By Maria A. Ferrante
Wal-Mart's decree has placed a deadline on RFID implementation. Here's what it means for you.
Imagine getting an invitation to your boss’ holiday party. You know the date and time, you know you must be there, you even have the address, but you do not have directions. This is the type of situation that Wal-Mart is placing its top 100 suppliers in with its new RFID (radio frequency identification) requirement.
Wal-Mart’s RFID decree was announced last year and is designed so that the company can use radio frequency-enabled pallets and case packages for shipping, warehousing and inventory purposes.
For Wal-Mart’s suppliers, implementing RFID technology is a must if they intend to continue their relationships with the mega-store. The deadline is clear: Cases and pallets from its top 100 suppliers need to employ RFID chips by January 2005. The remaining suppliers need to comply by January 2006. But how consumer goods manufacturers account for, implement and sustain RFID packaging lines has been left for them to figure out on their own.
The retailer has identified three distribution centers and 150 stores in the Texas region as its starting point, with additional regional rollouts continuing on a quarterly basis throughout 2005.
Specs and Expectations
Wal-Mart has provided some details: The retailer plans to use a 96-bit Electronic Product Code (EPC) with a Global Trade Identification Number, an international 
The specification Wal-Mart refers to is being developed by EPCglobal, a joint venture between the Uniform Code Council and EAN International charged with commercializing EPC technology. The tags will carry a 96-bit serial number and be field programmable. That is, suppliers will be able to write serial numbers to the tags when they apply them.
The Auto-ID Center’s Hardware Action Group began a draft specification. That work will be taken over by EPCglobal. It could be the second quarter of 2004 before a specification is drafted and approved. It is likely to take another year for companies to develop, test and produce products. But Wal-Mart executives say that support for V2 will not slow down deployment. They encourage suppliers to use readers that can be upgraded through software to enable them to manage the transition.
Wal-Mart wants to be able to read 100 percent of the pallet tags coming through the dock doors. It does not expect to be able to read 100 percent of cases coming through a dock door, but it will require that cases be readable when scanned by hand. And it expects all tags to be read without slowing down the existing process.
At What Cost?
Cost is the big question on most people’s minds when it comes to RFID. One must consider more than just the cost of the tags. Start-up, training, specialist hiring and update costs are all present with any new technology implementation. And there is always a threat that newer technology will be developed to make RF obsolete.
Costs also include the price associated with cases or pallets that cannot be read once they arrive at Wal-Mart’s distribution center, the RF system and the tags themselves—and arguably the most substantial cost, the software.
The real cost of RFID is not going to be on the equipment end, says Rick Fox, president and CEO of Fox IV Technologies, a coding equipment manufacturer based in Export, Pa. Rather, it’s going to be in the software and infrastructure that people will need to implement to have a fully deployed RFID system.
Suppliers will likely bear the cost of implementation, estimated by some analysts at about $2 billion for the consumer packaged goods industry. One industry estimate places the cost between $13 million and $23 million for a typical CPG manufacturer shipping 50 million cases per year. Further, additional money ($8 million–$13 million) would be required for system integration, changes to supply chain applications and upgrades to storage systems and software. Gartner analyst Jeff Woods is quoted as saying “If you are going to be an early [RFID] adopter, you can count on spending between $10 million and $30 million on just justifying the business case, building the business process and doing process engineering.”
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Much like keeping a computer network up to date, the software required to maintain a current RF system will need to be upgraded regularly. “Software is going to be expensive. Plan on spending more money on software upgrades each year,” says Robert Clarke, Ph.D., an associate professor in the RFID lab of Michigan State University’s School of Packaging.
The cost of cases and tags shouldn’t be an afterthought, however, since consumer goods manufacturers ship one-way cases to Wal-Mart and expect that cases are recycled after the product is placed on the shelf. And companies shipping product to Wal-Mart are going to look for the lowest cost RF tags available that meet the specifications. “If a manufacturer finds a tag that is less expensive [than the current tag being used], that manufacturer will switch to a different tag,” Clarke says. “But the problem is that with the new tag, the read pattern and read distance will likely not be the same.
” As with any new technology, as it is implemented and new technology comes along to lower the price tag, systems that are developed for this first generation of RFID tags may need further refining down the road—which, naturally, will result in additional costs.
And then there are the opportunity costs. “If it takes $3 million to install an RF system for Wal-Mart, where could you have used that money to make your plant more efficient for the rest of your customer base?” Clarke asks.
You need to ask yourself how much it will cost to install a system to meet Wal-Mart’s requirements, Clarke says. The figure is likely to reach into the millions since the success of the system depends on unskilled labor. Operators need to understand and manage the system in order for it to work effectively.
