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Campbell Comments on Use of RFID Technology

In an IBM television commercial that first aired in 1999, the camera follows a man who strolls through a retail store stuffing items into his coat pocket. A security guard starts tailing him, and just as the customer walks through what looks like a metal detector, the security guard snatches a piece of paper from the machine and says "Excuse me sir, you forgot your receipt."

The ad's assumption is that wireless product identification technology eliminated the need for the customer to go through a conventional checkout line. For Brian Schulte, director of vertical marketing at Intermec in Cedar Rapids, this tantalizing fantasy about how easy shopping could be in the future is not that improbable. In fact, the advertisement presents a perfect vision of just how ubiquitous RFID technology could become in the future, he said.

RFID technology, which stands for radio frequency identification, reduced down to its essence is a glorified barcode. Essentially, it is composed of two elements: an RFID "tag," which is a microchip for information storage and an antenna, and an RFID reader or "interrogator" that reads the information on the tag from distances ranging from inches to dozens of feet. As opposed to a barcode, which only names the product, the RFID chip can contain a wealth of information: where is it headed, where did it come from, what times did it visit those locations, and many other details.

Although the technology has been around for more than 50 years, it gained new prominence, especially in the retail and consumer goods industry, after Wal-Mart announced in 2003 that it would require its top suppliers to use RFID technology. As the nation's largest retailer, Wal-Mart's announcement set off a chain reaction among retailers, suppliers, and the vendors that supply the solution.

Other retailers, for example, soon followed suit. Target, Lowe's and Home Depot made a similar request, and the Department of Defense also issued a mandate to its suppliers.

"Wal-Mart is such a huge purchaser of many consumer products that most companies essentially 'have to' satisfy their requests. And Wal-Mart's demand is a big part of the 'buzz'," said Ann Campbell, assistant professor in the department of management sciences at the University of Iowa's Tippie College of Business.

Ms. Campbell also said that since Wal-Mart has been "quite innovative" in supply chain management, many companies look to emulate what they are doing.

For retailers and suppliers, the advantage of using RFID technology is the potential for greater accuracy in tracking the movement of inventory through the supply chain, she said.

"It also enables for great improvements in speed in terms or retrieving information from the different items and updating information," she said.

A company that manufactures shampoo could, for example, stick an RFID tag on cases of the product and on the pallets on which the cases sit. With those RFID chips in place, everybody who comes in contact with the products can read the chips with an RFID reader and get information about the product. A box of shampoo would not only be read by the scanner on the plant's floor, but also by the shipping company that transports it, the warehouse that stores it, and finally by the retail outlet itself.

The nature of the technology also enables this process to be almost completely automated. Companies could, for example, install RFID readers on conveyer belts, on fork lifts, or in dock doors, and any case or pallet that passes those readers would automatically read the chips, said Mr. Schulte.

"That's one of the big advantages," said Mr. Schulte. "People see that as being more automated so it's easier to collect information and less likely that someone will make a mistake."

The Intermec office in Cedar Rapids, for example, specializes in putting reader systems into forklift-based and back door systems, said Mr. Schulte.

But despite these advantages, it will still probably take over a decade for the technology to be used as ubiquitously as in the IBM ad, estimated Mr. Schulte.

Cost is one factor that is prohibiting widespread use, he said. In large volumes chips cost an average of 15 cents, said Mr. Schulte, but when companies decided to tag all of their cases that can quickly add up.

"Cost needs to come down. And costs come down when volume goes up," he said, adding that retailers' insistence on working only with suppliers who use the technology will speed up that process.

But what may be more important than cost is the transformation companies will have to go through to make the technology and the associated cost worthwhile. Many companies, including Wal-Mart, are still in the testing phases of using RFID technology and are trying to figure out how to obtain the best return on investment.

"Companies can do some things differently than they did before . . . now they have information they didn't have before and that changes how they do business," said Mr. Schulte. "That's something that companies have been struggling with, is how to get enough benefit internally."

Wal-Mart, for example, began testing the use of RFID tagging at seven stores and a regional distribution center in Texas in anticipation of a wider rollout, he said.

This is also taking place on the other side of the equation. Last year, Intermec launched a pilot study with Worley Warehousing to develop and test the implementation in the third-party logistic provider's warehouse in Cedar Rapids. At the time of the announcement, Intermec's Vice President Scott Medford said in a statement that "demonstrating clear ROI is a critical next step in the roll-out of supply chain RFID technology."

Ms. Campbell agreed.

"It is important to note that having RFID tags does not itself generate huge savings--it is hugely dependent on how successfully they are used," she said.

When all these factors are worked out, RFID technology is poised to become much more prevalent in retail as well as consumer goods and manufacturing industries. And when that happens, the benefits of the technology may indeed be as invisible as they were in the 1999 IBM commercial.

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