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  1. Analysis
August 3, 2006

RFID revolution only just beginning

Radio frequency identification, or RFID, has come a long way very quickly with Wal-Mart and Tesco among the retailers embracing the new technology. Joe Ayling looks at how RFID tracking is revolutionising supply chain management in food retailing, but also heaping extra costs on suppliers.

Radio frequency identification, or RFID, has come along way very quickly with Wal-Mart and Tesco among the retailers embracing the new technology. Joe Ayling looks at how RFID tracking is revolutionsing supply chain management in food retailing, but also heaping extra costs on suppliers.


RFID, or radio frequency identification, is already a key feature of supply chain management for a number of major international retail groups but the use of the technology is set to grow exponentially in the next few years, according to forecasts from research and analysis group IDTechEx.


IDTechEx estimates that 400m food items will be RFID-tagged this year alone, with the figure rising to 26bn by 2010, and to 900bn by 2015.


RFID technology uses radio waves to identify and monitor objects or people, often via a chip attached to an antenna called an RFID tag. In the food industry, it has most commonly been used to tag food items travelling between distribution centres and stores.


However, Korean chain Samsung Tesco equipped its shopping trolleys and baskets with RFID chips in June last year to track customer movements in trials at its 69 stores, demonstrating just how versatile the technology is. The retailer gathered data that was used to position products in more prominent places, and identify congested areas of the supermarket.


Tesco international corporate affairs director Greg Sage told just-food: “The purpose of the trial was to look at how customers looked around the store, with tags attached to some trolleys but not all. It was done in conjunction with the government.”


In terms of supply chain management, Wal-Mart had enabled 460 stores and 35 Sam’s Club with RFID at the last count, and continues to set the benchmark for other retailers. It is aiming to add 1,000 Wal-Mart and Sam’s Club stores and Distribution Centres to this list before the end of 2006, and increase the number of its suppliers using RFID from 140 to 300.


According to ZDNet Asia, Samsung Tesco spent about US$800,000 on its RFID trial, $300,000 of which was subsidised by the South Korean government. There has been no subsequent roll-out of trolley tagging in the country following the June trial though, just-food was informed.


Wal-Mart’s rollout of RFID started in 2003, when its top 100 suppliers were asked to incorporate RFID into their systems in order to retain their status as suppliers. This had been achieved by June the following year, involving more than 150 Wal-Mart stores and Sam’s Club locations in and around Dallas, Texas.


Other top global retailers, including Metro, Target, Carrefour and Tesco, quickly followed suit in making RFID a prerequisite for its large-scale food suppliers.


However, with a huge volume of food items changing hands, and individual RFID tags costing up to US$2.00 before generally being discarded, the transformation was met with scepticism from the financial directors of smaller food manufacturers.


Pressure from suppliers has since forced chip manufacturers to strive for a deal of five cents per tag target, and they have gone some way towards this, with tags currently costing from 20 to 40 cents. RFID costs will obviously have less impact on the budgets of larger suppliers such as Unilever and Kraft than other smaller suppliers, but they still add up.  


“Lower chip costs obviously reduce the cost of tagging products, but the chip itself is a relatively small part of the cost of implementing RFID,” Unilever spokesperson Trevor Gorin told just-food.


Unilever, which uses electronic product coding (EPC) to tag its goods, said that RFID could bring about transformational changes in the supply chain over time, just as bar codes did. The company identified more visible movement of products, less manual labour, efficiency gains in factories, the distribution and transfer of goods, in-store promotions and shelf replenishment as the major advantages.


Neither Wal-Mart nor Tesco would divulge the full costs of their RFID developments, but RFID research and analysis group IDTechEx estimates that the total market will be worth US$26.2bn per year by 2016, though food retailers only represent part of this amount, with the US military the primary investors.


While the start-up costs have been a worry for food producers, financial benefits for manufacturers are forecast to come with time, particularly with the introduction of new RFID techniques in food retail. These include facilities in shops for customers to hold the tagged food near a terminal that displays the identity of the farmer and other information, and “smart shelves” enabling retailers to keep products stocked up when necessary. Prevention of crimes such as counterfeiting and theft could provide some return on investment too.


Therefore, while retailers bound onwards with new and innovative ways to use RFID, smaller food manufacturers have no choice but to hope for a silver lining further down the line. Unfortunately, the expense of current advances means that the transition from trial to implementation will be challenging, not to mention costly.

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