Like a bolt from the heavens, Wal-Mart Stores Inc., the world’s largest retailer, has sparked a startling transformation in the world of radio frequency identification. Thanks largely to Wal-Mart’s supply chain initiatives, the once somewhat sleepy technology known as RFID has suddenly turned into a bustling hotbed of activity. And if industry experts are right, the change carries major, long-term implications, not just for Wal-Mart’s suppliers, but for all users of factory automation.
Is the time right for your manufacturing company to get involved with RFID? How much will it cost? What are the benefits? Is there a business case for using RFID on your factory floor? The answers to these questions in many cases can be encouraging, say industry sources. Some vendors tout likely paybacks on factory RFID investments of 12 to 18 months or less. But users need to move carefully.
RFID offers a number of inherent benefits, including improved visibility of data, ability to gather data without line-of-sight and elimination of labor, says Michael J. Liard, RFID research program director at Venture Development Corp. (VDC), a Natick, Mass., market research firm. But every operation is different, he points out, and potential industrial users should perform a thorough analysis of their own particular business problems, as well as the expected benefits, before jumping into an RFID project.
“Make sure you educate yourself before you go out and start talking to vendors,” Liard advises. “There’s a lot of hype in this industry, and if you’re not well-prepared going into an RFID evaluation or deployment, you could get taken for a ride.”
RFID is a wireless automatic identification technology that uses small memory devices called transponders, or tags, that are equipped with antennas, enabling them to receive and respond to queries from RF transmitter-receivers. The technology traces its origins to World War II, when it was used for “friend or foe” identification of aircraft. In recent years, RFID has found application in tasks ranging from security access control and toll collection to asset tracking and animal identification. In the industrial world, automotive companies have also long used RFID tagging to track products and process events on their production lines.
Wal-Mart triggered a new wave of investment in the technology, however, in 2003, when the Bentonville, Ark.-based company announced plans to mandate wide-scale RFID adoption by its supply chain partners. The initial deadlines for applying RFID tags to cases and pallets shipped to Wal-Mart were set for January 2005. Other organizations, including the U.S. Department of Defense, as well as additional major retailers, quickly followed suit with RFID initiatives of their own.
With suppliers scrambling to meet the compliance deadlines, consultants have lately been springing up everywhere touting their RFID expertise. Venture capitalists have been stepping up their investments in the technology. And vendors large and small are rolling out legions of hardware and software products billed as “RFID-compatible.”
The gold-rush mentality is spawning consternation in some circles. “Obviously, due to the publicity on Wal-Mart, the general awareness level about RFID has gone up, but along with that, because of the amount of hype in the market, there are also a lot of false expectations,” says Suresh Palliparambil, director of marketing at Escort Memory Systems (EMS), Scotts Valley, Calif., a long-time provider of traditional industrial RFID systems. “There are all of these white papers that talk about how you can do this, and imagine doing that, but a lot of it is futuristic. There is so much information out there right now, and not even 50 percent of it is doable,” Palliparambil contends.
While the current commotion surrounding RFID revolves largely around the retail supply chain, some vendors and industry consultants are quick to note that advances now being made in the technology hold potential to produce payoffs in the industrial space as well. “We look at RFID as an enabling technology. It’s an automatic data capture technology, and the real key is to couple that with business process change, to make it effective, and to really drive value to your business,” says Eric Gabrielson, director of worldwide RFID solutions, for IBM Corp., in Armonk, N.Y.
IBM recently announced a suite of RFID consulting services aimed at industrial companies in the automotive, aerospace and defense, manufacturing, chemical and petroleum, forest and paper, and electronics industries. In the electronics space, in fact, IBM can point to one of its own operations as an example of successful industrial RFID deployment. The company’s totally automated 300-millimeter semiconductor fabrication plant in East Fishkill, N.Y., has been using RFID for work-in-process tracking for more than a year, Gabrielson points out.
Sorting it out
For industrial applications, RFID can offer a variety of advantages over bar codes. No line-of-sight is required for reading, eliminating orientation concerns for items moving down a production line. RFID tags can also store upwards of 30 times more data than bar codes, can better withstand dirty and harsh industrial environments, and unlike bar codes, information can be added to a tag as a product moves through various stages in a production process.
But industrial users taking an initial look at the technology have a variety of options to sort out. RFID tags are available in a multitude of formats. Tags can be either active or passive. Active tags contain their own power supplies for transmitting data to an RFID transceiver, or reader. They are typically larger, offer longer read ranges, and are much more expensive than passive tags, which don’t have a battery, but instead convert energy from the incoming RF scan to provide a response to the reader. Tags can be read-only or read-write. They are available with a variety of memory sizes, from a few bytes up to 32 Kbytes, and operate at a variety of frequencies.
Many industrial RFID applications have historically relied upon low frequency (LF) tags operating in the 125 KHz to 134.2 KHz band, or on high frequency (HF) tags at 13.56 MHz.
A rapidly growing number of products are also being developed for the ultra-high frequency (UHF) band at 860 MHz to 960 MHz. This activity is driven by the Wal-Mart supply chain mandate, which requires the use of UHF technology. A UHF standard known as EPC Gen 2 is being developed by EPCglobal Inc., a nonprofit organization that is administrating the Electronic Product Code (EPC)—a product identification numbering scheme for RFID that is mandated for use by Wal-Mart and others.
Each of the various RFID frequencies offer tradeoffs in terms of performance, tag size and price. LF and HF tags offer slower data transfer rates than UHF, for example, and may require larger tag sizes to achieve adequate read range. UHF tags, on the other hand, are more susceptible to performance degradation when used around liquids and metal.
