when workers walk pass stationary readers.

Asset management CIOs are seeing the value in using RFID not only to limit theft of computer equipment, but to help their companies track moving parts -- from products to supplies. Hospitals are using RFID to track medical supplies and expensive equipment and, in some cases, the location of staff or patients within a facility. Goodyear Tire Co. even installed RFID tags in its tires for the Daytona 500 to monitor the use and distribution of tires for the big race.

Supply chain Retailers are using RFID not only to track palates, but to help them better manage inventory, such as limiting overstocks. RFID tags can help provide real-time counts of inventory on the store floor, on the shelves, and in transit from a distribution center. The DoD, for one, is using RFID for its cargo tracking system.

"RFID is converging with sensing and monitoring, and can help with fresh food tracking in the supply chain, for example," says Mike Laird, RFID program director for the consulting firm Venture Development Corporation.

Analytics With RFID, enterprises can attach more data to items in the supply chain. Boeing, for instance, is having suppliers RFID tag some parts for its 787 Dreamliner aircraft in order to track information such as a plane's repair history or country of origin, which can help with maintenance. Virgin Atlantic also has tagged parts in its fleets with RFID tags to improve its maintenance process.

Getting ROI from RFID
For CIOs, the decision about whether to adopt RFID comes down to  business needs. Just like any IT decision, moving toward RFID comes down to proving return on investment (ROI).

"You need to determine the internal value proposition, business case, and ROI -- which should include a discussion of the total cost of ownership," Laird says. "You have to look at your enterprise and see if there is room for improvement. Look at bottlenecks and challenges and see if RFID can address those issues in a cost-justifiable way."

Experts say the UHF Generation 2 tag, the latest specification by EPCglobal, could eventually bring RFID tag costs down to around 10 cents per unit; even so, CIOs need to consider the unit cost carefully when it comes to monitoring the supply chain. It might make sense to RFID tag a $500 car chassis but not a $2 bottle of shampoo.

Datamonitor's Jura suggests working with business division heads, partners, and suppliers to flesh out the business case for RFID and to work out any challenges, such as privacy concerns when it comes to using tags to track people.

"As more and more vendors, manufacturers, and retailers get involved on a wider scale, the business case templates will emerge," Jura says. For those who have a mandate to use RFID, he adds: "Meet the mandate if it's important to your customer, but also look at future applications of RFID and how you can expand to benefit your business."

Courtney Macavinta is a Silicon Valley-based business and technology writer. Her articles have appeared in CNET News, Business 2.0, Red Herring, Wired News, and The Washington Post.