Emergence of Radio Frequency Identification (RFID) Technology in Retailing and Supply Chain Management


By

Kiran Raveendran
Faculty Member (QM/OM)
Icfai National College
Kannur, Kerala
 


ABSTRACT

Companies are in the rat race to cut down on cost of supply chain operations & processes to improve their productivity and profits.  This paper deals with the emergence of Radio Frequency Identification (RFID) Technology as an enabler to achieve these cost cuts. Though still in its nascent stage in India, RFID has started making its presence felt in the retail & automobile sector over the last five years. RFID facilitates wireless and multiple data capture which can also be used in harsh fluid & chemical environments and in rough handling situations, without any line of sight scanning.

The applications in retailing, supply chaining, healthcare, airlines, defence and education sectors are tremendous. Solution providers like Infosys Technologies, TCS and Wipro have been increasingly developing RFID compliant systems in large numbers.

The paper looks at how Wal Mart introduced this innovative strategy, followed by the current implementations taking place in RFID Technology in India, the challenges faced in the implementation and the huge potential that can be tapped by Indian companies in varied sectors by adopting this technology.

Introduction to RFID

Radio-frequency identification (RFID) is an automatic identification device technology that is used to remotely store and retrieve data without actual scanning of the data source. The predecessor to this technology was the bar code scanner used at retail cash counters which needs actual line of sight scanning to read the data and bill the product [7].

In 1946, Lιon Theremin invented an espionage device for the erstwhile Soviet Union, which used radio waves and had applications as a secret listening device. It has been recognized to be the first device to actually use something similar to RFID technology. This technology was introduced on paper by Harry Stockman in 1948 in his report "Communication by Means of Reflected Power" (Proceedings of the IRE, pp 1196 – 1204, October 1948)

The first true ancestor of modern RFID was Mario Cardullo's U.S. Patent 3713148 in 1973 which was demonstrated in 1971 to the New York Port Authority with applications as a toll and traffic detection device at the ports. The first patent to be associated with the abbreviation RFID was granted to Charles Walton in 1983 as U.S. Patent 4384288.

RFID was introduced to initially improve the Supply chain but has found applications in manufacturing, retailing, warehouse traffic management, military, medical & healthcare, education sector and e-governance. The companies in India taking to this technology are steadily on the rise and it has the capability to transform the business equations.

RFID System and Global Standardization

An RFID system comprises of an RFID Tag or transponder, RFID transceivers, high capacity servers and related application software. An RFID chip consists of a tiny computer chip, which is approximately the size of a small dot, on which are implanted, the code of the product and a small antenna. RFID can incorporate a variety of electronic architecture and code formats. To bring in standardization, especially in the retail sector, a code format called EPC (Electronic Product Code) has been proposed by EPCglobal (which was earlier called as Auto-ID Center).

The generally accepted EPC based RFID format is a result of a collaborative research work done by Auto-ID Center, MIT and over 100 huge corporations that included Wal-Mart, US Department of Defence, US Food and Drug Administration, US Postal Service, Pfizer, Coca Cola, Philips, Microsoft, Infosys Technologies and IBM Consulting [9].

The image of an RFID Tag and the Electronic Product Code Structure is shown below


RFID Tags can be active or passive. Active RFID tags are powered by an internal battery to power the chips and generate the signals and gives longer reading range and are of larger size and higher cost with limited operating life. Passive RFID tags operate without external power source by using just the power generated from the reader and the incoming radio signal only. These are lighter than active tags, less expensive, more widely used, have shorter reading range and have almost unlimited operating life [4].

Low frequency RFID Systems are used in the 30KHz to 500KHz range and high frequency systems are used in 850MHz to 950MHz and 2.4 GHz to 2.5 GHz range. The data transmitted can provide identification information, location information, the product details like batch number, colour, date of purchase, shelf life, time on shelf till now, price, date of manufacture, time spent in transit, location of distribution centre, name of last person to hold the item along the supply chain among other details depending on the level of information required on the tag for different product categories [6]. 

Key Application features of RFID

RFID devices have several application features when compared to the earlier data storage & retrieval and transaction processing devices like Bar Code scanners.

