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RFID: Benefits and challenges

July 20, 2005

The enormous push that Wal-Mart gave to the future of radio frequency identification (RFID) in the summer of 2003 has begun a process that will radically change the way products are manufactured, stored, shipped, sold and consumed. Wal-Mart announced that by 2005 its top 100 retailers will be required to implement RFID at the pallet and case level for all of their products, thus streamlining the management of the supply chain. The declaration has sent many industries into a spin, and has given rise to several conferences aimed at exploring and explaining this complex subject. In November, AWA Alexander Watson Associates, a Netherlands-based research company, produced a two-day program to explore RFID as well as other methods of product authentication and brand security.
The conference, which was attended by about 50 people, was held in the Hilton Washington Dulles Airport Hotel, in Herndon, VA. No label converters attended.
The high point of the conference was a presentation by K.C. Kendall, Procter & Gamble’s director of global snacks and beverages purchases. P&G, one of the suppliers that will be affected by Wal-Mart’s decision, has been active in exploring the future use of RFID.

Costs and benefits
“Who will ultimately pay for RFID?” he asked. “Not the retailer. The supplier? Hardly. The consumer? Probably, unless they rebel. And they also might get their privacy invaded.” Right now, P&G is conducting tests of the EPC — the electronic product code — the smart tag that will be affixed to pallets and cases in the near future, and to individual products beyond that. “EPC must ‘pay its own way’,” he said. “Who gets the benefits, versus who pays the costs? It is not clear whether the costs and the benefits occur at the same place, nor whether the benefits come more to the retailer and the costs to the supplier. We have to see EPC testing done to the same degree of rigor that we put our products through. So we are testing EPC.”
The cost of one EPC tag is a factor that enters into every discussion of RFID. Industry experts look forward to the eventual arrival of the five-cent tag (Right now the lowest is 10 cents.). Kendall says companies such as his are hoping for an “ultimate cost of less than one cent each.”
There’s more to the cost of RFID than the tags. All companies involved in the supply chain of any product will require tag readers and the hardware and software to support the electronic management of goods in transit. “Who knows how much these will cost?” asked Kendall. But, he added, “The tag cost will drive the whole program, and either we can afford them or we can’t.”
Label converters — those willing to invest in the creation of RFID tags — no doubt will be required to invest in equipment and expertise required to participate in the new technological market. “There are, of course, technical, operational and economic hurdles, but they are being attacked aggressively,” Kendall said. “The benefits to retailers, manufacturers and consumers will be significant, and retailers will likely drive the adoption.”
The subject of consumer privacy was addressed by Douglas M. Jasinski, an antitrust lawyer with the firm White & Case of New York City. Opposition to RFID is mounting, in the form of organizations such as CASPIAN — Consumers Against Supermarket Privacy Invasion and Numbering — which say that the technology will increase consumer surveillance by retailers, manufacturers and marketers.
Steps can be taken in tag manufacture, Jasinski said, to address these concerns. A “kill command” could be built into the tag’s chip, causing it to “be destroyed after it leaves the store.” The issue is international in scope, he said, and will likely involve governments from many countries working on legislation to protect consumers and at the same time enable the new technology to improve business.

Problems and solutions
Jackie Marolda, a consultant with August Lion Inc., spoke of the problems faced in the product security and authentication arena, and the possible solutions. Product tampering and theft, which she described as “a growing industry,” accounts for the annual loss of nearly $965 billion in manufactured products worldwide. Products affected include software, apparel, food, pharmaceuticals, beverages, home furnishings, office supplies, tools and sporting goods. “Some tampering is in the realm of the unthinkable,” she added, “like baby formula.”
But the solutions are many, too, she said. On the overt side, these include transfer resistant labels, tamper evident labels, security papers, electronic article surveillance, security holograms, watermarks, and time/temperature indicators. Covert security technologies include source tagging, RFID, chemical taggants, and chemical reactive inks.
Other speakers at the conference included Albert Sands of Appleton Papers, who spoke on advances in security substrates for brand securities; Tony Port of CPFilms, speaking about specialty films with spectrally selective and other optical properties; John Thoma of API