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Beyond the Bar Code

Radio Frequency Identification, or RFID, has been adopted by large companies, such as Wal-Mart and IBM, but is now emerging as a viable way to manage a supply chain and sales transactions in smaller companies.

Bar codes put tree fruit wholesaler Ballantine Produce at a disadvantage when its shipments were found to have been invaded with insects. “In the bar code world, we couldn’t tell which shipment had made it to the store shelf from the distribution center,” says Scott Albertson, Ballantine’s vice president of business development. As a result, the wholesaler would have to recall an entire shipment to contend with the pesky problem.

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Today, the 50-year-old company from Sanger, Calif., uses radio frequency identification, or RFID, to avoid this type of situation. With RFID, Ballantine pinpoints which fruits were shipped together and from where. Knowing what was specifically packed and its origin helps the company determine the particular container that may have been contaminated. It then only has to pull fruit from that container off the retailer’s shelf. “Now, when retailers are stacking our fruit on shelves, we know exactly when it was picked and packaged, and how long it sat in a distribution center before arriving at the store.”

Wholesalers such as Ballantine are just one of the many types of businesses that are reaping the benefits of RFID. From computer makers to footwear retailers, RFID is improving the way businesses process transactions, manage shipments and control inventory levels. Analysts say RFID is likely to replace bar codes in coming years. The switch would enable product suppliers to control the movement of their goods through retail supply chains, and enable sellers to get products onto store shelves and in front of customers before existing stocks run out.

Briefly, an RFID system collects information that is transmitted via radio waves from an RFID tag within an object or container. Its most established use today is for inventory management. Suppliers, for example, place RFID tags on bulk containers and shipping platforms. These tags store product descriptions, and record the place of origin, time of purchase, and cost. Sensors and antennas positioned at the entrance to retailers’ distribution centers read information from the tags. Typical RFID systems immediately store this information in a database, eliminating the time and human errors involved in counting and recording inventory details by hand. The same process is replicated when products leave the distribution center en route to store shelves.

Making RFID work, however, requires all or most members of a supply chain to become RFID “compliant” by installing RFID systems in warehouses, distribution centers and in stores. Once these systems are in place, companies can derive real-time information to help them better manage decisions, such as the timing of your next shipment to a retailer, or in Ballantine’s case, determining what specifically needs to be pulled from a retailer’s shelves. A system can be up and running in about a month, and once all parties have RFID infrastructure in place, the benefits materialize quickly.

According to Greg Gilbert, division manager for RFID hardware manufacturer Manhattan Associates, RFID has cut the time required for processing inventory information by over 60% among his clients. Manhattan Associates has helped a range of clients become RFID compliant. “Our solutions run in seven of the largest warehouses in the world, but are also used in warehouses with only five or six employees” said Gilbert. Among these smaller companies, Gilbert has observed that pressure from large retailers has motivated the decision to become RFID compliant.

This pressure from larger retailers is one reason why RFID has been garnering bar code converts from small and privately owned companies. In 2004, Ballantine saw that large retailers like Albertsons and Wal-Mart were planning to require large suppliers to use RFID. Albertson and David Silva, director of information systems, decided it was a matter of time before these retailers asked smaller suppliers like Ballantine to become RFID compliant.

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In February 2005, Ballantine formed a 10-person team to test and customize an RFID system. The type of warehouse management solution they chose can cost between $150,000 and $300,000. This system connects with inventory and accounting systems to store, track and analyze data. Ultimately, Ballantine’s intends to use “active RFID tags” that will collect environmental data such as storage temperature to ensure that fruit preserves its freshness while in transit.

And if the price of RFID tags falls far enough below the current costs of 40 cents each, Ballantine will use them in place of bar codes on individual items such as small packages of fruit that consumers purchase. “Getting RFID down to the item that customers buy is the ultimate goal for tracking our produce,” said Silva.

The technology also is making inroads at checkout counters, as credit and debit cards embedded with RFID become more prevalent. Family-owned and operated convenience store chain, Sheetz, based in Altoona, Penn., implemented MasterCard’s PayPass™ RFID payment processing system in all of its stores in May 2005. PayPass™ credit and debit cards have RFID chips and antennas embedded in them. At the cashier’s counter, customers simply wave the cards in front of an RFID reader that reads account information from the card’s microchip to process the transaction. By the end of 2005, MasterCard expects to have between three and five million users of RFID cards.

Consumers using cards embedded with the technology enjoy faster transaction times at cash registers. For small retailers, RFID can significantly enhance the customer experience and help establish a base of loyal returning shoppers, according to Dave Hogan, chief technology for the National Retail Federal. “Anytime you apply technology, you have to ask what’s in it for the consumer,” he says. “For RFID, it’s reduced waiting time at the counter.”

Bob Stone of Radiant Systems, an RFID hardware designer and manufacturer, estimates transaction times can be reduced by up to 40% in most cases. “The benefits are applicable to any size business and include increased throughput, reduced waiting time at the cash register, and more sales,” he adds.

The technology also holds the promise of fully automating simple customer transactions. Radiant, for example, is testing kiosks that read RFID-enabled credit and debit cards to sell movie tickets at a national cinema chain.

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The cost of deploying RFID readers at checkout counters depends on the number of point-of-sale of terminals needed and the complexity of the transactions to be automated. For smaller operations, new point-of-sale terminals that use RFID to process transactions typically cost between $2,000 and $3,000 per device. In some cases, existing cash registers and can be retrofitted to accommodate RFID cards for around $200. According to Ted Hurlbut, owner of Hurlbut & Associates, a retail and business consultancy based in Medway, Mass., RFID terminals are mostly used in larger establishments at this point, but it is a trend to keep an eye on for smaller retailers. “RFID in credit cards has application to small retailers,” he says, “but only if the reader is affordable and cost effective.” “RFID readers would represent an extra expenditure that may not be seen as justifiable until the technology is seen as proven and cost savings can be documented,” he adds.

The biggest RFID challenge for Ballantine is getting all members of the supply chain to agree on what information to store in RFID chips, where to install RFID readers, and linking back office systems to collect, store and share data. Nonetheless, Ballantine’s Scott Albertson is confident that the intuitive benefits of RFID will eventually bear financial fruit.

“We’ve all had to accept that the return on investment might be a long time in coming,” said Albertson. “The benefits will be slow and incremental, so we’re applying a different ROI standard to RFID at this stage.”

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