RFID and the Electronic Product Code (EPC) are exciting technologies that will ultimately transform the way we conduct business. The many long-term benefits include greater visibility, productivity and efficiency throughout the supply chain. This will enable trading partners to work better together and serve consumers more effectively.
But we must keep in mind that radio frequency identification is in the early stages of development and deployment. The transformational benefits are still quite a ways off, and those benefits are dependant on how we deal with some critical short- to mid-term challenges. Here are some of them:
Tag Costs.For many companies, the cost of tags is too high, which contributes to the fact that there is little or no return on investment at present. That does not mean we stop progress. But it does mean that companies will have to rationalize their
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investment schedules and timetables for implementation carefully so that they do not break the bank before RFID can help improve their bottom line.
Standards.In the absence of standards, fragmentations occur. Unless the use of RFID and EPC is standardized across all industries and geographies, it will be difficult for any company to get the economies of scale associated with their investment in this technology. EPCglobal provides us with the necessary forum in which we can address these concerns.
Business Processes.RFID is just one tool that can be used to improve efficiencies and to meet the needs of consumers. By itself, RFID does not necessarily guarantee improvements. For example, knowing there is an out-of-stock item in a certain store will not lead to an improved in-stock position unless there is an efficient business process in place to replenish the items on the shelf in that store.
Sharing of Data.Retailers and manufacturers need to be transparent and willing to share EPC data so that trading partners can collaborate and be more efficient. RFID has the potential to impact everything from reducing out-of-stocks to marshalling services for a product recall, but only if manufacturers and retailers share data so they can work together to identify the right opportunities.
Technical Issues.RFID tags are still affected by nettlesome technical problems. They do not deliver acceptable read rates or tag-application speeds in a full production environment, at current manufacturing line speeds, and in highly efficient manufacturing environments.
Privacy.While opponents of RFID may overexaggerate the ability to track individual purchases into the home or elsewhere, the issue of consumer privacy must be taken seriously. The privacy guidelines developed by EPCglobal outline what we all should do to inform and educate consumers about the benefits, limits and uses of RFID.
While the industry confronts and deals with these challenges, it is important that companies continue to conduct test pilots and share their learnings in public venues. Companies in the pharmaceutical, auto supply and consumer electronics and appliance industries have the most compelling business case for RFID, based on a number of factors, including the value of their goods. Yet more than two-thirds of the participants in EPCglobal today, and the majority of those companies participating in EPC pilots, are food and beverage companies. In fact, member companies of the Grocery Manufacturers of America (GMA) will invest about $100 million in testing in 2005, a real demonstration of their commitment to this initiative. But to move RFID and EPC forward most effectively, other industries must also invest in this technology and its potential.
Obviously, the level of testing and implementation will vary by company. There are a number of factors that go into making the decision about how much to invest and when to do so. Each company must develop its own business case and timeline for testing and implementation.
There are a number of steps that companies can take that will help ensure a successful EPC implementation. For example, we all should support EPCglobal in the development of standards. We also need to focus on high-value categories where the return on investment can be demonstrated. Success in these categories will serve to encourage other companies to test and, eventually, adopt RFID—moving us toward critical mass.
GMA members have a long way to go to make RFID mutually beneficial for themselves and their trading partners. GMA is committed to improving industry-wide understanding of the technology and its applications, and to unlocking the potential of RFID and EPC for the entire supply chain.
Mark Baum is executive vice president of the Grocery Manufacturers of America. To comment on this article, click on the link below.