But who benefits? It all depends on whether the company is manufacturing to inventory (or stock) or manufacturing to ship. “The manufacturer for stock may actually be able to utilize some of the benefits of RFID within their own operations and therefore recoup some of the costs and benefits from doing RFID implementation,” Fox says. “If it is shipped directly to Wal-Mart, Wal-Mart gets all the benefits.”
The Failure Factor
Throughout the process, from secondary packaging through distribution, tags may fail to read at an acceptable rate, says Bob Zuilhof, president of ID Technologies in Fort Worth, Texas. “If identification and/or information is only going to be accurate 95 percent of the time, then you might as well not have that information at all, because fully redundant identification systems must be in place.” Thus, failure rates will be an issue, and will be impacted by how these units are handled in distribution and shipping.
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An RFID reader emits a radio wave to scan the chip via an attached antenna |
According to Clarke, readability is a cause for concern. In pallet loads, current readability per case is about 75 percent when a standard tag is used. When these cases are double tagged (which is an added cost) he notes approximately a 95 percent readability rate. Bar codes, however, reach a 99 percent readability rate. “The readability from double tagging is less than a bar code, yet you have added 70 cents to the cost of a case,” Clarke says.
The larger question is this: What happens when a tag is not read? “If a tag does not read at the end of its supply chain, who is going to pay for it? Who is liable? Wal-Mart is certainly not going to pay,” Clarke says. It makes more sense to use RF technology for high-value, high-profit items—with higher profit margins, Clarke says, noting that Wal-Mart sells low-cost items at low profit margins. “Instead, Wal-Mart is trying to mass-market this technology.”
This raises another question: With so many people having their hands on the goods and so many third parties handling the packages, who is responsible if a tag does not survive the supply chain? There is currently no quality control program in place to test and validate the various systems. “This will be a critical issue for RFID growth,” says Ann Marie Phaneuf, director of marketing with Weber Marking Systems, an Arlington Heights, Ill.-based manufacturer of coding and marking equipment.
Clarke concurs. “Regardless of the type of tag you use, you need to do a validation to make sure it is readable before the tag is applied. Most companies think that they should apply first and validate later.”
In his laboratory testing, Clarke says it is not unusual for up to 10 percent of the tags supplied by a vendor to be non-operational when they are received. This is why he says it is important to validate that a tag is readable before applying it.
The ability to check a tag to make sure it is usable before it is programmed is key, says Greg Matula, Hewlett Packard’s technical lead for its RFID program and worldwide RFID procurement manager. “If we don’t validate upfront, not only are we going to lose the cost of the tag, but are also going to lose the cost of the case, [the case itself] could be anywhere from $1 to $3 depending on the product,” he says.
Matula sites the development of the integrated reader with thermal printers by suppliers such as Zebra and Printronics as a very important development. These printers allow you to read a tag before you apply the paper-converted label with RFID chip and antenna to the carton, program the chip, print the bar code information and verify the tag after printing. If the printer senses a bad tag, it blacks out the entire tag and line operators know to remove that case. The technology, though available, Matula says, has had some problems.
But with the Wal-Mart deadline quickly approaching, many companies feel they cannot afford to wait until validation and testing are in place. In the end, this could cost companies more money, Clarke says.
Verification is another issue. “In the case of bar codes, a printed bar code must conform to an ANSI (American National Standards Institute) standard. You use a bar code verifier to test the bar code. If the printed bar code meets the ANSI standard, you are in compliance and can ship product, regardless of when or how the bar code was printed,” Fox says. “It’s a simple, single point-of-control procedure.”
With RFID, however, verification takes on a different meaning. “Inspecting each RFID tag prior to applying it to a pallet or carton is insufficient,” Fox says. “The functionality of the RFID tag will change based on the position of the tag on the container, the type of product in the container, the pallet packing configuration and the power of the tag reader.” Verification will need to be done at multiple locations in a manufacturer’s plant prior to shipping. And this is only for a given RFID tag antenna design. Change the tag antenna design and you must test again. “Given this and the fact that no one has yet specified a standard for the power of the RFID tag reader, how do you ‘meet spec’?” Fox says.
There will be reader issues as well. “If you are writing information to a tag as it is applied, the write distance is much different than the read distance. An area of concern is the type of antenna you are using. This has a big impact on readability,” Clarke says.
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Protection for readers is going to be an important operational issue. The reader is made up of three components: transmitter, receiver and antenna. These readers are small and easily crushable. It would not be uncommon for them to be damaged in a warehouse or distribution setting. Workers who are not properly trained may sabotage these readers if they believe that the readers are tracking their productivity rather than the flow of products. The automotive industry suffered this exact problem and, so as a result, backed away from RFID altogether.
In terms of damage control, it is unclear whether or not hot- or cold-melt, water-based adhesives and the like will impact the tags. In Clarke’s opinion, one year is not enough time for full implementation. “With RFID, you have to plan for failure,” he says. “If you implement a process without planning for failure, you do not have a plan that will work. No one has been planning for the failures that are going to occur. They are damning the technology by not collaborating more.”