Traditional industrial-style tags are offered in a variety of sizes and price points. EMS supplies both active tag and passive tag RFID systems that operate at 134 KHz, 433 KHz and 13.56 MHz frequencies, says Palliparambil. These tags range typically from about shirt button size with a read distance of only about an inch, up to hockey puck size or larger that offer read distances of a few feet, says Christopher Huff, an EMS marketing specialist. Depending on characteristics, EMS tags sell for about $3 each up to $100 each for high-memory, industrially hardened tags that can withstand temperatures of more than 400 F, says Palliparambil.
That’s a contrast to EPC UHF technology, which is focused on small, passive, low-cost tags that can be placed between two layers of plastic or paper in bar-code printable labels. The hope is that these label tags can sell ultimately for five cents or less each in volume, though they are currently priced typically at 25 cents to 75 cents today, according to various industry sources.
Consumer packaged goods companies and others who must comply with the Wal-Mart mandate have no choice but to go with the EPC UHF technology. And many are having a tough time making a business case for RFID using tags at any price, given low industry profit margins, and the fact that the EPC UHF tags are disposable and are not recirculated after use. As such, they represent a continuing cost to suppliers. One study last spring by Forrester Research Inc., Cambridge, Mass., estimated that the cost of tags would make up 80 percent of first year expenditures for suppliers attempting to comply with the Wal-Mart mandate.
Many industrial applications, by contrast, rely on reusable tags deployed in “closed loop” applications used entirely within a factory or a company. One advantage of this is that users do not have to worry about compatibility with supply chain partners or other outsiders, and are thus not restricted to the use of a standard, such as EPC UHF, but can choose the RFID frequency and technology best suited to their applications. A closed loop systems also makes the RFID business case much easier to develop, many agree. And it also means that the cost of the tags becomes less critical.
“It’s much easier to calculate a return on investment (ROI) on a closed loop system, because you don’t have the variable number of tags going out the door,” notes Joe Owen, director of strategic marketing, global manufacturing solutions group, at Rockwell Automation Inc., in Milwaukee. “You may pay a little bit more for the tags in a closed loop system, but you reuse them over and over again, so it’s really a fixed cost.”
Rockwell Automation is making a major push to attract RFID business. The company launched an RFID test lab in Milwaukee last May designed to help customers evaluate and understand how to use the technology. “One of the things we do is help our customers develop a business case, whether it’s a closed loop system, or an open loop supply chain application,” says Vivek R. Bapat, Rockwell Automation marketing manager for supply chain solutions. More than 200 customers from a variety of industries have already been through the Milwaukee RFID lab, according to Owen, and the company is engaged with about a dozen of those customers on active RFID implementation projects.
Rockwell also recently completed a year-long, $50,000 Phase 1 pilot project testing the use of RFID in its own internal distribution operation, and is now planning for a Phase 2 effort, Owen says.
Quick ROI?
How much can your company expect to spend on an RFID project, and what is a reasonable projected payback period?
At EMS, Palliparambil says that a typical closed-loop industrial RFID system sold by his company that uses 500 tags and 50 read stations might cost between $100,000 and $200,000, including hardware, software and systems integration. “Typically, on any project that we sell into, the ROI is 12 to 18 months,” he adds, based on benefits such as reduced labor costs, improved quality control and reduction of scrap and recalls.
Others say the cost to get started with RFID can be much less. One is Tom Dowd, director of industrial marketing at Intermec Technologies Corp., an Everett, Wash., supplier of auto ID technology. There are numerous potential applications in most factories for which users can try out RFID technology for a relatively low cost, says Dowd. And they can do so with minimal disruption to existing operations, and often produce a quick ROI to boot, he adds.
Starting at a factory’s front gate, for example, users could place temporary read/write RFID tags on incoming trailers and write the contents of the shipment to the tag before sending the trailer to be parked in the yard. If a short haul contractor parks the trailer in an incorrect yard location—not an uncommon occurrence, Dowd says—a yard worker using a handheld RFID scanner can easily find the load without opening trailers. “It increases accuracy and increases speed in getting parts into the process,” Dowd says.
Once a trailer arrives at the factory back door, RFID tags on pallets or placed on boxes could be used for part tracking throughout the facility. “Even though people have factory warehouse systems, they still lose inventory at about 1 percent or 2 percent,” Dowd contends. “If I’m a major company with a $200 million inventory, if I’m off by 1 percent, that’s $2 million,” he says, a loss that RFID tracking could prevent.
RFID can also be used in a number of ways to boost accuracy, flexibility and cut costs on the production line itself, Dowd says. One example involves Kan Ban replenishment signaling. “Today, you see everything being used from balloons to golf balls to cards that are dumped in a box, and an expeditor walks down the line looking for cards,” he says. “But what if all my part bins, totes and cages had an RFID tag on them with the part number and the location at which they’re used?” In that case, when an operator emptied a tote or a bin, he or she could simply push it against a wall where an RFID reader is located. It would automatically scan the tag and send a replenishment signal.
RFID can also pay off at the end of the line when finished products are loaded for shipment, Dowd says. Read/write RFID tags on pallets could be written with content and customer data, as well as information on the truck designated for shipment. Portals equipped with RFID readers at every dock door could then ensure the accuracy of shipments, by signaling a forklift driver who attempts to drive a pallet lot onto the wrong truck, Dowd says.
According to Dowd, initial investment for a starter system for any of these kinds of applications might run $25,000 to $50,000, including hardware and middleware for linking to an existing warehouse management or enterprise resource planning system. The RFID system could in many cases pay for itself less than a year, he contends. “One thing we’re telling people is that you can get started and get some payback from RFID without having to do huge amounts of business process re-engineering.”
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