  • RFID tags need not be visible to be read/scanned.
  • Tags can be read quickly from significant distances.
  • A number of tagged devices can be simultaneously read at a time.
  • As most of the tags come enclosed in a protective covering, it is difficult to tamper with in normal situations.
  • Since it can be encased in protective covering, they can be protected from harsh environments and fluid & chemical environments which involve rough handling.
  • Many tags now come with both read and write capabilities, rather than just read-only so that information can be added on after some significant event in the movement of the tagged item along the supply chain [5].

Applications in Retail & Supply Chain Management – Global Scenario

Wal-Mart has introduced RFID attached to each pallet and storage box that comes into/goes out of their stores and distribution centres and has almost completely replaced bar codes. In June 2003, Wal-Mart had communicated to its major suppliers that in two years, all pallets and boxes should come tagged with RFID. Information about the contents loaded onto a roller or box can be tagged onto the tag and easily checked. This helps check if material has gone "missing" during transport. Also, at warehouses, a common mistake committed is when a box is loaded by mistake to the incorrect loading bay and hence the wrong vehicle. By the time, this error is found out, it becomes too late to rectify especially in cases of perishable goods. RFID alerts the warehouse officials by being connected to an alarm system when wrong items are loaded to the wrong loading area. It can also be incorporated to a receiving station where a wrongly dispatched item can be identified if delivered wrongly.

The use of RFID at Wal-Mart store has reached such a stage where Wal-Mart can identify in detail which product moves faster on Fridays, which on Saturdays, whether Indian Americans buy a particular brand of product more than Spanish and the system can alert the store manager when the temperature at which the perishable goods are stored in the refrigerator comes down [10].

Nowadays, retailers all over the world are tagging their products and the level of pilferage has come down. Earlier, it was easy for a shopper in a busy supermarket to easily pass unnoticed out of the store, Now, any unbilled item automatically sets off an alarm at all the exit points. Retailers are tagging child trolleys of shoppers so that they do not encounter "missing children" situations and can have child security.

The uniqueness of the RFID tags mean that the product can be individually tracked as it moves from location to location, finally ending up in the customer's hands. This can help combat the problems of theft and product loss as mentioned before but also have advantages in recall campaigns for products with quality deficiencies. This can help in post-sale tracking and profiling of customers for future campaigns too.

Throughout the European Union, RFID passes are used for the public transport systems. This system has now been copied by Canada, Mexico, Israel, Dubai and Columbia also. All the transport payments and toll charges are monitored and done through RFID Compliant systems. This can reduce a lot of time spent by logistics companies along the motorway and can speed up the checking & inspection stages in the logistics. This automatically brings down the cost of transportation.

Another major application is in animal tracking when meat and livestock are transported throughout a country before it reaches supermarkets. The RFID implantation can help identify the farm from which the animal has been loaded, its date of birth, age and nutritional value along with history of any contaminations if any. The Canadian Cattle Identification Agency began using RFID tags for its purposes.

RFID finds applications in bookstores and libraries for tracking its inventory. Other applications are in airline baggage tracking, pharmaceutical items tracking, building access control, shipping container tracking, truck and trailer tracking. The pharmaceutical industry is highly vulnerable to counterfeiting with figures suggesting that 7-8% of world market is counterfeit. RFID technology can help protect against fraudulent introduction of drugs into the drug supply chain. Pfizer has already incorporated this system to their drug supply chain.

The automotive sector introduced use of RFID by tagging the car keys. With this application, a car will not start without the actual key. Toyota Avalon 2005, Lexus GS 2006, Toyota Camry 2007, Toyota Prius and companies like Ford and Honda are introducing car models with this feature being optional. The driver can even open the doors and start the car with just the presence of the key within 3 feet without even taking it out of the pocket [1].

Tyre manufacturer, Michelin tested RFID embedded tyres in 2003 to offer tyres in compliance with the United States Transportation, Recall, Enhancement, Accountability and Documentation (TREAD) Act which is aimed at safer road transport for trucks that are involved in logistics operations in the supply chain [1].

Outside of retailing sector, Malaysian government has already introduced RFID passports for proper tracking of travel history of its citizens [1].

Applications in Retail & Supply Chain Management – Indian Scenario

Retailers, textiles, aviation, energy and auto sectors in India are switching to this new concept over the last 5 years after seeing the results of implementation in the developed world. This is also necessitated by pressures on them by suppliers from abroad to comply with global business practices, failing which they run the risk of being left behind.