>With pallets, the placement and damage issue seems even more critical. According to Clarke, in a typical manufacturing/warehousing handling situation, a forklift handles a pallet a minimum of 16 times. He mentions a test in which the tags were placed on the inside of the pallet along the inside stringers; forklifts destroyed the tags most of the time. In tests where a sheet of plastic was placed over the stringer to protect the tag, the forklift ripped it off. “What was found was that certain metal forklifts kept pallets from being read,” he says. “How and where you place tags on these pallets is critical.”
Location, Location, Location
“Where they put the tags will be critical,” Phaneuf notes. “Some of that is dependent on robustness of the tags, type of product and where the shipping label is placed.”
Wal-Mart has not specified a location for the tags on pallets or cases, and tag position and orientation can play a big part in readability. Some tag vendors are developing orientation-independent tags, though these have not been thoroughly tested. Tag orientation definitely matters to Hewlett Packard. The company is working on RFID in four facilities: two in the U.S., one in Brazil and one in China. For HP, it appears that tags work best when their faces are parallel to the face of the reader—and even that depends on the reader selected, whether it is circular polarized or linear polarized, Matula says. If the face of the tag is perpendicular to the face of the reader, there is minimal surface area and the tag is virtually impossible to read.
One solution under discussion is embedding inlets or tags directly into the corrugated. The tag would be embedded between the linerboard and the medium, but, if the corrugated needs to be die cut, knowing what flap is going to go where in the box will be important or the chip could end up with the scrap and be thrown away. This means that you have to create embedding-specific locations for a particular box design. On a regular slotted container (RSC) it is possible to place the tag on the inner box during the sealing operation.
Integration, Adjustments and Fine Tuning
Another issue is energy or noise generated in the plant or by the RFID system. “The installation of readers and antenna systems is going to require an energy audit,” Clarke says. Not only will the readers and antennas be affected by the plant energy, the RF system could interfere with plant operation.
According to Matula, Hewlett Packard is finding that many factors affect the tuning of the antenna including its size and frequency, the reader protocol, the amount of metal and liquid in the environment and the location of the lines.
Each application is different, Matula says. You may need to tune down the power going from the reader to the antenna depending on the orientation you prefer for reading or writing the tags, the face you want to read from and the direction the carton is coming from. Each company and each production line needs to be evaluated and adjustments need to be made for the system to operate properly.
One example is the change Hewlett Packard had to make when other in-plant RF systems affected the new one. “Our testing indicated that there was interference coming from the RF system used to run our forklifts,” Matula says. “The actual frequency bands between our RFID system and our forklifts were too close. We needed to [alter] the frequency on our forklifts so that both systems could operate in our facility.”
Software maintenance and upgrades, to ensure total integration with plant systems, also will be important, Clarke says. And if you are partnering with someone such as a contract packager to tag your products with RF tags, you still need to have compatible software or some type of electronic connection so you can read the data. Pharmaceutical and medical device manufacturers will find that software performance is critical, since they must meet the requirements of Code of Federal Regulations 21, Part 11.
Move Cautiously
ID Technologies’s Zuilhof advises his customers to question what would happen if they didn’t implement RFID. Make sure you are clear on deadlines and all issues—especially specifications—before proceeding, he says. And invest as little as possible to achieve compliance until more RFID issues are addressed and resolved. RFID implementation is in addition to current bar coding compliance criteria, so it is by no means a replacement at this point in time, he says. Therefore, implementation should be considered a pilot project.
Fox concurs. He feels that many companies are not viewing these issues in the context of a real-life manufacturing situation and recommends that companies move cautiously and begin on a pilot project basis before moving forward into their plant operations. “Most people don’t recognize that this is a complex system that needs to be incorporated into a manufacturing operation,” he says.
“How you change your processes to enable the use of RFID is more critical than how you adapt RFID to your current way of doing business,” Matula says. “Our challenge is to implement RFID at HP without a decrease in cycle time or increase in head count. To do this we have had to change our mindset and adjust our processes to take best advantage of RFID technology,” he says. “This is not a ‘bolt-on’ type of technology.”
And if you think RFID isn’t worth it, consider this: Wal-Mart and its suppliers annually lose billions because of out-of-stock situations, something Wal-Mart thinks RFID can reduce. Championing RFID and the electronic product code, Simon Langford, global manager of RFID strategies for Wal-Mart Stores, Inc., offers this advice to manufacturers: “join and get involved in EPC Global.” Speaking at PMMI’s Coding conference in January, Langford urged manufacturers to establish internal RFID teams to research ways to incorporate RFID tags on packaging and to “look internally for your supply chain benefits.”
Maria A. Ferrante is director of technical services with PMMI. Email your observations and comments on implementing RFID technology to PMT@PMTdirect.com .
