The Price is Wrong

Still, it is the cost of each tag—and some technical glitches—that have been keeping sensors out of the commercial mainstream. Even now, some memory-packed tags can cost as much as $5 each. Simpler, less powerful chips are cheaper, but price depends heavily on volume. Buy 1,000 chips and they may cost $1 each. Buy 1 million and each may cost 50 cents. P&G produces more than 20 billion items a year. Putting a 50-cent tag on every item would cost the company $10 billion a year. RFID backers, therefore, have sought to push the price of each tag to less than 5 cents.

They're getting close. In the past few months, for example, Ashton's Auto-ID Center has designed a chip with the minimum components needed to carry a 96-bit electronic product code. Alien Technology, a start-up in Morgan Hill, Calif., will be the first to manufacture RF tags based on the spec. If companies backing Ashton's research buy tags in bulk from Alien, the price of tags could fall to three and a half cents by 2005, Ashton says. But cost isn't the only headache. The lack of standards governing the use of RFID is also a problem. Companies don't want to invest in a system if their tags can't be read by trucking companies, retailers and other businesses. MIT is focused not just on developing low-cost tags and readers but also on formulating global standards to ensure widespread use.

Says Jack Sparn, CIO of CHEP International of Orlando, Fla., "The problem is the entire supply chain hasn't bought into it yet," he says. "If you're the first person with a mobile phone, it's useless. But as soon as everyone has one, it becomes valuable."

Critical Mass

Consider the railroad industry. About 10 years ago, all the major lines in North America agreed on a standard for RFID tags and readers. The industry as a whole spent $200 million to install 3,000 readers, and tag 1.5 million cars and 20,000 locomotives. It has paid off. Fort Worth, Texas-based Burlington Northern Santa Fe Corp. used to employ an army of some 500 clerks armed with pencils and clipboards to walk up and down the tracks at its depots and switching stations to read numbers painted on the sides of its railway cars. The information was then handed to data entry personnel who would key it in, so the company's mainframe systems could track cars. Today, all of the company's rail cars are tagged (about $30 per tag) and it has 443 readers ($50,000 apiece, including installation) positioned at key junctures along 33,500 miles of track in 28 states and two Canadian provinces. As a result, the company eliminated all of its trackside clerks in 1997. Now, the system has paid for itself, and it reads 100,000 tags a day with virtually no errors. Burlington can provide customers with more accurate data about where their shipments are. The system also has dramatically reduced track delays. "In the old days, when a car was out of place, people had to spend hours trying to figure out where it should be, and that would cause delays throughout the system," says Shannon McGovern, Burlington's director of network support systems. "Today, that's almost never a problem."

Bigger Role for CIOs

If RFID catches on across industries, the technology will heap new duties onto the shoulders of CIOs, Ashton says, namely, the need to help companies start managing an enormous amount of new information. "The biggest challenge is deciding what to track, where to track it, and link that back into your systems," says Simon Ellis, supply chain futurist for Unilever. "That's where companies will find the competitive advantage. It won't be in the RFID technology, because that will be a commodity."

CIOs will also have to work with business managers to fine-tune systems. Since the whole point of RFID is to take people out of the loop, software will have to capture business knowledge and apply it automatically. At the most basic level, IT departments will have to work with store managers and suppliers to determine optimal inventory levels, when to trigger an order for more goods, and when to drop the price of slow-moving items. "The CIO won't take over the decision-making," says AMR's O'Marah. "They're going to be the ones who architect and deliver the infrastructure that allows these automated processes to be built into the way a business runs."

The trend also has implications for marketing. Tags placed in manufactured items or packaging could spark opportunities to develop new products and enhance existing ones. Unilever's Digital Futures Laboratory in Englewood Cliffs, N.J., showcases a kitchen that keeps a real-time inventory of foodstuffs and displays a list of "in-stock" items. Invensys, a British maker of industrial equipment, is working with appliance manufacturers such as Whirlpool Corp. to develop ovens that cook turkeys based on instructions from chips in the packaging.

Alien Technology recently won a $120 million contract from the Department of Defense to combine RFID tags with other types of sensors to pick up vibrations or detect the presence of chemicals or biological agents. The U.S. military wants to drop so-called "smart dust" sensors on a battlefield, and by picking up vibrations and knowing the exact location of a specific tag, generals could know how many enemies are hiding in a location or whether chemical or biological weapons are being stored there. RFID tags may even be combined with tiny microphones that look like seed burrs that could attach themselves to someone's socks, so the military could listen in on conversations.

All this, of course, raises privacy concerns. Chris Hoofnagel of the Washington-based Electronic Privacy Information Center, a nonprofit pro-privacy group, says: "RFID tags, themselves, are passive, but there are going to be any number of entities who will want to use the information collected to track individuals or groups. The issue is control: Can you determine when the tag is active and who is using the information collected? That's going to be the challenge."

No question there. But Ashton says sensors can also be used to boost security. One day, Ashton says, RFID sensors may be put in food containers to ensure that products haven't spoiled or been tampered with. If the sensors become cheap enough, Alcoa CSI, which makes 50 billion bottle caps a year, wants to put them in its products.

Will RFID live up to its promise? If companies like Wal-Mart, P&G and Unilever begin deploying RFID systems next year, they could encourage suppliers to adopt the technology and, Ashton predicts, the network effect would force more companies to get on board. "RFID will either take off quickly," says Ashton, "or it won't take off at all."

Given the benefits companies like Ford and Burlington Northern are getting from RFID so far, the smart money appears to be on smarter machines.

MARK ROBERTI is founder and editor of RFID Journal, an independent Web site that covers the development of RFID technology. He has written about supply chain technologies for The Industry Standard, Business 2.0 and other publications. Comments on this story can be sent to editors@cioinsight.com.

This article was originally published on 04-12-2002
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