Europe on the verge of RFID revolution

Related tags Rfid Supply chain Supply chain management

The US grocery market is currently undergoing something of a
technological revolution, with Wal-Mart requiring all its main
suppliers to use radio frequency identification (RFID) tags to keep
track of deliveries throughout the supply chain. But the European
market is soon expected to catch up, at least once the cost of
implementing the rollout begins to come down and some kind of
standard begins to emerge, writes Chris Jones.

A recent study undertaken by LogicaCMG reveals that RFID is high on the agenda for European retailers - and consequently for the region's food manufacturers and logistic service providers as well. A majority of the companies interviewed in the Netherlands, the UK, Ireland, Germany, France and Belgium gave RFID top priority in terms of planned IT investment.

RFID makes it possible to electronically identify and track objects, such as supermarket goods, anywhere in the supply chain without time delays or the need for human intervention. As a result, logistics are more streamlined and efficient, ultimately leading to lower costs and higher revenues.

But while cost savings are expected in the long term, the initial cost of implementing the scheme is likely to be a major barrier to its rapid rollout. LogicaCMG's study shows that half of the 50 companies interviewed in Europe have or are planning to deploy RFID pilot projects throughout 2004, with the vast majority planning to start implementing the technology within the next three years - but that few will begin to tag consumer products before 2008, when the price of tags is seen as falling for the first time.

Price is not the only barrier to a rapid roll out, as Datamonitor analyst Tony Hart told FoodandDrinkEurope.com​. "With every retail company looking at implementing its own RFID scheme, there are a number of questions which still remain unanswered - and which are likely to stay so until some sort of industry standard is developed."

In fact, a lot of work has already been done towards the implementation of standards, but it is has not been co-ordinated, Hart said, meaning that while national or sectoral standards might exist, there was no guarantee that they would be compatible with those in other countries or product categories.

"For example, each retailer might want a different amount of data to be read by each tag. In Tesco's case, for example, it might be 120 pieces of information, while Asda might want 140. And there is no guarantee that any of these items of data will be the same between retailers, making the whole thing a positive minefield.

"Then there is the problem of the chips themselves. What frequency should they operate at? Should they be read/write or read only? All of these issues need to be tackled, soon and with every sector of the supply chain."

Again, some work is already underway in this regard, with groups such as e-centre in the UK working on data pools, where thousands of suppliers can combine every possible item of data which might be asked of them and which can then be selected as necessary by their retail customers.

Hart said that it was the retail trade which was driving the enthusiasm for RFID, with just 10-15 per cent of suppliers actively looking into its benefits rather than doing so because of requests from their retail clients. And most see little in the way of short term gain, with larger suppliers estimating that it will take between three and five years before they see anything in the way of cost savings.

The LogicaCMG study suggests that the benefits may not take quite so long to be seen - between two to three years, according to a cost/benefit analysis based on a tag price of 50 eurocents which showed the handling cost per pallet could decrease by 8.5 per cent.

But for smaller suppliers - who are faced with adding tags to their pallets by hand, at considerable expense, or risk losing lucrative contracts with supermarket groups - the benefits could take far longer, according to Hart, and some companies may be forced to rethink their entire strategy as a result, especially if each of their key retail customers has different demands and different technology.

While there is no absolute guarantee that the various RFID technologies currently available will be compatible with each other, Hart pointed out that other areas of retail techno logy, such as barcodes and ERP systems, were broadly interchangeable, and that while one particular RFID system was likely to win out over the rest in the long term, it would not necessarily mean that companies which invested in other systems would face further costs as a result.

The LogicaCMG study reveals that European companies are already predominantly in favour of one particular system - EPC (Electronic Product Code) network for information exchange and UHF (Ultra High Frequency) as frequency - but that there are still a number of barriers to this becoming the standard.

First, the EPC network has not been finalised yet, and second, limitations in European legislation mean that the use of UHF technology is currently restricted. Furthermore, the software to integrate RFID into the existing IT infrastructure of the European supply chain is not mature yet - a point also highlighted by Hart, who suggested that many companies had not given enough thought as to whether their current ERP (Enterprise Resource Planning) systems (essentially their backoffice software programmes) were capable of handling the huge increase in data generated by RFID tagging.

But the LogicaCMG report is optimistic that many of these issues will be ironed out by the end of 2004, and that this in turn will lead to an increase in the use of RFID tags, in turn bringing down the costs as volumes increase.

The research also shows that most companies are focusing on tagging Returnable Transport Items (RTIs), such as crates and pallets, rather than individual products, partly because of the continued debate over privacy (consumers do not want each product they buy to be tagged and, potentially, tracked to their home), but also because of the obvious cost implications. The report predicts that the tagging of RTIs will be standard as of 2005.

Tagging individual items does have its advantages in the much longer terms, though, according to Datamonitor's Hart, especially as RFID use becomes much more widespread in everyday life. "It is feasible to envisage an RFID-enabled refrigerator being able to sense when you are out of milk by checking to see whether it contains a tagged milk bottle or carton. It could then access your online supermarket of choice and order more milk for you - without you even being aware that you needed any milk at all."

This kind of interactivity is still a long way off, however, and consumers will need to be convinced of the wider benefits of RFID tagging before it becomes common place, although Hart pointed out that many of the privacy issues cited by opponents of RFID (such as supermarkets knowing what you bought and when) were already acceptable to the thousands of consumers holding a supermarket loyalty card.

The LogicaCMG study shows that retailers are particularly interested in tracking at an individual product level, and that tagging at pallet level is not as crucial to them as they are often only used to transport the goods to the distribution centre, as opposed to throughout the entire supply chain. The sheer strength and importance of the retailers is likely to mean that individual product tagging does become a reality at some stage, even with consumer opposition, but that costs will have to come down considerably before the blanket use of RFID chips can even be considered.

Related topics Market Trends

Follow us

Products

View more

Webinars