Infosys Technologies is a founding member of EPC and Wipro technologies have been associated with Auto-ID Lab at MIT for some years now. Both these companies play a big role in the EPC which provides standards for implementation of the technology.

Similarly, Gemini Traze RFID Pvt Limited is building India's first RFID tag manufacturing unit at Sriperumbudur Electronic Park near Chennai. It plans to roll out 45 million units which would be increased to 100 million units per year later on [11].

One of the main companies that is testing this technology is Kishore Biyani's Future group, especially at Pantaloon and Big Bazaar. Pantaloon has piloted an RFID project at one of its warehouses in Tarapur using more than thousand RFID tags [3]. It selected a few lines of apparel for the RFID pilot project. The application was developed by Wipro Infotech and integrated Oracle database also. Nowadays, we can see the major retailers having a plastic flying saucer shaped knob like structure on dresses while on display at the store which are removed when they are billed. This helps in tracking of goods and security from pilferage as it lets out an alarm at the exit door if not billed properly.

Madura Garments also experimented with RFID and has incorporated them in their Planet Fashion stores as well as factories and warehouses. The national carrier Air India is planning to use RFID for tracking capital assets. Leading oil companies have begun pilot tests to use RFID for LPG cylinder tracking, The Indian railways is also thinking on these lines for tracking wagons and containers. Maruti Udyog Limited has been using RFIDs for component and spare parts tracking for some time now at their Gurgaon plant. Ashok Leyland is also using this for the same purpose. It has tremendous advantages as there are more than 20,000 parts in most vehicles and tracking the movement of each one of them through the supply chain is a mind-blowing task. Mahindra & Mahindra are also using RFID in car some of the manufacturing processes like Pretreatment of Body Shell and Electro-deposition that are done in harsh conditions [6]. In the pharma sector, Ranbaxy Labs and Pfizer use it for counterfeit protection. Airport Authority of India is considering RFID for the cargo and passenger goods management.

Outside of retail and auto sectors, libraries like Jayakar Library of Pune University and Dhanvantri Library of Jammu University have adopted RFID [4]. Hyderabad Central University has introduced RFID embedded degree certificates. The municipal corporation at Hyderabad in 2006 had introduced RFID usage for keeping track of garbage collection & disposal trucks and their drivers to monitor them due to instances of reported malpractice in collection & disposal. Applications are there in healthcare where new born babies can be RFID tagged so that they are properly monitored in hospitals. It can be used to improve security and in military uses for proper tracking of supplies to the armed forces. There are applications possible in Electricity/Water meters which can help make the manual recording and reading automatic, remote and fault free. The applications are enormous and far-reaching, and India has just started.

Pros and Cons of RFID applications in Retailing & Supply Chain management

In retailing, the following statistics from a University of Arkansas & Wal-Mart study [6] conducted over 29 weeks at 24 stores led to the following results:

  • 16% reduction in product stockouts since adoption of RFID.
  • RFID equipped shops are 63% more efficient in replenishing out-of-stock items.
  • Out-of-stock items are replenished 3 times faster with RFID.
  • Cost of excess inventory was reduced by more than 10%.

In 2000, the most basic RFID tags were priced at approximately $1 each. In 2003, they ranged from about $0.25 to $0.40 and today they have dropped to about $0.15 each (Rs. 6 each) for the basic model. As the adoption rate increases and with companies like Gemini setting up manufacturing shops in India itself, the refinements in technology will push down the price to about $0.05 each for the basic model. This will change the scenario from the current one where some retailers tag a box rather than each item in the whole box to save costs [6].

With RFID enabled loyalty cards for frequent shoppers, items could be priced differently depending on the shopper. Different promotions can be offered to different customers via their RFID enabled cards or by the billing staff receiving prompts automatically to apply discounts for a certain category of shoppers. This can also help the same shoppers of one retail chain get similar treatment in Bangalore, Mumbai and Delhi when he/she travels.

RFID tagged employees can be monitored better by knowing their time in different areas of the retail facility. A person spending too much time in the restroom can be alerted to go back to the store and an overworked person can be asked to take rest.

