The 10-cent Solution
September 2003 - By Tim Bajarin

Over the past two years, I have been watching very closely the development of a new technology called RFID, or radio frequency identification, tags. Much of the important work on RFID has come from MIT, but a Silicon Valley-based company, Alien Technology in Morgan Hill, Calif., has been on the radar screens of many of us analysts for some time as it has emerged as a leader in providing low-cost RFID tags.

Interestingly, the main focus of RFID has been on its potential impact on retail markets. The basic idea is that RFID tags will someday replace bar codes due to their versatility. These tags emit signals that tell where they are in a store or warehouse, thus making inventory management and control extremely automatic. A prevailing scenario is that a field force agent or sales person would only need to go into a store or warehouse with an RFID scanner/receiver, aim it at a specific section where his products are placed and know immediately how many products are still in inventory, as well as how much had been sold since the last time he was there. The rep could then create an updated order for new products on the spot.

However, an even more utopian view of RFID involves this scenario: a customer walks into a store and takes any product off the shelf, puts it into her shopping basket and, as she walks through an RFID scanner “arch,” the sensor automatically rings up her purchases, charges it to a pre-registered bank account—and she heads out never having to deal with a check-out stand. While this idea is cool, implementation of this concept is 5 to 10 years away because RFID tags would need to cost less then a penny each for this to make economical sense for use on all items. Today, the cheapest tags cost about 10 cents.

Even so, major firms like Gillette have put in orders for over 500 million RFID tags over a multi-year period in order to start factoring RFID into future packaging and product designs. However, the folks in retail are pushing for RFID tags to be placed on goods as soon as possible, because the other key benefit of these tags is the potential to cut shoplifting and employee theft.

Linking the Supply Chain

Although it does seem that the Holy Grail for RFID will eventually be in retail, the use of RFID technology will initially work its way into the market through the supply chain. This could prove to be a boon for providers of database management solutions, as well as those in mobile and wireless technologies. Indeed, one of the watershed endorsements of RFID for use in a supply chain came at an RFID show in Chicago last summer when Wal-Mart CIO Linda Dillman announced that her company will require its top 100 suppliers to start using RFID tags for some applications by January 2005. The initial use will involve placing RFID tags on palettes, but this technique could quickly spread to other supply chain processes inside Wal-Mart. Wal-Mart’s decision to push for the use of RFID in their IT processes is just what the fledgling RFID industry needed as a catapult. I am now hearing that Wal-Mart’s competitors are working on similar projects; and although they, too, would like to extend RFID to the mainstream retail process, the more realistic use of RFID at first will be in this area of supply chain management.

At the same time, the use of RFID for supply chain management in more lucrative areas, such as pharmaceuticals, automotive, major appliances and even high-end retailing, is not too far off. At first RFID will be used purely for inventory management, but what is most likely to happen is that it will quickly be applied to sales and field force automation.

Almost all of the major hardware and software players have R&D projects in the works that would link RFID directly to their products. One of the more interesting ideas I have come across marries GPS with RFID. Various companies are looking to place GPS chips on shipping containers. Inside the containers, boxes equipped with RFID tags would enable the shipper, supplier or even government customs agencies to track where a container is located, as well as the contents of each container. When the boxes are unloaded from the containers themselves, they would pass through a large RFID scanner, which would identify the boxes and then automatically direct them to waiting trucks or trains.

Taking it to the Field

But the one strategy for extending RFID that shows great promise in the near future is tying RFID directly to the sales and field forces. A good example of this is a project in which each box of golf balls sports an RFID tag. When a field sales agent comes to a sporting goods store, he automatically checks these boxes against his inventory account via a PDA equipped with an RFID scanner. An application on the PDA determines how many boxes have been sold and makes product and sales recommendations on the spot. After an order is taken, it is automatically sent back to the company’s sales database via a wireless data connection for immediate fulfillment.

In fact, all of the PDA vendors and developers of Compact Flash and SD/IO cards have RFID-related technologies either in the works or on the drawing boards in order to make these products the de facto for how sales and field force agents interact with RFID tags. Of course, companies that manufacture dedicated devices for use in vertical markets also have similar products on tap, but adapting mainstream PDAs for use in RFID applications could keep costs down and help kickstart the use of these devices tied to popular SFA and FFA software.

The concept of RFID technology that can and will be used in retail and supply chain management promises to be a key segment of the mobile technology industry in the very near future. More importantly, when applied to the overall business process, RFID has the potential of automating many of the functions workers today perform by hand, thus making workforces that much more productive in the warehouse or in the field. And with the likes of Wal-Mart pushing its vendors in this direction, you can bet that RFID will soon become a bigger issue in sales and field projects.

Tim Bajarin is president of Creative Strategies (, a technology consulting and research company based in Campbell, Calif.


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