Trend-setting retailers Wal-Mart Stores Inc, Tesco PLC and Metro AG are evaluating the open-loop potential of radio frequency identification (RFID) technology. Roger Renstrom and Christine Liew report.

Wal-Mart began its RFID exploration in 1999, launched an Electronic Product Code (EPC) initiative in June 2003 and is anticipating having RFID systems operating in its 600 stores and 12 distribution centres by the end of 2005.

"As of January 1, 2005, we didn't have any readers enabled on our forklifts, but we are driving hard with providers to have a solution for forklifts soon," said Wal-Mart spokeswoman Christi Gallagher. Wal-Mart, of Bentonville, Arkansas, US, had three distribution centres and 130 stores involved in installations for RFID systems at that time. By early March, Wal-Mart had installed 14,000 hardware pieces and strung 230 miles of cable for RFID systems.

Tesco, of London, UK, plans to use more than 4000 first-generation readers and 16,000 antennae by autumn 2005 to monitor tags on merchandise proceeding through the retailer's dock doors and receipt points in the UK. The retailer contracted for the program with ADT, of Boca Raton, Florida, US, and anticipates future use of RFID on re-usable trays, cages, forklifts, dollies and pallets.

Metro, of Düsseldorf, Germany, began a pilot project in November with 100 suppliers fixing RFID tags to pallets and transport packages for delivery to 10 warehouses and 250 stores. A Metro spokesman said innovative technologies such as RFID would become a critical competitive factor for retailers. SAP AG, Intel Corp, IBM Corp and 40 other firms provide RFID solutions and integration services to Metro on the project.

President of US operations for RFID solutions provider ClarIDy Solutions Inc, Bruce Roesner, said slow retail implementation would change as better RFID technology became available and infrastructure elements - including forklifts - were developed.

System integrators had focused on software but "now must understand the hardware side of RFID" including the role of forklift trucks, Roesner said.

Electronic Product Code, the global standard

Productivity by RFID president Robert Steinberg said the need for interoperability of RFID components was driving the need for standards from EPCglobal, the company responsible for global RFID standards.

"Open-loop systems require standards so tags and readers used by one company are compatible with tags and readers used by other members of the supply chain.

Productivity by RFID president Robert Steinberg

"In 1999, the MIT Auto-ID centre was established with a vision to harness RFID technology as a next generation bar code to attain supply chain efficiencies and minimise retail out-of-stocks.

"The MIT Auto-ID Centre was successful in creating hardware, software and concepts for the foundation of global RFID standards. The international standards were completed in December 2004 by EPCglobal, the MIT Auto-ID Centre's successor organisation. The standards are currently under review by ISO (the international standards organisation)," Steinberg said.

According to EPCglobal, The EPC is the next generation of product identification. The EPC is a simple, compact "licence plate" that uniquely identifies objects in the supply chain. It is built around a basic hierarchical idea that can be used to express a wide variety of existing numbering systems like the EAN.UCC System Keys, UID, VIN, and other systems.

Like many current numbering schemes used in commerce, the EPC is divided into numbers that identify the manufacturer and product type. However, it uses an extra set of digits, a serial number, to identify unique items. An EPC number contains:

1. Header, which identifies the length, type, structure, version and generation of EPC
2. Manager Number, which identifies the company or company entity
3. Object Class, similar to a stock keeping unit or SKU
4. Serial Number, which is the specific instance of the Object Class being tagged.

Issues arising

The question on open-loop RFID deployments is what is the allocation of costs versus the allocation of benefits? Manufacturers at the head of a supply chain are the companies paying for and applying RFID tags to objects they ship downstream to wholesalers, distributors, shippers and retailers.

"As a result, some manufacturers contend they bear a disproportionately large portion of the cost of RFID while reaping a smaller portion of RFID's productivity gains," Steinberg said.

"These issues are being worked out by each supply chain. For instance, the US Department of Defence (DoD) has told its suppliers to consider RFID implementation as a cost of doing business with the DoD and to include those costs in contract bids," he said.

"Other issues include the potential for invasion of privacy that misuse of RFID-gathered data might cause. The RFID industry is advocating using marks to alert consumers to the use of RFID on goods. In addition, the latest generation of RFID has kill commands built in to allow the tags to be permanently disabled."