April 15, 2004 12:00 PM PDT
Companies' RFID plans fuzzy so far
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Some of the largest commercial outlets in the United States and abroad have established requirements for their suppliers to begin using radio frequency identification technology before the end of this year. Yet finding a company willing to admit where it stands with RFID is often an exercise in listening to dead air.
With retail giants such as Wal-Mart Stores, Target and German retailer Metro Group, along with the U.S. Department of Defense, requiring their suppliers to use RFID, the technology has rapidly progressed from buzzword fodder to a serious business issue.
Suppliers are proving to be cagey about their plans to implement RFID, the inventory-tracking technology that retailers such as Wal-Mart Stores are requiring on an increasing basis.
Companies' silence is due in part to the fact that the technology is new and complex, and that better middleware is needed throughout the industry. But some in the industry say suppliers are feeling more anxious about the technology than they need to.
Typically, requirements for new technology generate a whirlwind of press releases from companies trumpeting their success in meeting the mandate challenge. But with RFID, which uses chips that carry detailed inventory data and radio frequency technology to track them, that hasn't been the case.
Most suppliers, when asked about their RFID plans, say they can't show their hands and offer rivals potentially valuable insight into what may become a major competitive differentiator. But some industry watchers say the suppliers' silence is more an indication that they still don't know how to tackle RFID.
Even the companies responsible for much of the attention focused on RFID aren't willing to detail their plans. Both Target and Wal-Mart have remained tight-lipped about their own progress. Joshua Walker, an analyst at Cambridge, Mass.-based Forrester Research, says the silence isn't all that surprising.
"If you're behind the curve, obviously, you'd want to hide that from everyone, especially Wal-Mart and the DOD," he said.
Waiting for results Walker compares the situation to the market for customer relationship management (CRM) software, where companies were reluctant to describe their experiences until they had some success to talk about. And, Walker points out, the software market was more mature when CRM hit several years ago than the RFID segment is today.
"A lot of companies are currently just trying to figure out how the stuff works and, come time for the program reviews by the Wal-Marts of the world, there will still be plenty of smoke screens and showmanship that has to go on for these companies to appear capable of pulling it off," he said.
"A lot of companies are currently just trying to figure out how the stuff works."
--Joshua Walker, analyst
In fact, according to a study published by Forrester in March, a majority of Wal-Mart's suppliers will not be able to meet the retailer's January 2005 deadline for adopting RFID. In the report, Forrester said it had reduced its estimate of the number of companies it expects to meet Wal-Mart's mandate from an earlier estimate of 60 percent to only 25 percent. Forrester said it based this estimate in part on interviews it conducted with the companies.
Wal-Mart representatives refuted the validity of the study and said they believe that most companies affected by the mandate will, in fact, meet the company's criteria. Wal-Mart has asked its top 100 suppliers to add RFID tags to the cases and containers they ship to the retailer; suppliers were notified of the request in June 2003.
A Wal-Mart representative added that the company has actually had at least 10 additional suppliers volunteer to submit to its RFID adoption schedule. The company did not offer any partners' names for reference, however.
Tom Pounds, vice president of product strategy at RFID hardware maker Alien Technology, in Morgan Hill, Calif., said that of the 100 suppliers working with Wal-Mart, few really understand RFID.
"Of the Wal-Mart 100, you have maybe 10 suppliers who are really up-to-speed and have experience, and another 30 to 40 that have some basic understanding of the issues and have worked on it to some extent," Pounds said. "The other half--these are people who are just getting started and orienting themselves with technologies."
Breaking the code of silence
One of the few companies willing to talk publicly about its RFID strategy is medical and surgical products supplier Owens & Minor, based in Glen Allen, Va.
The company, which is working to meet the Department of Defense's mandate to put RFID tags on shipments beginning in 2005, is working on figuring out how the company can coordinate other technologies, such as enterprise software systems, to garner the greatest returns from RFID.
Owens & Minor has for years used other radio frequency tools to track inventory in its warehouses--which gives the company a substantial head start, said Patrick Caine, the company's director of business systems development.
Still, Owens & Minor has had to worked on building its business plan for rolling out and utilizing RFID--a task Caine feels may be among the toughest steps in adopting any technology.
"We're looking at DOD as more of a reactive opportunity, in that they're going to come out with requirements, like Wal-Mart, that are going to drive some sort of value internal to the DOD process," Caine said. "Beyond that, we think RFID has a much more powerful business case, when you look at the entire supply chain. That being: How can we facilitate driving value throughout the supply chain and look for commercial opportunities, as well?"
On the commercial end, Owens & Minor is hoping to market extended RFID services to some of its hospital customers. In such a scenario, RFID tools would be distributed throughout a medical facility to give workers and the distributor insight into inventory levels. These tools would also be tied back to Owens & Minor's systems to allow for immediate ordering and refills. Owens & Minor would roll out, maintain and manage these customer RFID networks.Steep learning curve With the exception of advanced players like Owens & Minor, it may simply be too early for most companies to say anything about RFID, other than that they are working hard to understand the technology and its implications, said Sue Hutchinson, product manager for EPCglobal, a Brussels, Belgium-based organization working to develop RFID standards that will support the electronic product code, a sort of electronic bar code that is to be used with RFID.
Hutchinson contends that reticence on the part of suppliers is as much linked to inexperience and the complexity of the RFID challenge as it is to fear or secrecy.
"More than anything, everyone is working flat-out, getting ready to turn on their first (RFID) pilot implementations within next six months," she said. "People are pushing extremely hard on all the practical things they need to do to get these trials going. They're in down-and-dirty mode and probably don't have much time to talk about anything."
The executive also pointed out that, given the unique nature of RFID's adoption--its being driven by customer mandates--the technology is pushing its way into companies' operations in a manner different from perhaps any other IT initiative in the past.
"RFID is really unusual in the way it is rolling out," Hutchinson said. "Typically, a technology is developed by technologists and goes out to find a market, but here we have a market where everyone is waiting for the tools to mature and become usable, so the dynamics are different. It's also scaling very rapidly, and the pace we're all moving at is a little different than with any other technology's adoption."
There are also plenty of growing pains associated with RFID's rapid evolution. Owens & Minor's Caine says a major issue is the lack of sufficient middleware for linking RFID systems and enterprise applications.
"Middleware is a tremendous void in the industry right now...That's another big challenge we're currently looking at."
-- Patrick Caine, business systems developer
"Middleware is a tremendous void in the industry right now," he said. "Some (vendors) are out there trying to build relationships with (customers) to get a better idea, as business users won't be creating the middleware necessary to gather and interpret the tremendous amount of data generated by RFID. That's another big challenge we're currently looking at."
Caine said Owens & Minor recently passed a milestone by signing on a major customer for a pilot program for the company's RFID services business. Under the arrangement, Caine said, the company will be making "minimal" up-front investments, while proving the technology, and then become more aggressive later. However, the executive is quick to point out that RFID won't have the desired impact until more companies adopt the technology.
"It's not just about looking internally for results," he said. "You also have to look externally, aggregate a number of events and build an ability to develop a proactive inventory model across your supply chain. RFID is just one of a number of enablers to achieving better communications."
Caine said some of the reluctance on the part of companies to discuss their RFID progress is rooted in anxiety. "I've found that over the last few months, going out to RFID conferences, people often feel they're behind the curve when, in fact, that's not the case," Caine said.