What is RFID?
RFID stands for Radio-Frequency Identification. It is an automatic identification process which relies on storing and accessing data using RFID tags or labels and RFID transponders. RFID is similar to bar code technology but uses radio signals to read data from the tags instead of optically scanning the bar codes. See figure below on how an RFID system works.


Despite the recent fanfare about RFID, this technology has been around since the 1970's. Up until now, it's been too expensive and limited to be practical for commercial applications.

Benefits of RFID
A significant advantage to using RFID over bar codes is RFID tagged items do not have to be precisely lined up with the scanner. From the consumer's standpoint, this has enormous potential to revolutionize shopping. In the future you could simply drive your shopping cart through exit doors embedded with a tag reader. The reader would tabulate the QTY's of the items taken and immediately charge your debit or credit account from your bank. There would be no need for a cashier and would result in no lineups and a speedy checkout.

From the supply-chain management perspective, the main benefit of using RFID is it eliminates the need for physical inventory counts resulting in an accurate inventory and reorder points for each product. This helps minimize holding costs and prevents stock outages. It also saves a company thousands of dollars in labour that was used to carry out physical counts. Another benefit is in shipping and receiving product. Instead of scanning each bar code one by one, the RFID reader is able to instantly read up to 1700 tags. The readers are even capable of capturing data from tags through the walls of a truck trailer.

Cost of Implementation
RFID tags currently cost approximately 15 to 30 cents per tag, but can be lower if volume is large. This may sound cheap but given the slim margins of most manufacturers and bar codes costing less than a cent, implementing RFID at the item level would add significant cost and would hurt margins. It is for this reason that the majority of companies have implemented RFID at the pallet or case level. Manufacturers and retailers have calculated that the cost of tags must drop to 5 cents per tag in order to use RFID economically at the item level. This target should be met as more companies adopt RFID into their operations.

RFID tags that are embedded into labels will require a company to purchase special RFID printers/encoders. The Zebra R110Xi pictured below runs about $4500.


RFID readers range from $500 for low-frequency to over $3000 for high-frequency. As with tags, these costs will drop in the next 5 years as global adoption increases.

Lastly, an organization's ERP software needs to be upgraded in order to integrate RFID into the system. The cost of these upgrades depend on the size and complexity of the organization.

Adoption of RFID
Despite the benefits, the adoption of RFID has not met expectations. According to the Globe and Mail, RFID manufacturers lost $100 million in 2006 as they sold product below cost in order to gain market share. Many companies are taking a wait-and-see approach due to concerns about cost, security and reliability of RFID.

Wal-Mart , the world's largest retailer, has had a significant influence in increasing the use of RFID, mandating its largest suppliers to implement RFID into their systems. This has proven to be a challenge to many suppliers due to the complexity and high costs of RFID implementation.

Finding a ROI on RFID has proved difficult for even the largest of companies. Despite these difficulties, some companies including Procter & Gamble are reaping the benefits of integrating RFID into their systems. What use to take 20 seconds to manually count bar-code data on a pallet now only takes 5 seconds with RFID.

Staples Canada became the first big-box retailer in Canada to complete a three-month pilot project of RFID at item level. Tags were fixed to 1500 high-ticket SKUs such as computer monitors and MP3 players. The use of RFID decreased out-of-stocks by 21% and reduced the shrink rate to 0%.

RFID in Action
Below is an in-depth video produced by METRO Group , Germany's largest retailer, which demonstrates the use of RFID at all levels of the supply chain from manufacturer to retailer. Metro Group's Future Store Initiative is on track to fully implement RFID at all levels of their supply chain. (Video runtime: 6 min)



References
Wikipedia. Radio-frequency identification. Retrieved February 12th, 2008, from
http://en.wikipedia.org/wiki/RFID#RFID_in_inventory_systems
Zebra Technologies Corporation. RFID Microsite. Retrieved February 12th, 2008, from
http://www.zebra.com/id/zebra/na/en/index/rfid.html
RFID Gazette. Walmart's RFID Mandate
http://www.rfidgazette.org/walmart/index.html
Metro Group. RFID - Technology Video. Retrieved February 13th, 2008 from
http://www.youtube.com/watch?v=4Zj7txoDxbE
Songini, Marc L. Procter & Gamble: Wal-Mart RFID Effort Effective. Retrieved February 13th, 2008 from
http://www.computerworld.com/action/article.do?command=viewArticleBasic&articleId=284160
RFID Journal Inc., RFID FAQs. Retrieved February 13th, 2008 from
http://www.rfidjournal.com/faq
Chopra, Sunil. Looking for the Bang from the RFID Buck. Retrieved February 15th, 2008 from
http://www.scmr.com/article/CA6444375.html
Hunt, Ken. Are you reading me?. Retrieved February 16th, 2008 from
http://www.theglobeandmail.com/servlet/story/RTGAM.20070411.tqrifd0411/BNStory/GlobeTQ/
Chain Store Age; Jan2008, Vol. 84 Issue 1, p71-71, 1p
Ritzman, L. P., Krajewski, L. J., Malhotra, M. K., & Klassen, R. D. (2007). Foundations of Operations Management - 2nd Canadian ed. Toronto: Pearson Education Canada.

Further Reading
Sally Praskey (2007, September). Tracking the benefits of RFID. Canadian Healthcare Manager,14(5), 12-14.
Joaquim Menezes (2007, July). Wal-Mart makes magic with RFID. CIO Canada, 15(6)
Mari-Len De Guzman (2007, April). RFID security gets tagged. ComputerWorld Canada, 23(8)
Chris Kelley (2006, December). ABCs of RFID: Use RFID to improve supply chain performance. PEM, 30(6), 10-11.
Myerson, Judith M. 2007. RFID in the Supply Chain a Guide to Selection and Implementation

External Links
British Columbia Institute of Technology
OPMT1100 Course Website
RFID Supply Chain Simulation Video
EPCglobal
RFID+ Consumer News