A significant proportion of European and American retailers are planning to implement item-level RFID tagging schemes in the next three to five years. That was the message, based on new in-depth research, delivered by one expert at the recent RFID Networking Forum in Heathrow, London. Patrick McGuigan was there.

Speaking at the opening session of the twice-yearly event, John Davison, VP and research director of research company Gartner G2, revealed several insights into how international retailers are approaching RFID and what this means for manufacturers. Radio frequency identification (RFID) uses tags which transmit information via radio waves to reader devices, to track pallets and cases of goods, as well as individual stock items.

According to Davison, 14% of retailers in Europe and North America are running or about to run item-level RFID pilots and 32% plan to implement schemes in the next three to five years. And for tagging of pallets or cases this percentage rose to 30% and 39% respectively.

Gartner G2 says that the number of RFID pilots stood at 22 in 2004, up from just three in 2001. “Most of these are aimed at stock replenishment and visibility,” said Davison. “Retailers have continually overestimated product availability and are beginning to realise this. European retailers really want to do item-level tagging, particularly in the food industry.”

One step ahead of legislation

Other important short-term drivers for the introduction of RFID include retailers’ desires to conform to likely legislative requirements and reducing shrinkage: “The FDA in the US has already issued its fourth guidance on legislation (on RFID),” said Davison. “Retailers are going to get legislation coming in which RFID can help with.”

Retailers also admitted in the Gartner G2 survey that RFID was attractive because it enabled them to reduce costs or drive them upstream. This will come as no surprise to manufacturers, many of whom see RFID as a way for retailers to save money at their suppliers’ expense. Davison touched upon this thorny subject when he said: “The retailers don’t realise the pushback they are going to get from manufacturers. The least they can expect is passive resistance to RFID from suppliers.”

Costs prohibitive – and who meets them?

The biggest barrier to RFID in the retailers’ view, at least in the short term, is the prohibitive cost of tags, with 50% saying this was ‘a very large barrier’. Other barriers included there being no business case for introducing RFID in certain sectors and uncertainty on the evolution of tag standards.

By looking at current RFID pilots and schemes currently in place at retailers such as Wal-Mart in the US, Marks & Spencer in the UK and Metro in Germany, Davison said that several lessons have been learned. Chief of these is that retailers should phase RFID in gradually, beginning with large-volume suppliers. He also said that it is vital to stick to rigid benchmarks and baselines, and that re-usable tags are the best route to achieving a return on investment.

“The single biggest issue is process change – for retailers and suppliers,” he added, meaning that actually getting workers to use RFID in the correct way is one of the most important challenges.

In summing up, Davison made some timely recommendations for companies thinking of moving into RFID. “Retailers need to build the full costs of process change into their business case and anticipate reluctant compliance from suppliers, and help them find value in their supply chain,” he said. “Manufacturers need to negotiate process concessions as they accept the cost burden associated with RFID implementations. They should identify the processes they control that would benefit from RFID, and build them into their compliance plans.”

Retailers’ pilot and adoption plans

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Source: Gartner

Retailer’s short-term drivers for using RFID

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Source: Gartner