Subject: [NEXTEL-1] The Coming RFID Revolution

From: [email-masked]
Date: Thu, 04 Dec 2003 22:36:43 -0500

The Coming RFID Revolution
 CIO TODAY SPECIAL REPORT
By Erika Morphy
CIO Today Magazine
December 02, 2003
http://www.cio-today.com/perl/story/22782.html

There is both good news and bad news about the much-hyped RFID, or radio
frequency identification, technology. The bad news -- bad, at least, for
those who are dismayed at the prospect of spending hundreds of thousands of
dollars on an unproven system -- is that within the next ten to twenty years
any company that wishes to stay competitive will have to build an
RFID-centric supply chain.
The good news? Unless your firm is operating on the razor's edge of
logistics productivity, that heavy investment can be put off until the early
adopters have forged ahead and produced some easily replicable best
practices. By then, the investments required to construct such a supply
chain will be significantly reduced. That approach will sound familiar, no
doubt, to veterans of the early CRM implementations.

Such procrastination may seem foolhardy, at first glance. After all, none
other than Wal-Mart already is requiring its top suppliers to deliver
products on RFID-enabled pallets and cases -- a requirement that will extend
to all of its suppliers by 2006. Perhaps even more significant, companies
that want to sell to the Department of Defense will have to use RFID-based
wireless tags on the "lowest possible piece" -- each part, case or pallet -- 
of all items, including consumer goods. The stated goal is better inventory
management, although industry experts speculate it has more to do with troop
support in the field.

For its part, it is clear that Wal-Mart sees RFID as the future bedrock
technology for supply chains. We see "some very large efficiencies to be
gained from moving away from bar-code scanning to [an] RFID chip-reader
system," company spokesperson Tom Williams told NewsFactor's CIO Today
Magazine.

Gartner research director Jeff Woods agrees. "RFID will change the course of
business over the next 20 years," he predicts. "Gartner estimates that there
will be at least one commercial user by 2023 in the Fortune 500 strictly
because of RFID."

Other vendors that are investing in this technology also point to the
long-term savings. "Folks in this business estimate that there's (US)$40
billion of excess inventory in the product-goods and retail supply chain,"
IBM Global Services spokesperson Jan Walbridge told NewsFactor. IBM recently
unveiled a corporate RFID service. "All that goes away with this
technology."

Fact of Life
Whatever the motivation, though, the bottom line is that between the DOD and
Wal-Mart, RFID is about to become an immovable fact of life for the majority
of companies in the U.S. -- and given Wal-Mart's global reach, for a
significant portion in the rest of the world. So why the recommendation to
relax, especially given the unproven nature of the technology?

Because in the majority of cases, RFID requirements can be satisfied with
what Woods calls a "slap and ship" approach. "And this has to be one of the
easiest things to do," he told NewsFactor's CIO Today. "It is basically a
matter of setting up a label printer at the shipping dock and applying the
labels on the outbound shipment. In terms of capital expenditure, it is an
easy and cheap way to [comply]."

He puts the cost at around $100,000 to $200,000 per facility, not counting
the costs of the tags and the labor. "And guess what else? You can do it in
a month or two," he says. "This is not something at all to lose sleep over."

To be sure, not everyone is as sanguine about such costs. Consumer goods
manufacturers, with their thin margins, are going to resent the
expenditures, even at 50 cents per-tag.

But compared to the costs the early adopters must shoulder, they are getting
the better end of the bargain.

The $30 Million Gamble

It is not easy to feel sorry for Wal-Mart, but the risk the company is
taking on with RFID may engender some sympathy. As with every technology, it
will be the early adopters who either reap incredible benefits or, more
likely -- at least for a few of them, find themselves writing off
multimillion-dollar investments that failed. 

"If you are going to be an early adopter, you can count on spending between
$10 million to $30 million on just justifying the business case, building
the business process, and doing process engineering," Woods says. In another
words, companies like Wal-Mart will go first, make the expensive mistakes,
and provide a road map for companies content to wait a year or two before
enabling the entire supply chain with this technology.

There is a third group that stands between the slap and ship companies and
the Wal-Marts: larger suppliers that do not want to treat the RFID tags and
slap and ship expenditures as a business cost from here to eternity. "At
some point, suppliers will want to make RFID pay for itself by creating an
RFID-centric business model or RFID-centric supply chain," Woods says.

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