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2006: The Year RFID Vanished, Part 2

This is the second article in a four-part series from Dennis Báthory-Kitsz, who predicts that this year will be the one RFID vanishes. This article considers pharma, vertical applications, the RFID business case, and the demise of "mandate psychology".
Jan 25, 2006This article was originally published by RFID Update.

January 25, 2006—Last time we dropped a basket of twelve predictions on your doorstep -- some anticipated, some hoped for, and some less than welcome.

Oh, Those Mandates

Let's start with the welcome surprise. The most divisive aspect of RFID hasn't been implementation. Cliff Horwitz, chairman of RFID reader manufacturer SAMSys, describes the problem: "As long as we continue to use the word 'mandate'," he says, "we are going to aid and abet those companies who have seen RFID as a tax on their cost of doing business with retailers."

Dean Frew, CEO of RFID solutions provider Xterprise, understands it's about psychology, saying that suppliers, "because they're competitive by nature," will always "grumble about the fact that they've got to add cost to their operation."

So listen as "mandates" vanishes from the conversation -- especially as suppliers benefit from RFID in automating processes, tracking work-in-process, sorting goods, and raising visibility into their own supply chain.

Will they admit to the benefits? "They're already seeing it," says Frew, but it won't be easy. "They are indoctrinated that they are never to say anything of value around RFID -- but there is value for all the stakeholders."

The Dog Ate It

The word "mandate" will also vanish in 2006 because the business case for RFID will suddenly be discovered. Our second prediction -- this faux discovery -- is based on anticipated increases in supply chain efficiencies and access to new product demand data. Jeff Jacobsen, president of RFID reader manufacturer AWID, sees this as "the year for applications to roll in." Jacobsen says that RFID data will be merged, collated, and leveraged. Retailers will gain new promotional data, reducing out-of-stocks, improving consumer satisfaction, and increasing orders to suppliers.

Bill Hardgrave, director of the RFID Research Center at the University of Arkansas, agrees. Out-of-stock studies at Wal-Mart show widespread business value. More such studies "open the gates to more ROI and demonstrable business value. If you can show that out-of-stocks have improved, it helps the retailer, it helps the supplier, and as a bonus, it helps the consumer." Armed with quantified and anecdotal benefits, companies will move beyond slap-and-ship and push RFID upstream. "2006 is going to be the year of the business case," says Hardgrave.

To Kevin Ashton, vice president of marketing at RFID reader manufacturer ThingMagic, a business case is not news. He says bluntly, "There's been a business case for RFID for five years." He says that executives were unwilling either to work out their business case or to apply existing examples. "You have to invest in developing one, or make a leap of faith. 'There's no business case' is like 'the dog ate my homework.'" If Wal-Mart's lean supply chain has a business case, there's one to be made for any large supplier, he insists. "The business case is there for the people who look for it. You're not going to trip over one on your way home from work."

The vendor community will be key to proving the value proposition. That's because RFID will no longer be a technology in search of an application. (More on applications in Part 3 of this series.)

Verticals Rising

As the mandate psychology fades, the Wal-Mart and Department of Defense initiatives will no longer be the lead stories -- nor RFID a synonym for supply chain. In fact, Carl Brown, president of RFID solutions provider SimplyRFID, calls the Wal-Mart/DoD stories "nearly irrelevant." Speaking of Wal-Mart's 300 major suppliers, he says, "While they appear to have huge volumes, they affect so few people."

New driving activities for 2006 will be verticals, including aerospace and pharma. Vertical applications represent both RFID's success story and its installed base, from Mobil Speedpass to millions of RFID-enabled car keys. Even in the supply chain, manufacturers will use it for tracking work-in-process, for controlling conveyors, dock doors, and pallet spinning machines, and for making sure trucks arrive at the right dock.

With the latest RFID-outfitted Airbus, aerospace applications will become visible. Durable encasements will allow asset tracking, with RFID-tagged sensors appearing in temperature applications (from liquid nitrogen to furnaces) and biologicals. Tom Hartmann, RFID manager at label converter Topflight Corporation, calls it "a maturing, but a scattered or fractured maturing -- innovation still coming to meet niches."

Bad Words & Good

Did we just say "mandates" were vanishing? Scratch that. FDA mandates are rolling in for tracking drugs, with pilot projects underway in 2007. And don't underestimate pharma's impact -- these mandates are driven by government regulations, a force more compelling even than customer mandates.

Pharma is potentially the year's most important RFID development. Barcode mandates hit first, but pedigrees against drug counterfeiting are all about RFID. 2006 is the target year for "acquisition and use of RFID technology by most manufacturers, most wholesalers, most chain drug stores, most hospitals, and some small retailers," according to the FDA's plan. These initiatives aren't creeping up, but they feel like it. Drug pedigree regulations are still on track for December and will precipitate a year-end rush, with implications for transportation and logistics as well as Wal-Mart-style retailers.

The year's second pharma issue will be data ownership. An explosion of intellectual property disputes will continue into 2007 and beyond. Intellectual property conflicts are hardly settled in the U.S. and Europe as harmonization of the WIPO treaty continues. Further complications are expected when China -- with its spotty track record on IP enforcement -- enters the RFID marketplace in earnest.

Finally, Hartmann notes that surface material-independent transponders are being developed. Expect solutions to the problem of metal and liquid tagging based on new transponder technology to appear first in pharma, and in 2007 make their way to supply chain applications.

In next week's continuation of 2006: The Year RFID Vanished, we'll consider security, standards, shortages, and applications.
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