The Fast TrackThe Fast Track

Tulsa, Okla., is the site of this summer's most innovative experiment in inventory management. A group of retailers, manufacturers, and vendors-dubbed the Auto-ID Center-is wiring the entire city with analog radio-frequency gear that can track packages equipped with microchips.

The system will make it possible to track inventory as it moves from point to point across the city. "We're putting RFID [radio-frequency identification] chips on everything that moves," says John Balboni, VP of E-business at International Paper Co. in Stamford, Conn. The group is still configuring the network design and determining how many radio-frequency receivers to install and where.

Like the other 35 members of the group-including Gillette, Philip Morris, Procter & Gamble, and Wal-Mart-the carton manufacturer paid $300,000 to join in an effort to test the technology it plans to one day embed in its packaging products. The goal: for the RFID system to track goods from plant to pallet to store shelf-all in real time and without human intervention.

That scenario is still a few years off, but some companies are already testing and implementing the devices in their logistics and supply chains. The worldwide radio-frequency-tracking market generated just $27 million in sales last year, but it's projected to grow to 10 times that size by 2004, according to Frost & Sullivan. And by Christmas, many retailers will test the devices in regions across the country on at least their high-end merchandise, says Paul Mathans, business development manager at RFID manufacturer Intermec Inc.

Eventually, the wireless IDs are likely to replace many bar-code applications, in which retailers and manufacturers continue to invest. Sears, Roebuck & Co. and Kmart Corp., for example, are deploying new bar-code systems to track inventory and improve customer service as they prepare for the back-to-school and holiday shopping seasons. But radio-frequency devices offer certain benefits over bar codes. The chips can be embedded in everything from shirt labels to lipstick tubes to the cartons in which products are shipped. Information can be written to the devices at any point in the supply chain, and the chips can transmit data to servers automatically.

The devices emit radio waves that pass through packaging, making it possible to monitor the inventory inside a box without opening it. On the store shelf, a small RFID receiver could track every time an item is moved and send that data via radio frequency to a local server. An RFID-equipped retailer would be able to track when it's out of a shirt in a given size or color and have the system order more. Information sent to in-store computers also would let salespeople tell customers where the items are-in the stockroom, at another store, or in a truck en route-and when they'll arrive. The devices also can trigger alarms when someone tries to leave the store without paying for an item, eliminating the need for security tags.

The Auto-ID Center's vision is for companies to register identification numbers on global domain servers, similar to domain names on the Internet. The numbers would be transmitted by RFID tags to a global network of receivers along the supply chain-at airports, seaports, highways, distribution centers, and retail stores.

International Paper's Balboni says many companies won't wait for a nationwide network. Instead, local networks, such as the one in Tulsa, or individual retail or manufacturer networks will emerge first. "We have several tests with retailers running right now," he says.

Among them are J. Crew and Gap Inc. J. Crew acknowledges the partnership but declined comment. "RFID will be a competitive advantage, and retailers aren't anxious to share their future plans for supply-chain technology with competitors," one supplier says.

Here's how it might work: Goods would be individually tagged with a unique "license plate" that identifies their manufacturer, size, and color-so that when they arrive at a store's loading dock, the receivers know what the carton contains and send that data to the supplier and to the company's enterprise resource planning, supply-chain, and billing systems. On the store shelf, RFID emissions from the goods could be received 24 hours a day, feeding information on inventory to salespeople and to suppliers, and making it possible to keep store shelves well-stocked.

Such precise tracking may raise privacy concerns. But the Auto-ID Center has an answer: Once a buyer purchases an item, a store would deactivate the radio emission. What's more, a radio-frequency receiver must be within three feet of a chip to track it.

One of the big benefits is that RFID systems would theoretically eliminate the need to conduct inventories by hand. "Think about the kind of money retailers invest in inventorying their stores," says Tim Prieve, VP for go-to-market logistics for Retek Inc., a retail software supplier that plans to integrate RFID with its products. "Twice a year, they disrupt their operations and count every item. If I'm a retailer with 1,000 stores, and it costs me $20,000 to $30,000 per store per year to do that, I've got a pretty significant investment."

