Baby Steps

Moreover, the tentative steps taken by large suppliers should turn out to be a boon for small and midsize companies.

Instead of having to compete against big initiatives driven by a stable technology, smaller manufacturers and distributors can also begin to assess nascent RFID systems on the cheap, and that should better prepare them to participate in the gains from RFID, along with their larger rivals, when automated EPC-based supply chains become prevalent.

Four Stages of RFID

1. This is the current phase, involving pilot projects, such as manufacturing automation, asset tracking, and tagging products for distribution to a retailer. It's an assessment period when RFID is being evaluated for how well it works within discrete environments and for its potential impact on business processes and enterprise applications. 2. In this phase, the pilot project is connected to another link in the supply chain, such as factory to warehouse, or warehouse to logistics. The most difficult aspect will be making sure that middleware and enterprise software are able to decode and filter RFID data well enough to produce reports so management can make supply chain, inventory and shipping decisions. 3. The intercompany phase when RFID-based processes are shared among partners in the supply chain to produce efficiencies unavailable to companies operating independently. This could be the hardest step, as system failures can occur at many points in the chain. But if it succeeds, suppliers could know better when to replenish inventory, and retailers can better forecast demand. 4. Synchronization occurs at this stage when RFID is used across an entire industry, so that it is possible through Web-based networks to monitor and locate all items in the supply chain at any moment. Low-cost hardware and software, workable standards, massive adoption, and a strong business case, are necessary before this phase can be made workable.

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That, of course, will have to wait a few years.

Until then, the most successful RFID applications are likely to remain very targeted, "closed-loop" efforts that operate solely within a single facility or company operation and don't require transmitting data among business partners or even business units (see

Delta Air Lines recently launched just such an RFID initiative.

In July, the carrier began a 24-month program to embed invisible RFID tags in all labels placed on baggage sent on domestic flights.

Readers at check-in counters, on conveyer belts where the bags are sorted, and at aircraft cargo compartments will continuously monitor the whereabouts of every bag. This should all but eliminate the problem of misdirected bags, because an inventory of the plane's cargo before takeoff, based on RFID data, will determine if the right luggage made it into the hold. And if a bag is loaded onto the wrong plane, Delta will be able to locate it instantly, without the huge labor costs currently incurred in tracking down lost luggage.

This project—among the first full-scale airline RFID implementations—is slated to cost between $15 million and $25 million and is expected to be operational by 2007. That's a small price to pay, as Delta sees it.

U.S. carriers currently mishandle about one bag for every 250 pieces of luggage they carry, and Delta spends about $100 million a year in labor, delivery and other overhead costs to find and return lost items to their owners.

Delta estimates that the technology will soon pay for itself.

"We've reached the end of the improvements in baggage handling that we can accomplish without new technology," says Delta spokesman Reid Davis. "Any way you look at it, the RFID system is a great investment."

It's unusual to hear "great investment" and "RFID" spoken in the same breath. But most technology experts argue that it won't be long before ROI and RFID will be synonymous. The question, they say, is when, not if. But the only certain answer, is not now.