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High Tag Prices Curtail Otto's RFID Use

The German mail-order retailer sees benefits from its current RFID deployment, but tag costs stymie wider adoption.
By Jonathan Collins
Nov 07, 2005Despite the improvements RFID tagging has made to its operations, the Otto Group is limiting its deployment of the technology because tag costs remain too high.

"There is no 'full' RFID deployment because of tag prices," says Roland Nickerl, division manager for logistics systems development at the Otto Group. "Our current application is to be expanded in numbers of tags per day, but only when the price drops. Therefore, at present, we are only able to tag approximately 200 items per day."

The Otto Group, which owns and operates 123 companies across Europe, North America and Asia, is the world's largest mail-order retailer, trailing only behind Amazon in worldwide online sales revenues. It first tested RFID in its Hamburg warehouse to determine if tagging high-value items could help reduce shrinkage (see Otto Test Tags High-Value Goods).

The trial began in early August 2004 under the management of Siemens AG's Siemens Business Services—which also designed and installed the RFID system. After four months, the trial system proved useful enough to become a permanent part of operations at the warehouse.

Continuing the processes used in the trial was a simple procedure, according to the company. "There was a seamless step [from the trial] to the everyday approach," says Nickerl.

The ongoing deployment uses smart labels from RAKO Security-Label and RFID readers from Siemens' Automation and Drives division. The tags carry a unique article number, the shipment code and an internal return code number, but no personal customer information.

During the trial, OTTO had used tags from German RFID specialist X-ident. In March, however, when its initial order of labels was nearly used up, Otto took the opportunity to test and deploy similar tags from RAKO instead. "We always look for second-source suppliers, and switching label suppliers was also an interesting technical issue to test," says Nickerl.

The new labels were tested in parallel with the existing tags. The switch in supplier also meant a lower per-label cost, and while the company won't reveal the exact price it pays for each label, Nickerl says it is less than €0.30.

The RFID-enabled labels, which operate at 13.56 MHz, are being placed on small, valuable goods like digital cameras or mobile phones. The labels, programmed by a Zebra RFID printer-encoder, are applied manually to the outside packaging of items inside the Otto warehouse, before they are placed in a secure caged area. The items are then stored, picked and packed.

The goods are scanned for the first time at a picking station, where products are selected for shipment. Items are then loaded onto a trolley and read as they leave the secure area en route to a packaging station. From there, tagged items move through a tunnel reader, which scans them prior to their shipment to Otto's logistics division, Hermes. At Hermes' distribution center, a second tunnel reader scans the items again upon their arrival.

The RFID system has ensured that all tagged items are dispatched as planned from the distribution center, according to Nickerl. "Now we are 100 percent sure when all expensive goods are shipped," he says. The company also managed to pinpoint where shrinkage was occurring in its operations.

The tags are still on the goods when they arrive at the customer, so to allay any potential consumer concerns, Otto is making sure each shipment includes a letter explaining the purpose of the transponder and providing a telephone number to answer any questions. According to the company, in more than a year of deployment, it has received only two calls from customers wanting more information about the tags.

Nickerl maintains that although tag pricing is holding back this initial deployment of RFID, the company has plans—still in their early stages—to use RFID elsewhere in its operations.
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