What the Heck Is RFID?
With all the recent hype over radio frequency identification (RFID) and the requirements to implement it, you might think that RFID can turn water into wine, transform lead into gold, and cure the world's diseases. You might also be worried that RFID will enable Big Brother to track your movements to within a foot of your location from a satellite five hundred miles up in space. The truth is, RFID can do none of these things.
RFID is a very valuable business and technology tool. It holds the promise of replacing existing identification technologies like the bar code. RFID offers strategic advantages for businesses because it can track inventory in the supply chain more efficiently, provide real-time in-transit visibility(ITV), and monitor general enterprise assets. The more RFID is in the news, the more creative people are about its potential applications.
The origins of RFID in inventory tracking
Wal-Mart has spent millions of dollars since the late 1990s researching the efficacy of RFID systems to replace bar codes (which have been in use since the days of The Brady Bunch and Gilligan's Island — that's the early 1970s, for those of you who were around then).
In 1999, with the help of scientists at the Massachusetts Institute of Technology (MIT), a consortium of companies formed the Auto-ID Center — a center for continued research into the nature and use of radio frequency identification. The consortium had a new idea about how organizations could identify and track their assets. The vision underlying automatic identification (or Auto-ID) is the creation of an "Internet of Objects." In such a highly connected network, devices dispersed through an enterprise can talk to each other — providing real-time information about the location, contents, destination, and ambient conditions of assets. This communication allows much-sought-after machine-to-machine communication and decision-making, rendering humans unnecessary and mistakes a thing of the past.
Today, Auto-ID can track not only enterprise assets, but also the movement of products, containers, vehicles, and other assets across vast geographic areas.
Tracking goods with EPC codes
RFID is actually nothing new. Just as goods today have bar codes, goods in RFID systems have codes that enable systems to share information. Because the mandated RFID systems require businesses to share information with each other, the different systems need to use the same code — the electronic product code (EPC). The EPC is the individual number associated with an RFID tag or chip.
The EPC was developed at MIT's Auto-ID Center in 2000 and is a modern-day replacement for the Universal Product Code (UPC). A tag's embedded EPC number is unique to that tag. However, the EPC protocol is universal to all EPC-compliant systems and serves two specific functions:
- Telling how data is to be segregated and stored on the tag, or what is also known as the numbering scheme.
- Determining how the tags and readers communicate (also called the air interface protocol).
Wal-Mart, like other large retailers, had more pragmatic issues at hand when they established an RFID requirement for their suppliers. Under Wal-Mart's mandate, each supplier is required to identify their products not by bar codes and waybills, but through EPCs that are automatically broadcast by RFID tags as new products arrive at the retailer's warehouse, distribution center, or store.
Sizing up the benefits of RFID
Capturing inventory as it arrives from the supplier is the first step in a company-wide tracking system that "knows" where every item is throughout its lifetime in the store. This tracking offers retailers tremendous insight into their inventory, which enables those retailers to control costs and reduce investment on inventory, which means lower prices and better competition for consumers.
Having better information about inventory offers retailers all sorts of potential benefits. The retailers know how much inventory is still on pallets in the warehouse, how much is on its way to distribution centers and stores, and how much is currently on the shelves in each of its stores. With this knowledge, retailers have the foundation for measuring product consumption, seeing buying patterns, and controlling inventory more efficiently. Through this process, a retailer ensures that its shelves are stocked and that customers can buy high-volume products (such as razor blades, diapers, and toilet paper) when they need them and in the quantity they need.
Of course, businesses don't spend money unless they expect to make money off that investment. Major retailers believe that a comprehensive RFID program — tying suppliers to inventories to retail outlet shelf stock — will generate savings of around 10 to 16 percent, based simply on inventory cost reduction in each of their distribution centers (DCs). This translates into billions of dollars in savings each year — a pretty impressive result by any measure. The benefits can extend to other applications beyond retailers: Third-party logistics companies can speed up their billing cycle and create a new revenue stream with RFID; government agencies can reduce loss and increase security; museums can reduce cost to conduct inventory; sports teams can increase sales at games — the applications are limitless.
In an RFID system that uses an electronic product code (EPC) or similar numbering scheme, the following RFID attributes lead to those kinds of savings:
- Serialized data: Every object in the supply chain has a unique identifying number.
- Reduced human intervention: RFID allows tracking automatically without needing people to count or capture data or scan bar codes, which means reduced labor costs and fewer errors.
- Higher throughput supply chains: RFID allows many items to be counted simultaneously.
- Real-time information flow: As soon as an item changes state (off the shelf, out of a truck, sold to customer), the information can be updated across the supply chain.
- Increased item security: Tagging items allows them to be tracked inside a confined facility or space.
Obviously, there is a genuine reason for the excitement surrounding RFID and the EPC. People are anxious to implement the technology so they can track supplies from the factory to the foxhole, or from the grower to the grocer. Much like the excitement surrounding the Internet, RFID carries the promise of a very disruptive technology with substantial future rewards.