Ready For RFID?Ready For RFID?

International Paper Co. has learned a lot from deploying radio-frequency identification technology a couple of months ago. It found out how to more efficiently store, move, and prepare to ship gigantic rolls of RFID-tagged paper, some weighing as much as a ton. The company also determined that it didn't need to install in all its facilities the full-scale version of its RFID-enabled Warehouse Tracking System that's in place at its Texarkana, Texas, mill. That decision potentially saves hundreds of thousands of dollars in installation and integration costs. And once International Paper gets RFID up and running in all its 24 U.S. mills, it may let customers take advantage of the technology to automatically trigger reorders when they move a roll of paper onto their own equipment to produce folding cartons, video packaging, or other items.

"There's a lot required in moving RFID from a lab environment to a live environment," says Alan Clark, general manager of Smart Packaging, the division of International Paper's consumer packaging business that has deployed the technology. "We've learned a lot as we've implemented RFID in our own operations." The company in late October began offering an RFID consulting service to help businesses get over hurdles like the ones it has already cleared, from laying out the business case for RFID to integrating the technology with existing systems to identifying unexpected benefits that can arise from deployments.

The timing's right. The top 100 suppliers to Wal-Mart Stores Inc. and thousands of suppliers to the Department of Defense have just one year to begin using passive RFID tags on cases and pallets they deliver to the retailer or the agency. A potentially painful, expensive learning curve is about to begin as these companies assess how RFID will affect their manufacturing and shipping operations, business-technology systems, and ability to take on other technology initiatives. RFID implementations can cost millions of dollars, which makes it critical that companies consider how they can reap rewards beyond just complying with Wal-Mart's and the Defense Department's mandates.

International Paper isn't the only one offering to help. Supply-chain-execution services provider Acsis Inc. and supply-chain-software vendor RedPrairie Corp. opened RFID-testing facilities in November, and Sun Microsystems did the same in December. This week, product-authentication and -tracking-systems vendor GenuOne Inc. is opening the doors to its RFID lab in Boston. Services at these labs include consulting and integration, as well as testing multiple vendors' RFID equipment and tags to simulate real-world supply-chain processes. IBM recently launched a consulting and integration service to help companies deploy RFID microchips and related equipment and integrate data from the tags with internal and trading partners' systems. And in the last few weeks, a slew of software vendors have disclosed plans to fully RFID-enable their software.

Such offerings might pique the interest of some Wal-Mart and Defense Department suppliers hurrying to gain expertise in RFID. In February, Defense plans to begin conducting RFID tests with some suppliers (see Defense Department Schedules RFID Pilots, Dec. 22/29). By the end of next month, Wal-Mart's top 100 suppliers-and 26 smaller ones that asked to be included in the January 2005 deadline-must present their plans for RFID deployments, a spokeswoman for the retailer wrote in an E-mail to information. (Wal-Mart's other suppliers have until January 2006 to comply.)

Many companies have a lot to do to get that far. "Nine out of 10 companies I've talked to are still trying to gather information, learn a little more, and maybe have identified some of the sites they plan to start piloting," says Mike Wills, VP of Intermec Technologies Corp., which supplies RFID readers, printers, and wireless networks as well as other supply-chain technologies. "I haven't come across anyone who's ready to pull the trigger on a full-scale implementation." Henkel Consumer Adhesives Inc., part of the Henkel Group and one of Wal-Mart's top suppliers, is among the few companies getting close. It has been working for about six months with RFID-enabled supply-chain-software vendor Manhattan Associates Inc. and an undisclosed systems integrator to create a warehouse-management system that will enable it to meet the retailer's demands for RFID compliance. "Up until this point, there have been a lot of strategy discussions," says Gene Obrock, VP of operations at the manufacturer of Duck brand duct tape. Henkel had been learning about RFID rather than investing in it. Now it's putting together a test suite and determining how to integrate data collected via RFID systems with back-end apps.

Unilever Group's RFID plans also are moving along briskly. The consumer-goods manufacturer has run pilots in its warehouses on cases of soap and liquid detergent. Simon Ellis, the company's supply-chain futurist, says it will be ready for both the Defense Department and Wal-Mart mandates. "We're now at the point of understanding how this stuff is going to integrate into our processes," he says.

When you look at the RFID to-do list and costs, it's little wonder that most companies are nervous about moving ahead, says Bruce Hudson, a Meta Group analyst. Companies need to determine which Electronic Product Code standard they'll support; these codes identify a manufacturer, product, and serial number. There's a read-only standard and a more complex-and costly-read-and-write standard that lets companies add information to a tag. Companies are trying to make these de- cisions even as a next-generation EPC standard is evolving. It will support multiple reads and writes so that tags can be reused. "That's the tag that everyone thinks is likely to be the go-forward choice, and it doesn't even exist yet," Ellis says.

RFID technology also presents problems for certain kinds of products. Unlike active RFID tags, the passive RFID tags required by Wal-Mart and Defense don't come with their own batteries, and certain materials, such as metal, can block a tag's ability to draw enough power from an RFID reader to emit signals.

Finding out about potential problems and ways to fix them is why companies need to put RFID-tagged products through numerous tests, says Mike Dempsey, industry strategist at RedPrairie. One of RedPrairie's clients found in testing that readers couldn't emit enough power to activate tags affixed to grape jelly cases stored in the middle of a 150-case pallet, Dempsey says. Wal-Mart is requiring that tagged shipments be read accurately 100% of the time, he says, and "that's why it's important to test read characteristics, to try different equipment, to find the best label position." Most of the time, problems can be fixed by repositioning the RFID tags or increasing the readers' antenna power.

Unilever has learned that there are optimal places to put RFID tags on the cases and pallets of many of its products, such as dishwashing liquid. "Most bottle designs for liquids taper off at the top, so there's more air space at the top of the case than the bottom," Ellis says. Putting the tag at the top third of the case, where there's the least interference, gives better performance, he says. Companies also have to ensure that their products' RFID tags can be read by readers while moving on conveyor belts at speeds of at least 540 feet per minute, as mandated by Wal-Mart, says Acsis VP Steve Brown. Acsis is adding to its RFID lab a conveyor belt that moves goods at 600 feet per minute.

No part of an RFID pilot comes cheap. Using a lab can mitigate the cost of buying testing equipment, but service can cost as much as $500,000. Conducting a few pilot tests could cost a company as much as $1 million, according to Meta Group's Hudson, and complete implementations could cost several million dollars. RFID tags account for much of the cost. Right now, they average about 25 cents per tag. So a supplier that ships 22 million cases a year to Wal-Mart would spend $5.5 million on tags alone; even at the best low estimate of 5 cents per tag, they would eat up $1.1 million a year.

Companies that adeptly leverage RFID will find ways to recoup the costs and gain competitive advantages. International Paper already has increased the efficiency of its clamp trucks, which carry the huge rolls of paper to and from trucks, by routing them to do both deliveries and pickups in one trip, Clark says. While it will be two or three years before Unilever recovers all its RFID deployment costs, the company will start to see savings relatively quickly in some areas, Ellis says.

The amount of planning and preparation required for a successful RFID deployment is enormous. "The people who approach this as 'let's slap on a tag and put a reader at the door' may solve the problem of meeting the mandates, but they aren't going to do it in an economically viable way," Hudson says. Companies need to address change management as well as look at their business processes and the impact on their supply chains, IT infrastructures, and employees' skills, he says. That's an awful lot to do in the next 360 days.—with Darrell Dunn