Why RFID Is (Finally) Here To Stay
September 28, 2016 Alex Woodie
Don’t look now folks, but some of the big claims that people made about radio frequency identification (RFID) a decade ago finally are starting to come true. For companies in the manufacturing and retail industries, there’s simply no denying the major efficiency gains that RFID projects are now delivering. Here are some of the reasons why RFID is finally here, and what took so long.
Of course, it wasn’t supposed to take this long. When Wal-Mart issued a mandate for all of its suppliers to adopt case-level RFID tagging back 2003, the transition was expected to take about two years. After pushing back the deadline, Wal-Mart’s suppliers eventually complied, albeit grudgingly, since they largely weren’t seeing the benefits (aside from the privilege of continuing to count Wal-Mart as a customer).
Cost was one of the big hurdles preventing wider adoption back then. At $1 per RFID tag, most companies in the consumer goods supply chain couldn’t justify expanding RFID initiatives beyond complying with the mandates from Wal-Mart and other major retailers, like Target and Macy’s.
“The ROI just was not there,” says Bill Hood, chief operating officer of Stratum Global, an RFID solutions company that was spun out of LANSA back in 2005. “When you talk to someone about scale and you put a $1 tag on something that’s thrown out, especially a consumer product, those are tough conversations.”
One of the reasons the RFID tags were so expensive was lack of standardization. According to Hood, it took until 2008 to get a complete universal standard for RFID. Just as spending on RFID started to pick up, the Great Recession took hold. “RFID was looked at as nice to have, versus I’ve got to pave the parking lot, fix the air conditioning, and pay my employees,” Hood tells IT Jungle. “The recession put a good hit on it.”
Today, RFID tags cost less than 10 cents apiece, which has changed the return on investment equation considerably. Since the 2013-2014 period, Stratum Global has seen the purse strings open for RFID projects, predominantly among manufacturers, which is the vendor’s target market.
“In the companies we’re working with today, there’s no more questions about does it work,” Hood says. “Today the ROIs are phenomenal. You’re seeing complete ROI in less than six months, which never happens.”
How does RFID generate such a great return? It mostly comes down to tracking the flow of goods and products across a manufacturing operation, warehouse, or supply chain. Instead of relying on employees to use a barcode scanner correctly, RFID tagging automates all that. And RFID works correctly nearly all the time, versus a healthy error rate for handheld barcode scanners.
One of Stratum Global’s customers has been able to scale up its door manufacturing business by automating the entire assembly line with a combination of robotics, RFID tag readers, and RFID tags on finished and unfinished goods. As goods flow through the factory, RFID scanners ensure that everything is where it’s supposed to be, thereby cutting down on errors.
“Without having someone walking up with a barcode readers or hoping that they read it, it’s caught 100 percent of the time, so your efficiency could be 100 percent,” Hood says. “Work in process is really a large benefactor to RFID on all fronts. That’s where we spent a fair amount of our time.”
The same dynamic is at play among retailers, which are expanding their RFID initiatives beyond compliance with the Wal-Marts of the world. As retailers replace error-prone barcoding with more accurate RFID counts, they’re getting better real-time insight into their inventory.
Sheldon Reich, vice president of solutions at CYBRA, says the increased accuracy demanded by retailers’ omni-channel initiatives is driving RFID adoption. “The key to making omni-channel work is you have to have accurate inventory in the store,” Reich says.
“The numbers are mind-blowing,” he tells IT Jungle. “For example, once they have the goods tagged in the store, inventory accuracy goes from 63 percent to 95 percent. And by having that increase in the inventory accuracy, the out-of-stocks decline by up to 50 percent. By cutting the out-of-stock, you increase item availability, and these retailers are seeing sales boosted from 2 percent to 20 percent because they’re comfortable picking to the last unit.”
There will be 5 billion RFID tags used in the retail business in 2016, Reich says, and that number will increase to 7 billion next year, as retailers expand their RFID initiatives to other products. All that extra inventory accuracy is helping retailers reduce costs related to inventory counts and boost sales.
Consider that an employee equipped with a barcode reader can scan about 200 items per hour, Reich says, versus 20,000 per hour with RFID. “That’s a drop in inventory count time of 96 percent, which means they do it once per week or three times per week,” he says. “They’re constantly taking inventory. You know what stuff is moving faster or stuff that’s in the wrong place. There are so many benefits.”
Chip giant Intel is also getting in on the act. In January, it announced its Intel Retail Sensor Platform, which includes ceiling-mounted RFID readers, a local PC server, and cloud-based analytics based on Hadoop and OpenStack. Intel says the solution can deliver near-100 percent inventory accuracy.
While RFID is helping retailers get more insight into what’s on the store shelves, the technology is also resonating further back in the supply chain. By having RFID readers checking the accuracy of pallets or cartons leaving the warehouse, manufacturers and distributors can reduce shipping errors and the chargebacks they bring.
One of CYBRA’s customers was charged $750,000 in chargebacks by a major retailer before implementing an RFID solution. “When wrong things are sent to the retailer, not only do you lose the sale, but they also charge you for mucking up their system,” Reich says. “What we’ve seen and what customer are telling us is the reduction in the chargeback alone pays for these systems.”
Stratum Global tried to help a company in the automotive goods tackle a similar supply chain problem. The company was shipping parts using specialized containers that cost $1,500 each.
“They’d ship the product to Detroit and they would never get the returnable back,” Hood says. “When they ran out of the containers, they had to ship in corrugated cardboard boxes. Then, they’d get fined by the motor company because corrugated doesn’t hold up very well in Detroit in the winter if it’s sitting outside.”
The solution suggested by Stratum Global involved tracking the containers through RFID. However, the 3PL providers didn’t feel comfortable with RFID. Looking back on that situation, Hood says alternative tracking methods available today–such as GPS and communicating via cellular–would have solved the problem.
Absent another economic collapse or other outside influence, RFID is here to stay. While it took longer than expected to go mainstream, it’s now delivering the types of benefits that industry pundits said it would deliver more than a decade ago.
The long adoption curve isn’t surprising to Hood. “I remember when barcoding came to fruition. It took 20 to 25 years for barcoding to become a household staple, so to speak,” he says. “I don’t see it [RFID] slowing down at this point. Acceleration has been pretty consistent the last two years.”
As RFID technology matured and use cases got better defined, something else happened along the way: big data. Today, companies are collecting vast amounts of data from customers in almost every way imaginable. Some of the technology is quite invasive, including the practice (adopted by many bricks and mortar retailers) of tracking customers through unique signals emitted by their cell phones. RFID, with its dependence on physical antennas relaying tiny bits of data to a local receiver, seems almost quaint by comparison.
RFID costs should come down even more in the future, which will drive even more adoption and open up more use cases. For IBM i shops looking to gain an edge in their manufacturing, distribution, or retail operations, the verdict is clear: RFID has finally arrived. Now the question is: How will you use it?