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Factors to Consider When Choosing an RFID System

Radio frequency identification (RFID) is gaining wider adoption among manufacturers in the food industry, driven in large part by recent mandates from Wal-Mart Stores Inc., the largest food retailer in the United States, and Albertsons, one of the world’s largest food and drug retailers.

     Radio frequency identification (RFID) is gaining wider adoption among manufacturers in the food industry, driven in large part by recent mandates from Wal-Mart Stores Inc., the largest food retailer in the United States, and Albertsons, one of the world’s largest food and drug retailers. Wal-Mart and Albertsons announced that their largest 100 suppliers were required to begin using RFID technology by early 2005; and other major retailers have begun launching similar mandates. 

     Food manufacturers are looking for ways to begin implementing RFID solutions that meet the retailers’ mandates with minimal initial investment, while still affording them the flexibility to expand processes as they learn more about the technology as it evolves.  

     In supply chain automation applications, RFID serves many of the same functions as printed barcodes, but RFID offers a number of distinct advantages. Data is transmitted by radio waves and, therefore, RFID readers do not need the “line of sight” required by optically-scanning barcode readers. 

     RFID also offers a great deal of flexibility in the placement of identification tags, because data can be read at a greater distance or at a variety of angles.  Additionally, RFID even recognizes data through many packaging and product materials. This offers a great advantage to supply chain logistic systems that track products of all shapes and sizes.  

     Another advantage is that an RFID tag can store considerably more data than the UPC code, the traditional barcode, used for retail unit identification. Products and cases will be able to carry a unique identity in the supply chain, helping with fulfillment, inventory management and theft prevention. It is possible to dynamically update the data on RFID tags as well. The RFID tag will be able to serve as a miniature data file, allowing users to update the tagged object as it moves through the supply chain with data such as temperature ranges.

Resistance by food manufacturers
     The benefits for retailers like Wal-Mart are clear: RFID creates greater operating efficiencies and provides better inventory management to control stock outs, spoilage, and authentication. As you move upstream in the supply chain, however, the return on investment for RFID can sometimes be less obvious.

     The situation is analogous to the adoption of barcode technology twenty-five years ago. Initially, in the mid 1970’s, barcodes were intended to automate the checkout counter, at the tail end of the supply chain. Mass merchandisers, lead by Kmart, pushed suppliers to adopt the system. Only later, in the early 1980’s, did it become apparent that barcodes and Universal Product Code (UPC) standardization offered enormous benefits in operating efficiencies and information management along the entire supply chain.

     Some food manufacturers are taking a strategic approach to RFID, investing in the technology to take advantage of the increased visibility of tracking information in order to re-engineer their internal processes. Other food manufacturers offer RFID tagging, even when not mandated to do so, in order to competitively differentiate themselves and win new business from retailers that prefer products tagged with RFID. Because this technology is still new to the food industry, manufacturers that take the risk and begin working with RFID now will find themselves ahead of their competitors and better equipped to deal with the inevitable obstacles they will encounter once RFID compliance is required.

     But many food manufacturers continue to take a cautious approach, looking for a way to quickly meet mandates from retailers with minimum expense and minimum disruption to their manufacturing and distribution processes. They view RFID as a necessary cost of doing business – the “stakes” that they must put up to sit at the table and stay in the game with the major retailers.

     These manufacturers reluctantly comply with mandated requirements today, but they do not want to commit to major investments in RFID until the technology matures, standards are fully established, prices reflect large economies of scale, and ROI for process re-engineering has been proven.

Factors to consider 
     Food manufacturers face obstacles that other Consumer Product Goods (CPG) supplies do not when it comes to implementing RFID into the supply chain. The vulnerability and the high chance of product contamination make tagging these products a more complex project. Food manufacturers must take into consideration what their products are made of and the environment in which the products are being packaged. For example, produce has very high water content and is stored and packaged in a wet environment. This poses an interesting challenge, because it has been proven that water absorbs RFID signals and can render the tags invisible. 

     A second factor that affects food manufacturers is the packaging materials. Goods packaged in metal cans pose a unique challenge, as metal reflects signals and can short out tags. Food manufacturers need to find a way to space the tag away from the metal can, while still maintaining the integrity of the packaging.

RFID benefits to the food industry
     Before implementing RFID, food manufacturers must weigh all of their options.  Is there a mandate to comply with? If yes, they need to find the most cost-effective solution to meet the mandates. If there is no mandate to comply with, food manufacturers should decide if it is more beneficial to hold off on investing in RFID and continue using bar code technology instead.

     As RFID evolves, food manufacturers will begin to see more benefits applicable to the food industry. As the technology becomes more widely adopted, there will begin to be reductions in the price, making it easier for manufacturers to implement. RFID can be used to improve stock control and customer convenience. Additionally, RFID tags will be able to store valuable information such as expiration data, allowing retailers to better serve their customers.

     The U.S. military has already begun installing RFID readers on forklift trucks to read tags on pallets of food as they are lifted and placed on trucks. The RFID tags on the pallets are then used to track the trucks and food shipments.  To date, the military has applied several hundred million RFID tags to food in attempts to find huge savings in spoilage prevention.

Incremental & selective implementation
     Many observers predicted that the Wal-Mart mandate would represent a tipping point that would create a critical mass of RFID users and unstoppable momentum towards universal adoption of the technology. It is clear that RFID is here to stay, but the adoption pattern is evolutionary, not revolutionary. 

     The Wal-Mart mandate itself is an incremental process. The original mandate applied to products being shipped to its Dallas-area distribution centers. Wal-Mart has since updated its mandate to include products being shipped to two more of its distribution centers. Since Wal-Mart’s mandate in 2004, RFID has become more widely adopted and there are more labeling options available. Some of the top one hundred suppliers who fall under the mandate are placing RFID tags on only a fraction of their Stock Keeping Units (SKUs). Reportedly, some suppliers are initially tagging as few as a dozen SKUs, with plans to gradually increase that number over time.

     Food manufacturers are looking for an RFID solution that can be quickly put into operation with minimal investment, and can be implemented incrementally and selectively for different SKUs and different retailers, as needed. The typical approach is called “slap and ship,” putting an RFID tag on a case or pallet jus

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