RFID push spurs research; implementation lags

Wal-Mart has announced a January 2005 deadline for its top 100 suppliers to tag cases and pallets with radio frequency identification (RFID) technology, but most individual and bulk packaging on store shelves and in warehouses throughout the country won't feature the technology for some years, various contacts said.

For now, in order to meet Wal-Mart's deadline, consumer product companies are manually tagging cases at warehouses before they get shipped to Wal-Mart and Sam's Club stores in the Dallas/Fort Worth area. The tags are being affixed by labels to boxes and pallets so that technology can be used to track the product or load, from supplier to warehouse to retail store.

Wal-Mart, the U.S. Dept. of Defense, Target, and Albertson's are trying to get their stock tagged with RFID to gain supply-chain savings, which include inventory reduction and theft protection. Retailers say the technology will help meet customer demand and expedite services, such as returns and warranties.

The impact of RFID tagging isn't only on major consumer products companies, such as Procter & Gamble (P&G), but falls on those papermakers that supply P&G with their boxes and packaging, such as corrugated box makers. All are involved in the supply-chain effort to source Wal-Mart with the RFID technology it desires for tracking products, and, ultimately, product sales.

Major U.S. packaging companies, such as Smurfit-Stone Container Corp. (SSCC), Weyerhaeuser Co., International Paper Co., and Georgia-Pacific Corp., are all under the gun, researchwise, to develop an efficient way to use the RFID tags and process.

Wal-Mart has "asked for a very tough thing," said an industry contact who is working on a business case study on the use of RFID. "It's not a smooth road."

A SSCC research and development official said RFID tagging on boxes and containers is "going to evolve. Exactly how, time will tell. I would offer that...it's probably going to take a lot longer than people think," the contact said.

A contact at a major U.S. consumer products company said that reaching a level of consistent RFID tagging across product ranges is still "a vision, a dream."

The most efficient way to put the tags on packaged goods is being considered, as is the cost of the tags. Research is also being done on developing conductive inks, which would enable RFID to become embedded on packaging material during the printing stage, contacts say.

The failure rate of the chip technology used in the RFID device is "enormous," with about 10% to 20% of the chips failing in a recent test run by Wal-Mart in the spring. What's more, one RFID tag now costs $0.25 to $0.50 apiece. At $0.25 a tag, "there's no way you can afford that," said one contact with a major consumer products company.

The target cost is $0.05 apiece, the contact said. Another contact added that chip manufacturers don't have enough supply yet.

Contacts said there are still many hurdles to pass before RFID is fully implemented on a consistent basis. It will be a long time before box makers and product packages are all individually embedded with RFID, contacts said.

Gradually, RFID tagging will "move up the line" from supply distribution centers to packaging plants, a contact at an RFID manufacturing company said. "I think there will be considerable pressure from suppliers to Wal-Mart" on box makers to "have these RFID tags inserted," the contact said. "However that's a difficult task to execute in reality."

The sizes of the boxes and where they're scored changes all the time, so the RFID tags will have to move around a lot. Suppliers to retailers and box makers will eventually find a "low-cost insertion point," the contact said.

Most of Wal-Mart's top 100 suppliers will meet the January 2005 deadline to have their shipments going to stores and Sam's Club locations in the Dallas/Fort Worth area tagged with RFID, said a contact at a major consumer products company-one of eight that participated in Wal-Mart's trial test of the technology that began in April-May 2004.

But because the technology still needs improvement, most of these suppliers will tag only a portion of their pallets and cases, not all of them, the contact said. Wal-Mart plans to install readers, devices that trigger and pick up the RFID signals, in 150 of their 3,500 stores next year in the U.S., the contact said.

The RFID tags now are assembled by label converters who ship off rolls of labels to consumer product suppliers, the contact at the major consumer products company said. Contract workers in warehouses then slap those labels onto cases before they get delivered.

But when it comes to more high-end products such as electronics tagging is being tested at the individual packaging level, according to Wal-Mart. During Wal-Mart's trial run, three products-two Hewlett-Packard (HP) photo printers and one HP scanner-featured RFID tags on the outer packaging of each unit.