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When Will RFID Packaging Get Smart? (Part 2 of 2)

This is the second article of a two-part series examining the state of "smart packaging" -- those corrugated boxes, pill bottles, and other containers in which RFID is embedded in the packaging itself. Today RFID Update considers how and when smart packaging could be adopted, and how it might impact the traditional RFID smart label market.
Oct 22, 2007This article was originally published by RFID Update.

October 22, 2007—"This is a technology the market is ready for," Dwain Farley said of RFID inlays embedded into cardboard that is made into boxes. Farley is CEO of Domino Integrated Solutions Group, which recently teamed with startup HIDE-Pack to announce a new smart packaging medium (see New Smart Boxes Provide Alternative to RFID Labels).

More accurately, the technology is ready to be marketed. As detailed in Part 1 of this series, Getting a Read on RFID Smart Packaging, leading global paperboard packaging producers have multiple RFID programs in various stages of development, and a major pharmaceutical packaging provider will soon release production-speed equipment for producing tagged plastic bottles.

Whether the market is ready for the technology is another question.

"There is a tremendous challenge in letting the market know this technology is here and available now," said Farley.

Recall that "smart packages" refer to corrugated boxes, pill bottles, or other containers for which RFID is inherent to the packaging itself; "smart labels" refer to the traditional standalone RFID tags that are applied to packages in a separate step of the manufacturing or shipping process (think slap-and-ship).

Many technology developers and industry observers are optimistic about the prospects for smart packaging adoption. Research firm NanoMarkets predicts RFID smart packaging will be more than a $1 billion industry in five years.

The enthusiasm stems from smart packaging's purported advantages over smart labeling. Most obviously, when RFID is built into a box or bottle, no separate label needs to be purchased or applied, and no label backing ends up in a landfill. Smart packaging proponents say it is easier to integrate into legacy processes since no separate labeling step is required. Finally, because RFID is built into the package, identification and tracking can start sooner in production and logistics processes. For example, pharmaceutical manufacturers, who have to carefully record lot information and verify packaging matches its contents, often use manual 2D bar code scanning as part of the recording and validation process.

"The media is cheaper for doing it with bar codes, but the process is cheaper with RFID," Brian Chisholm of Rexam Plastic Packaging told RFID Update. "With bar code, the actual bar code has to be visually 'seen' by the decoding system to be identified. This requires special handling if each bottle is to be identified. The beauty of RFID is that you don't have to have line-of-sight with the container to read it. With an RFID-tagged bottle, you just fill it and read it, and that can be done at line speeds."

"Labeling just adds another process and another headache," Chisholm said. He notes the FDA frequently changes its drug labeling requirements, making label inventories held by pharmaceutical manufacturers and wholesalers obsolete. "It's not uncommon to have to throw out thousands of unused labels. When labels cost three cents a piece it's one thing, but what if they're smart labels that cost 50 cents each?"

"Any supplier that needs to apply RFID to a high volume of SKUs would have an interest in this [packaging material with embedded RFID inlays] because its going to save them a tremendous amount of money," said Farley.

The pharmaceutical scenarios highlight key differences between smart packaging and smart labeling. They also illustrate a potential hindrance to smart packaging adoption: it is tied to overall RFID adoption, which has not met growth expectations, especially in the high-volume consumer packaged goods supply chain. Smart packaging could take share from that market, but it is unlikely by itself to provide the compelling value proposition to drive RFID adoption.

Printable electronics, which is less technologically developed than RFID inlays embedded into plastic and cardboard containers, could nonetheless be adopted sooner because developers often target different, emerging applications with more value-added opportunities, such as intelligent documents and product authentication.

"If we don't have champions and customers talking about real solutions, we won't have adoption," said analyst Mike Liard of ABI Research. "Smart packaging needs to be validated that it is low-impact to legacy processes. The industry would really benefit from a good use case or customer example."

Liard said the smart packaging industry is "nascent", years away from making a dent in smart labeling market share. Smart packaging share and adoption could grow if its cost and process benefits are validated, and if RFID packaging volumes pick up, especially in shipments originating in low-cost manufacturing centers like China.

"We've been eyeing smart packaging for high growth going forward, but we can't forecast without validation," said Liard. "Beyond 2010 smart packaging may have some promise, but in RFID today you can't project more than three years out."
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