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Where Is the Tipping Point?

Widespread adoption of radio frequency identification in the supply chain will come when companies can act on RFID data to improve operations.
By Andrew Price
Apr 01, 2007—The venerable Wall Street Journal ran an article in mid-February entitled "Wal-Mart's Radio-Tracked Inventory Hits Static." Even though Wal-Mart and several major suppliers quickly set the record straight, telling RFID journal and others that adoption was on track, the article rattled many in the radio frequency identification industry who feared that it would discourage companies from exploring the benefits of RFID and thus slow adoption.

The Wall Street Journal article pointed out, as many other articles have, that Wal-Mart has not installed RFID systems in as many distribution centers as it had originally planned (it will be in seven by April, rather than 12 by the end of January 2007). And it quoted some suppliers who said they are not seeing any benefit. None of this is new, of course, but it does raise the question: When will companies go from tagging a few stock-keeping units to tagging most or all of their pallets and cases shipped to Wal-Mart?

To understand when the tipping point might come, it’s important to look at the challenges suppliers have faced and what they need to do now to use RFID to achieve business benefits. (Illustration by Joyce Hesselberth)
To understand when the tipping point might come, it's important to look at the challenges suppliers have faced and what they need to do now to use RFID to achieve business benefits. Many of Wal-Mart's top 100 suppliers, who were required to begin tagging some pallets and cases starting in January 2005, spent much of that year dealing with the limitations imposed by the physics of ultrahigh-frequency RFID. They struggled to figure out how to tag goods in such a way that they could be read consistently or to develop processes that would enable them to read tags as they assembled a pallet, rather than after the pallet was built.

EPCglobal developed a standard for UHF technology, but companies still had difficulty achieving consistently high read rates, because UHF radio waves are absorbed by liquids and bounce off metal. By the time RFID tags based on the second-generation Electronic Product Code hit the market at the end of 2005, many companies had licked the problem. The performance improvement delivered by EPC Gen 2 hardware was so good that few companies say read rates are an issue today.

The next challenge was to find ways to use the RFID data provided by Wal-Mart, Target and others to improve operations. In 2005, there was no software capable of taking raw RFID read data, cleansing it and displaying it in a way that it could be acted on. Early adopters spent much of 2006 either working internally or with software companies, such as OATSystems, T3Ci and TrueDemand, to figure out ways to filter, analyze and use the data to improve supply chain execution. One area many focused on was promotions, because tracking promotional displays could deliver a significant return on investment.
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