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A prescription for RFID fever

Radio frequency identification (RFID) -- which uses tiny radio tags that could one day replace bar codes on most products -- has received the kind of hype that was once reserved for dot-coms and IPOs. The technology has been the target of intense tech media speculation, with many believing that it will be the cure-all for supply chain ills, transform retail, and become the big brother that materialized in George Orwell's "1984." We caught up with Gene Alvarez, vice president of Stamford, Conn.-based research firm Meta Group, to cut through the hype and set the record straight.

RFID is getting a lot of buzz, but what can RFID really do for a company? Traditional bar-code replacement is the...

[business] model that is getting played up the most right now. If you currently use bar codes for packing and shipping merchandise globally, RFID is something that you should consider.

Another use may be in the food supply industry. The single case of mad cow disease found in the United States has spurred [RFID] interest from the beef industry, which wants to use it to better trace beef.

But RFID is useful for more than tracking. For example, Exxon Mobile Corp. has introduced Speedpass, an RFID-based alternative method of payment. You can put a key fob on your keychain that contains an RFID tag in it, and it is linked to one of your credit cards. When you pump gas, you put the key fob in front of the pump to authorize payment. You can also use it in the company's convenience stores to pay for gas and other items. Exxon Mobile is expanding that service to its fast food partners as well. How can businesses set up effective trials and pilot programs?
When it comes to evaluating a project, we believe one needs a clear-cut scope and measurable impacts. For example, a retail warehouse might look at how quickly inventory moves through it. Others might look at the time it takes to deliver a product, or the time that elapses from the placement of an order to shipping. It is very important to measure the outcome. Businesses can't think about this like they think about CRM software. They can't implement it just because they think it will help keep customers satisfied. Businesses need to have metrics tied to this. How will RFID impact IT infrastructures?
In the beginning, it is just a matter of hooking up the [RFID] readers to the network. RFID tags simply transmit their identity. That identifying number must be tied to a database so the user can know what it corresponds to, whether it is a bottle of soda or a can of paint. It will take good WAN links to look up data on remote servers. It will also impact data warehousing if companies want to store all of this new tracking data about the location of their products. Applications may need to be upgraded because, with RFID, business can move from scanning one box at a time to scanning a full pallet of boxes at once. Do you see any common misconceptions about what RFID can and can't do?
Some of the biggest misconceptions are around privacy. In fact, there are such big misconceptions that I recommend to my enterprise clients that if they are considering RFID, they should assign one person on the [RFID research] team to deal with privacy concerns. Some people think that if you walk down the hall of your office, for example, [RFID embedded in clothing will eventually enable] a computer somewhere to know every article of clothing that you are wearing. Right now, RFID programs are only at the pallet or case level, and they do not impact consumers at all. Consumers need to be educated. Are there corporate security issues to consider with RFID?
Yes. Companies do need to be somewhat concerned. They don't want someone walking around the store taking their inventory. As far as I know, the signal is not encrypted, but it is also very low energy, so it doesn't travel very far. What sort of costs are associated with RFID pilot projects?
We've seen pilot projects that range from $100,000 to $250,000. What kind of returns are businesses seeing from RFID?
Typically, there is reduction in labor for scanning pallets of products. With a bar code, a worker has to unload a pallet of boxes to scan each of them in. With RFID, he can scan each of them in without unloading the pallet.

Also, it is easier to stop theft. If someone stacks a pallet of boxes, it is easy to replace the center box with an empty box. With RFID, that missing box would be identified before the pallet is shipped. Also, businesses can better authenticate products, so they can be certain that the Gucci bags they are receiving are authentic. What is the time line for the broad roll out of RFID technology?
The leaders in this space are already working out the kinks with the technology. They should begin to deploy RFID in 2005 and 2006. The next wave of companies will begin to deploy in 2006 and 2007. The trailing edge companies will begin deployment in 2008 or so.

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