RFID: The Cost of Being Smart
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The Auto-ID Center, which is creating a universal electronic product code for radio frequency identification technology, has trumpeted the idea that RFID tags and readers will be able to track items from the far end of the global supply chain right to store shelves. The center's vision has led many industry observers to assume that the technology would be rolled out in the supply chain and stores virtually simultaneously. In fact, the center has always envisioned that RFID would be deployed first in the supply chain, and that it might take ten years or more for RFID readers in stores to monitor individual items on so-called smart shelves in real time.
A decade or more? Chalk it up to the price of RFID tags and readers. Each smart shelf might require one or more readers, which cost $1,000 or more today. And each item would need its own tag. The Gillette Co. announced in January that it ordered 500 million tags from Alien Technology Corp. Gillette VP Dick Cantwell says the company paid "well under ten cents" for each tag. But suppliers that place smaller orders might have to pay 40 cents or more per tagtoo expensive to put on most products in supermarkets.
At current price levels, it's only cost-effective for RFID tags to be used to track individual items that cost $15 or more. Retailers and suppliers are particularly interested in tagging high-priced items that are often lost, stolen or counterfeited, including computer games, DVDs, music CDs and prescription drugs. British retailer Tesco has been tracking all the DVDs in one store, but the company says it's too early to determine whether the system is cost-effective.
Clothes will certainly be among the first items to be tracked in stores with RFID tags. Marks & Spencer Group, a major British retailer, has announced plans to put RFID tags on all the clothing items this fall in one of its stores to determine the benefits of RFID tracking. And at press time, Benetton Group, the Italian clothing company, was planning to tag all of the clothes in one of its megastores in Rome. Increased sales are expected to offset the cost of the tags. A pilot run by the Gap Inc. last year found sales jumped by 15 percent, thanks to better inventory management, which, in turn, let staff spend more time assisting customers.
There also may be some benefit to tagging fast-moving consumer goods, such as six-packs of beer (better tracking should reduce out-of-stocks). But if an RFID tag can't be put on every single item in the store, retailers can't have automated checkout stands, and they'll have to continue to do physical inventory counts for some products.
The Auto-ID Center estimates that using conventional technology, volumes will likely have to reach 30 billion RFID tags a year before the price falls to five cents per tag (and that's just the cost of a very simple tag with a serial number; read-write tags will be more expensive). It will take at least three to five years to reach that level. And even at five cents per tag, it's not going to be economically viable to tag many inexpensive items, such as bars of soap, packs of gum and cans of soda.
Kevin Turner, Wal-Mart's former CIO and current head of its Sam's Club division, has said that the retailer believes the price of tags must be no more than a penny apiece before they can be used on every item. The Auto-ID Center research shows that the price of a simple RFID tag can theoretically be brought down to 3.5 cents if the tags are manufactured in massive volumes. So it will still take a technological breakthrough before RFID can become ubiquitous.
Many companies are doing research that could lead to such a breakthrough. Flint Ink Corp., the world's second-largest producer of commercial inks, set up a separate business unit to develop and commercialize conductive inks that can be used to print RFID antennas (a tag is comprised of a copper antenna and a microchip). If antennas could be printed during the normal commercial printing process, it would greatly reduce the price of tags.
Researchers at Infineon Technologies AG, a German semiconductor company, have found a way to print integrated circuits on the foil wrappers that keep potato chips and other products fresh. The system is probably five years away from commercialization. But it's quite possible that in 10 or 15 years, the entire RFID tagcircuits and antennawill be printed on packaging, just like a bar code is today.