In short the advantages can be summarised as follows:

  • Automatic Non-Line-of-Sight scanning enabling multiple product simultaneous scanning in milliseconds.
  • Labour time savings of close to 36% in Order picking, 90% reduction in verification costs for shipping [12]
  • The "always on" nature of RFID technology ensures total visibility to all stakeholders in the supply chain when integrated in a supply chain communications network.
  • Improvements in functions like asset tracking, returnable item movement, product recalls and tracing warranties.
  • Ability to be used in harsh environments and prevention of theft and pilferage.
  • Improves the ability to forecast product demands and lower inventory levels.
  • Ability to hold vast amounts of varied information on a single tag.
  • Cost savings through better inventory management by the deployment of RFID is expected to bring in savings of over $ 1.4 billion annually at Wal-Mart [8].

Some of the deployment issues in RFID implementation are as follows [2] :

  • The retailers are forcing manufacturers to absorb the additional costs of RFID tagging an item and processing the information that they generate.
  • Manufacturers rarely report short-term gains from RFID implementation. Short term gains are usually seen for the retailers, though in the long term both parties gain. This makes manufacturers and vendors slightly apprehensive of the technology.
  • Data synchronization, integration and lack of standards except for the EPCglobal which is still developing itself is a major issue when used across countries.
  • Due to the nascent stage in the technology, the RFID technology is still not fully fool-proof and there are issues of electromagnetic interference and wrong reading being reported as the technology is still not fully perfected. Metal and liquid are said to play havoc with RFID signals with the current technology available if not properly done.
  • It is disturbing for many customers to have their movements or buying habits automatically tracked even after purchase. To counter such concerns, some retailers "switch off" their tags once a purchase is made.
  • There are fears that competitors can develop systems which can track a particular companies' shipments and inventory as there are still vulnerabilities in the security system as is the case with credit cards. Issues of whether customer data is safe with the retailer also arises.


Conclusion

In spite of all the teething problems that are there currently, RFID is the next big thing in the strategic plans of companies in retailing, auto, textiles and many other sectors as the evidence of savings through better inventory management is coming through from different parts of the world. The world is waiting for the costs of tags to come down to $0.05 each (Rs.2 each) so that wide spread adoption is possible.

The start has been made and the results are encouraging and potential applications varied in scope. Once the technological stumbling blocks are cleared, it will become a common place item just like the barcode scanner of the last 10 years. Wal-Mart's comprehensive usage & success of RFID implementation in retailing has made it an exemplary strategy to follow for other companies in the retailing and supply chain management area.

References:

    1. Applications of RFID at http://www.wikipedia.org/rfid

    2. Katina Michael and Luke McCathie of University of Wollongong, The Pros and Cons of RFID in Supply Chain Management, Proceedings of the International Conference on Mobile Business (ICMB 2005) 0-7695-2367-6/05, IEEE 2005.

    3. Kishore Biyani and Dipayan Baishya, It Happened in India, Rupa Publishers, 2007.

    4. Meetali Saxena and Gayatri Doctor, RFID:Applications and Indian Scenario, ICFAI Business School, Ahmedabad, 2006.

    5. Nadeem Raza, Viv Bradshaw, Matthew Hague, Applications of RFID Technology, Microlise Systems Integration Limited, Institute of Electrical Engineers, 1999.

    6. Ravi Mathur, The Retail Frequency – Data Quest Magazine, April 15, 2006, Cyber Media Publication.

    7. RFID – Radio Frequency Identification at http://www.rfidzones.com/

    8. Shim R, "Wal-Mart to throw its weight behind RFID", at CNET News at http://news.com/2102-1022_3-1013767.html

    9. Shipra Arora, RFID 2.0 at http://dqindia.com/content/top_stories/2006/106040501.asp

    10. Thomas Friedman, The World is Flat – A Brief History of the Globalized World in the 21st Century, Penguin Allen Lane, pp135-136, 2005.

    11. Uday Lal Pai, Can India leapfrog into RFID? Automation World Magazine, Nov 2006.

    12. Verisign. "The EPC Network: Enhancing the Supply Chain" at http://www.verisign.com/nds/directory/epc/epc_whitepaper.pdf
     


Kiran Raveendran
Faculty Member (QM/OM)
Icfai National College
Kannur, Kerala
 

Source: E-mail January 31, 2008

          

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