Best business practices for tracking or distributing retail inventory, healthcare devices, and manufacturing supplies require up-to-the-minute information access and processing. Handwritten logs are renowned for their inefficiency; bar codes and magnetic strips present scant information.

RFID automates cumbersome processes, such as manual recording and bar code scanning:

• Unlike bar code readers, RFID readers do not require a line of sight to read the tags.
• RFID captures data at the time of transaction, rather than requiring later processing.
• RFID uses electronic product code data that lets companies include more comprehensive information than is possible with magnetic strips or bar codes, such as maintenance, storage, damage, or expiration date data.

When ES3 LLC, a 700-employee logistics provider for the food and consumer-packaged-goods industry, decided to deploy a new logistics system to reduce paperwork, cycle time, and costs, it ventured into the world of wireless radio frequency identification (RFID).

Among other applications, ES3 uses RFID to automate the loading of truck trailers at its robotic warehouse in York, Pennsylvania, where 600 to 1,100 trailers, the equivalent of 2.4 million square feet, typically maneuver in a 257-acre space. When a truck arrives, a security officer attaches an RFID tag (a small chip with an antenna) to the trailer to identify its operator and contents. The tags let ES3 staff track the status of all trailers in real time, viewing their locations as dots on a computer monitor. Check-in process at the gate has been reduced from 3 minutes to about 30 seconds.

"We're saving more than $10,000 per month with just this one application," says Geoff Davis, executive vice president at ES3. "RFID has radically changed the way we manage traffic and assets."

Interest Rising

RFID technology is not new, but is now gaining wider acceptance by small and medium-sized businesses (SMBs) because its prices are dropping while hardware and software have improved. Large enterprises and government agencies such as the U.S. Department of Defense (DoD) are beginning to require that their suppliers use RFID, according to Deepinder Sahni, senior vice president at AMI-Partners. He estimates that in 2005, close to 20% of U.S. businesses with between 100 and 1,000 employees used RFID, and less than 5% of those with fewer than 100 employees used it.

"The appeal of RFID is that it can lower inventory costs while providing far more information," says E. Jeffrey Hutchinson, a partner at the technology consulting firm Accenture.

Asset Tracking, Compliance, Security

"RFID represents an opportunity to reengineer business processes and reinvent the way a company interacts with suppliers and customers," says Mohsen Moazami, a vice president in the Internet Business Solutions Group at Cisco Systems. He explains that RFID business applications fall into these broad categories:

• Security: Applications include systems that track the location of individuals or vehicles at a facility and proximity cards that allow an individual or item to pass through a doorway or checkpoint.
• Regulatory Compliance: Applications capture real-time information about an individual, item, or transaction and then automatically record the data to meet regulatory requirements, such as Food and Drug Administration regulations.
• Asset Tracking: Applications identify the precise location of assets such as products, supplies, or materials to give businesses end-to-end visibility and control, directly improving profitability.

Financial Gains and Costs

RFID technology typically improves profit margins by 1% to 3%, reduces costs by 5% to 10%, increases inventory use by 5% to 20%, and improves asset management by 5% to 15%, according to Moazami.

ES3 achieved full return on investment for its RFID solution at the York site within 21 months, reports Davis. The solution, from logistics solution provider WhereNet, included the trailer-tracking system plus a yard-workflow system that lets workers track more than 15,000 pallets that sit on the lot at any time.

For an SMB, however, the current costs for RFID devices and software (tags are 15 to 20 cents each and readers are about $1,000 each) can still be an impediment. And implementation often requires upgrading the company's data-network infrastructure. Hutchinson says the total cost of deployment can range from several thousand dollars to millions, depending on the complexity of the system and the physical coverage area.

Moazami suggests that SMBs upgrade their data network infrastructure over time with RFID-capable and industry-standard hardware and software. "At some point RFID will become a natural fit," he says.

Hutchinson believes that the price for tags will continue to drop, and that once the price comes closer to the cost of paper-based bar code labels, businesses of all sizes will routinely use RFID at the item level. When that happens, RFID promises efficiency gains that would have been unimaginable only a few years ago.

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About the Author

Samuel Greengard is a regular contributor to iQ Magazine. He covers business and technology for multiple publications.

iQ Magazine, Fourth Quarter 2005