Radio Frequency Identification Devices (RFID)

April 13, 2006

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Another way to track items involves RFID (radio frequency identification) tags, which use low-level RF signals to transmit stored information from a tag to an electronic reader. The RFID tags are simply microchips that transmit without the use of hand-held scanners, eliminating all manual labor associated with bar codes.

Currently, a few large retailers mandate the use of this technology, including Wal-Mart, Albertson's and Target. In fact, some large businesses have issued a mandate that use of RFID will start as early as January of 2005 with its top largest suppliers, and a year later with its next largest suppliers. These suppliers must apply RFID tags to all cases and pallets sent, eventually expanding to include all receivables within the company.

Basically, RFID technology means that business easily and quickly can track when the goods arrive at a specific location. In fact, when items are placed on conveyer belts, the goods can move at 600 feet per minute and the radio frequency readers will recognize the items as they move by. Not only will the business know when the goods arrive, they will also be able to track the empty boxes so that they know when the goods have been stocked on the shelves. And of course, when goods are sold, they will be tracked again.

As it is now, businesses spend billions of dollars per year on labor to manually scan bar code labels. This cost will be reduced to almost nothing with the use of RFID, which means better prices or more profit.

Other benefits of RFID over bar codes include allowing goods to move more rapidly both at loading docks and point-of-sale stations. Inventory can be tracked without manual stock counts, and there is an expectation of reduced losses from theft because every item can be tracked as it leaves the premises. The retail industry is expected to benefit tremendously from the use of RFID by managing its inventory at every stage of the supply chain.

However, instead of labor costs there will be costs associated with the technology itself. Knowing where each item is at any time provides a tremendous source of information, but unless this information is managed it does not help the enterprise. Thus, companies will need to spend additional financial resources on data management and integration tools.

The immediate short-term impact on the small business is probably negligible. However, in the long run, small businesses also will need to embrace RFID and include tags on all their items; on the flip side, small businesses receiving raw materials from suppliers would benefit by learning how to manage their own inventory issues through RFID. Currently, an RFID tag still costs about 30 cents per item. It is expected that this cost will be reduced to about a penny in the next few years.

Outside of the retail industry, there are other implementations of RFID. For example, some gas stations use RFID in their SpeedPass system, allowing customers to pay for purchases. Meanwhile the Food and Drug Administration is looking at adding RFID to prescription drugs to ensure proper distribution, and to ensure correct dosage based upon prescriptions issued.

Right now most of the work is currently limited to Fortune 1000 companies, and the reason is primarily due to the high cost of the RFID tags, the readers and the subsequent integration of data with the inventory systems. The cost of implementing and operating this RFID technology is to be considered a normal cost of transportation and logistics.