The economic case will be easy to make when the devices drop from their current price of about 75 cents each to about 25 cents apiece, Prieve says. "This is something you can lay out in front of your CEO in two sentences and he gets it," he says. "Retailers understand the cost of being out of stock on the shelf-and know that 30% of the time the goods are in the store after all."

Cost wasn't an issue for the San Francisco International Airport, which next month will begin one of the first major commercial rollouts of RFID technology. Its new baggage-tracking system will use a high-frequency system from SCS Corp. that includes a chip and microwave antenna on an adhesive-backed strip. When ticket agents check in a passenger, the airline's computer system will automatically screen for criteria that trigger security concerns-an expensive one-way international ticket paid for in cash at the counter, for example-and also select customers at random for baggage screening. A pop-up screen will tell the agent to affix an RFID device to the passenger's bags.

From there, the bags are placed on the conveyer belt behind the ticket counter, just like any others. Radio-frequency receivers scan bags as they travel the maze of conveyers in the luggage-handling system. When a receiver finds an RFID-tagged bag, it triggers levers to automatically direct the bag to a security area, where it can be screened via cameras and sensors for explosives, chemicals, and other hazardous materials. Now, employees must look for marked bags, physically remove them from the conveyer belts, open them, and search them by hand.

In testing, the system is successfully routing 99.8% of the tagged bags, meaning that just one in about 400 needs to be handled manually. "RFID is the centerpiece technology of the whole system, without which we couldn't make it work," says Mark Denari, the airport's operations security coordinator. "And the application holds a much broader promise than where we are now."

The airport pays about 75 cents per RFID tag-not too big a bite out of its $10 million baggage-system upgrade budget, and a cost it expects will fall by about 20% in the next few months. Denari says the airport will begin passing along the cost of the devices to the airlines. Eventually, he sees the airport generating revenue by offering RFID tracking of all luggage as an outsourced service.

Other applications are in the works. Intermec has several projects under way to embed RFID devices in reusable plastic pallets used to deliver fresh fruits and vegetables to supermarkets.

Checkpoint Systems Inc., a supplier of security tags and radio-frequency devices, has allied with Westvaco Corp., the nation's second-largest supplier of cartons and packaging, to develop a system to embed the chips in cartons. It's also found a market for RFID in more than 30 libraries and universities. Last week, the University of Connecticut announced that it's putting tags on every book. Rockefeller University's library in New York has added them to 112,000 books and journals. Students insert their library cards in self-checkout machines that deactivate the RFID tag so it clears security and updates the inventory system on who has the book.

Still, Sears is sticking with bar codes for retail shelves. "RFID is going to come into its own for logistics first, where I can put receivers on the conveyor belt and track goods from manufacturer to truck," says Mike LeRoy, director of retail systems at Sears. "On the retail floor, you'd have to have an antenna on every counter, and that means lots and lots of infrastructure."

In the meantime, Sears this month started handing out 15,000 SPT 1740 bar-code reading devices from Symbol Technologies Inc. to help its salespeople check and replenish inventory, as well as speed up the delivery of large items to its merchandise pickup areas. The handheld devices will connect to Sears' existing 802.11b-compatible wireless LAN network infrastructure, based on Cisco Systems' Aironet technology.

Since March 15, Sears has been testing the system in six stores for price checking and to track the status of merchandise, LeRoy says. On Saturday nights, for example, employees use the devices to check that the prices on the merchandise correspond with the sales prices that will run in ads in the Sunday newspaper, and that items are displayed in the correct places.

Next month, Sears will use the new setup for replenishment and merchandise pickup applications and equip its employees with Zebra E3N portable printers. That will make it possible to scan bins, tally up the inventory inside, create stock lists, and reorder goods through the existing inventory system.

But even if retailers are taking it slowly, many people insist RFID will make today's inventory management even better-letting companies automatically do what they do now by hand. "Most technologies work their way down the application curve from the high end," says Intermec's Mathans.

Advocates have high expectations. Ultimately, they say, RFID tags could be used for consumer electronics, fraudulent-goods identification, and movie rentals.

--with Matthew G. Nelson

Photo by John Bentham