Why hasn't RFID adoption taken off in retail?

Why hasn't RFID adoption taken off in retail?

This commentary is provided by Sue Hutchinson, director, portfolio management for the non-profit organization GS1 US, which administers the U.P.C. standard and develops worldwide standards for identification. For more information on RFID and its upcoming impact on retail, download the Retail RFID Almanac 2011.

Several factors have affected the adoption rate of RFID (Radio Frequency Identification) technology in retail, but before I address them it's important to point out that it took a decade before the now-ubiquitous U.P.C. started to gain truly widespread acceptance at checkout — even though it was developed specifically for that purpose. Even today, truth be told, you can find items in retail that don't have barcodes. RFID is a technology that uses communication via electromagnetic waves to exchange data between a terminal and a electronic tag attached to an object, for the purpose of identification and tracking.

We're only about seven years into the Electronic Product Code (EPC) journey, which, unlike the U.P.C., was developed with the entire supply chain in mind. (In fact, the companies making EPC Generation 2 RFID tags have enjoyed growth comfortably into the double digits for several years, but the applications have been in warehouses and other supply-chain points away from the sales floor.) So, I would argue that it might be premature to say that RFID hasn't taken off in retail; we're going to see a sharp uptick in EPC usage in the next 12-18 months, and it's going to be interesting to watch.

It's fair though to say that, at the beginning, some people made ambitious predictions for EPC/RFID in retail. So let's explore a few factors that have kept those predictions from materializing just yet:

Business Challenge Focus:The singular checkout-centric focus of U.P.C. adoption allowed an entire user community and the technology community to reach consensus and drive the adoption of a singular approach to that problem that benefited everyone in the community. In the early days of RFID in retail, the goal of improving supply-chain efficiencies, while useful to launch commercialization of promising technology, lacked the same level of focus needed to appeal universally to any one group of retailers. The more recent focus of the retail community on item-level RFID to improve inventory accuracy at the store level represents a single, recognizable objective that many more retailers can apply to their businesses.

Technology Maturity:In the early days of RFID in retail, we were talking about a relatively immature technology in terms of products and solutions. While do-it-yourself might have been acceptable to the first pioneering organizations, most retail operations do not have the time, patience, or RFID expertise to build their own solutions.

RFID technology needed to mature and become a capability as part of a larger solution, rather than a standalone technology. For instance, portal readers, which once were large and had big antennas meant for reading around dock door portals, have been significantly streamlined. We are seeing a wide variety of handheld readers (many integrated with existing barcode readers), as well as readers being integrated into fork trucks, pallet jacks, rolling carts, and other conveyances typically found in store floor operations.

We are also seeing some vendors building prototypes of readers that will be integrated into tomorrow's point-of-sale terminals and electronic article surveillance (EAS) systems. So, the RFID reader is evolving from a separate piece of equipment to just another "feature" of business equipment that's used every day.

Likewise, we have seen RFID-based software solutions grow and mature to a point that they can readily be integrated with a retailer's existing enterprise applications and business systems, easing the path to adoption.

The Price/Value Equation: Coming from the do-it-yourself perspective of those early days of the commercial RFID market, the total cost of development and ownership of an RFID-enabled solution was pretty expensive, particularly when the return from investing in those solutions was not easy to quantify.

As the price of RFID tags and readers has declined exponentially over the last five years, and as RFID capabilities have been more closely integrated into enterprise applications, the overall cost of deploying RFID has declined at the same rate. The maturation of standards-based RFID has also made it possible to use literally the same RFID tag across several "read points," enabling multiple business benefits from a single RFID investment.

In retail, an example of this trend might look like this: An RFID-enabled hang tag with a unique Electronic Product Code number is attached to a garment at the point of manufacturing (we call this practice "source tagging"). From that initial commissioning event, that EPC-enabled RFID tag can be read any number of times to bring visibility throughout the physical transit of that garment from manufacturer, to customs, to distribution, to the retailer, to the store floor and, eventually, to the point of sale and even the returns counter. That additional visibility data can help to improve a multitude of processes along the way, spreading the cost of the RFID investment across those many business processes.

What Lies Ahead

As RFID technology continues to advance and mature, we anticipate that its use will continue to spread, just as we saw the use of bar codes spread from point-of-sale applications to pervasive use throughout the supply chain and onto plane tickets and the mail. As new sectors explore and embrace RFID, they help the RFID vendors to innovate even further. Each use helps to build a richer knowledge base of best practices that can be leveraged by other industries that may be newer to RFID, including retail.

It is our mission as a neutral, not-for-profit standards organization to help foster the widespread adoption of these very promising hardware and software technologies and we believe adoption will take off in retail. Check back in with me two holiday-shopping seasons from now.

Topics: RFID Technology, Supply Chain, Technology

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