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The European Supply Chain RFID Conundrum

ARC Advisory Group analyst Chantal Polsonetti herein considers the supply chain RFID market in Europe. She argues that in the face of lacking retailer mandates and regulatory constraints, the European market still pales in comparison to its U.S. counterpart.
Nov 09, 2005This article was originally published by RFID Update.

November 9, 2005—Many followers of RFID-enabled supply chain applications cite European implementations at the UK's Marks & Spencer or Germany's Metro Group and its Extra Future store as evidence that European retailers and their suppliers lead the US in supply chain RFID. Yet, in the absence of a definitive retailer mandate to its suppliers, a la the US experience with Wal-Mart, the European market size for supply chain RFID remains miniscule. Companies operating within Europe face unique regulatory constraints regarding the use of the UHF frequency, but competitors and standards organizations alike are looking to the combination of a ratified ETSI 302-208 standard and EPCglobal Gen2 availability to overcome these and other issues currently inhibiting growth in European supply chain RFID applications.

The absence of definitive RFID supplier mandates from European retailers elevates the need for a business case to justify its use among manufacturers. As ARC and other pundits have espoused for some time, retailers currently have the most compelling and accessible ROI in areas such as reduced stockouts, reduced shrinkage, and other benefits. Not surprisingly, European retailers therefore account for a large share of the RFID physical layer products, including both tags and readers, consumed in the supply chain sector. Marks & Spencer, for example, has placed 4.5 million non-EPC RFID tags on food trays, and currently purchases its own tags for use on apparel.

While Wal-Mart suppliers are tasked with the requirement to read cases on a conveyor traveling at a speed of 540 feet per minute, case tagging in the European marketplace is in its infancy. Instead, tagging of items or pallets is the norm, and case tagging will not likely commence until Gen2 products are more widely employed. Item-level applications also vary from the experience in the States in that high frequency (13.56 MHz) rather than UHF tags are employed. European implementers in general have much more experience with ROI-driven, typically asset-management oriented, HF applications, with EPCglobal Gen1 applications few and far between.

For pallet tracking applications, Sato and UPM Rafsec have developed a novel "FlagTag" form factor that is in use by both Metro suppliers, such as Nestle and Unilever, as well as German retailer REWE Group. As the name implies, instead of pasting the label flat on the pallet surface, the printed FlagTag RFID label extends from the pallet surface just like a flag. Some Metro suppliers claim this tag form factor is 100 percent readable in trials to date.

The number of retail suppliers actually involved in European trials such as Metro's is minimal compared to the number of companies currently involved and who will be involved in the Wal-Mart activity. Many are looking to States-based operations to see how they work out the ROI on the supplier side, while waiting to see if the limitations of the ETSI 302-208 regulation, designed to harmonize the UHF frequency across Europe but fraught with technical constraints, can be overcome. A number of RFID technology providers express the belief that the combination of ETSI ratification and Gen2 adoption will accelerate passive UHF RFID adoption for European supply chain applications, but with widespread Gen2 availability estimated for early-to-mid 2006 and the subsequent need for test and pilot, it could be some time before the European market even approaches the US supply chain RFID market size.
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