What if RFID Were Truly Risk-Free?

By Stan Drobac

To accelerate RFID adoption, we need technology providers that can muster the capability—and the nerve—to shoulder the risk of implementations.

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Those of us who have been on the RFID roller coaster for the past decade have seen a lot of ups and downs, but never the kind of breakout growth that we had expected or hoped for. The recent activity in item-level apparel tagging may be the biggest development yet toward large-scale implementation, at least among applications using newer ultrahigh-frequency (UHF) technologies. Still, apparel tagging is just one piece of the larger retail sector, and one for which the benefits of radio frequency identification have been pretty well known for many years. If it is finally time for apparel, why has it taken so long—and why is it not happening in many other areas?

Obviously, some of the early euphoria regarding universal tagging was premature, at best. Even today, there is no clear path to a viable business case for RFID-enabling low-priced grocery items. On the other hand, RFID can be easily justified for many other applications—usually, those involving higher-value goods or long-lived assets. Participants and observers in many types of organizations, with a variety of functional responsibilities, have identified RFID as a tool to improve quality, efficiency and performance in their operations. For many of them, a positive return on investment (ROI) can be clearly calculated and has been demonstrated in their own pilot programs, or those of their competitors. We see proposed projects almost daily where RFID makes both intuitive and financial sense, but large-scale implementations of the technology remain rare.




When—and Why Not Now?


For the past 10 years, many of us have been saying that large-scale RFID adoption is not a question of “if,” but of “when.” I still believe that to be true, but the statement is understandably wearing thin with many who hear it. The usual—and appropriate—question about adoption is some version of “If the economics make sense, why aren’t people doing it?”

If the answer to that were simple, RFID would already be ubiquitous. But it isn’t simple. Still, we can identify some of the issues and consider possible solutions.

First, let’s take a couple of the really tough problems off the table. We’ll stipulate that the tagging of low-value consumer goods will just have to wait for a breakthrough in printed RFID, and/or a universal installation of RFID infrastructure by retailers for other purposes.

And we won’t try to make a case for complex open-loop systems where no single player can realize sufficient value to cover the implementation and ongoing tag costs. For those systems, critical mass is too much of a hurdle, and the mechanisms for sharing costs are too difficult to establish. Efforts to accelerate adoption will have limited impact—organizations will inevitably move to RFID, but only after other initiatives have funded some (or all) of the necessary infrastructure.

For closed-loop systems, however—or for those with a limited number of participants—we should be able to address most of the impediments to faster adoption. Some of those impediments—usually acting in some combination—are as follows:

• Insufficient proof of the technology’s effectiveness in a user’s specific situation (most people now accept that RFID performs well and reliably, but there are still challenging aspects to most new implementations)

• Uncertainty regarding ROI, given that some benefits—such as, sales uplift (due to better availability), inventory reduction and time saved by having ready access to accurate data—can be difficult to predict

• Difficulty in finding a systems integrator or installer with both the proper scale and expertise to handle an implementation—or the lack of sufficient resources to handle installations in-house, combined with an unwillingness to pay for an integrator to do the job

• Difficulty in identifying true turnkey providers willing and able to handle the full project, including hardware, software, integration, RF site analysis, design and installation

• An inability to overcome the capital-investment hurdle (often related to the difficulty of producing a bulletproof ROI analysis)

Is “Do Nothing” the Only Safe Option?


The impediments listed above have a common theme that can be summarized in one word: risk. In the large universe of applications for which RFID can make economic sense, it is usually risk—in one form or another—that causes good initiatives to be rejected, or to stall out. Not technology performance. Not tag prices. Not hardware and installation costs. Not integration with enterprise systems. Organizations just have a vague uncertainty about whether RFID will pay off for them. So they wait.

To help accelerate RFID adoption, we need to better address risk if we are to have an impact. This is not a new concept. The passive UHF community has done much to address technology risk by adopting the ISO 18000-6C (EPC Gen 2) standard, and by driving performance up and costs down.

Individually, some key players in the RFID industry have made other efforts to reduce risk in various ways. Here are some examples:

• Performance guarantees (“you will get 99.7 percent read rates or your money back”)

• One-stop solutions (the integrator takes responsibility for the complete program, providing “one throat to choke”)

• Hosted services, whereby RFID-generated data is managed and manipulated using software and servers owned and operated by the provider, for a monthly or activity-based fee

The industry now has a broad range of systems integrators and service providers, many of whom offer one or more of those options to RFID users—and those offerings do, in fact, help them to close deals with cautious customers. But in many cases, it still does not get the prospective user to move ahead. So a few intrepid solution providers have concluded that they need to take the next (ultimate?) step.

Risk-Free RFID


What if RFID were truly risk-free? What if there were no readers, software or tags to buy, no site analysis or hardware installation costs, and no IT systems to integrate or maintain? What if a solution provider were to say, “I’ll tag your assets, install my own equipment, collect the data and make it accessible to you in a user-friendly way for a monthly fee, and if you don’t find it valuable, let me know and I’ll remove the equipment. You don’t give me a penny until you see useful data”?

Would that be sufficient to get all of those potential users off the fence? Probably not—but it would surely attract some of them. And most of us in the RFID arena believe that adoption will snowball as early implementations prove successful, and as network effects come into play.

Such an adoption ramp seems to be happening now in retail apparel, as the successful results of early implementations are drawing many new retailers into the RFID fold. It has been a long, hard process, though, having started as many as 10 years ago. Of course, in those days, RFID standards were unclear, the technology was immature, and no supplier offered a complete solution. Even today, apparel solutions aren’t quite complete, and are not offered on a risk-free basis.

The geographic dispersion of major retail operations and their supply chains, along with the volume of the goods to be tagged, does make it difficult for any supplier to offer a complete solution for apparel. But in many other industry sectors—particularly those that use durable RFID tags on reusable assets—the implementation issues are more bounded and manageable than in the apparel sector. Experienced, focused developers and integrators are now working toward complete, even risk-free, solution offerings for tracking assets, ranging from rail cars to beer kegs to newsprint. Those firms are leading the way in a direction that will drive significant growth in RFID adoption.

Risk-free—but Not for Vendors


Of course, offering a risk-free option to users does not mean that risk has been eliminated. There will be some level of technology, implementation and business risk involved in any project. However, an experienced RFID supplier will be better able to assess and account for that risk than most users. In effect, there is an arbitrage opportunity: The supplier has enough confidence to assign a lower cost to the risk, while the user is happy to incorporate a premium into the monthly fee in order to transfer risk to the supplier.

When the user’s risk premium is higher than the supplier believes is necessary, there is an opportunity for the supplier to offer a risk-free option attractive to both parties. Of course, offering such an option is not for the faint-hearted. The supplier will need to be capable of assessing the viability of opportunities, and confident enough to act on the good ones and reject the weak ones. Execution will require some characteristics that are not fundamentally new, but are somewhat different than those typically found in even the most capable systems-integration firms:

• A comprehensive skill set, ranging from RF hardware setup to middleware implementation, enterprise resource planning (ERP) system interfaces, ROI analysis and RFID-focused business-process consulting

• A set of analysis and implementation processes, supported by a team of experienced and capable program managers

• A staff that is large enough, or that has enough partnerships, to effectively handle the installations anticipated in the targeted markets

• The capability and willingness to manage implementations indefinitely on a contract basis

• The financial capacity to finance a no-money-up-front, RFID-as-a-service model, coupled with the management skills necessary to identify viable programs and then execute on them

The Opportunity


Putting all of that capability together is a challenge. Just getting started would seem to take more resources than most RFID specialist firms can pull together. And yet, there are some players, including a few relatively small startups, that are already well down that path.

Most of us working in the RFID sector believe that a great deal of unrealized value is waiting only for potential users to move ahead on implementations. Providers that can muster the capability—and the nerve—to shoulder the risk of such implementations will find themselves in a position to capture significantly more of that unrealized value than those that simply wait for users to get over their reticence. The risk-free model, though quite rare today, will become a fairly routine business approach over time.

Stan Drobac has battle scars from a long history in the RFID industry, including senior roles at Alien Technology, Avery Dennison and Omni-ID.