RFID (radio frequency identification) tagging technology continues to gain in inventory tracking uses, as Monday Microsoft Corp., IBM Corp. and Koninklijke Philips Electronics NV announced projects for developing and promoting it as a cost-saving tool for retailers.
RFID chips, computer chips equipped with miniature antennae, store data for transmission to nearby receivers, and are increasingly being used as wireless tags to track goods. One advantage to the wireless tags is that, unlike bar codes, RFID tags can be read at any angle and from a distance. Large retail companies such as Wal-Mart Stores Inc., Tesco PLC of the U.K. and Germany's Metro AG, have been using the RFID technology and are already planning to push the technology beyond the pilot stage.
IBM, in Armonk, New York, and Philips, in Amsterdam, will team on RFID for supply chain management, retail and asset management, as well as smart card technology for finance, e-government, transportation and event ticketing, the companies said. As part of the joint effort, IBM Global Services will build an RFID system for use in for Philips's semiconductors facilities for manufacturing and distribution in Taiwan and Hong Kong.
Both Philips and IBM declined to disclose any financial terms of the agreement.
In a project that began last November, Philips began tagging its wafer cases and carton packages produced in its Kao Hsiung manufacturing site in Taiwan and the division's distribution center in Hong Kong. The program is expected to be fully implemented by mid-2004, according to Christoph Duverne, vice president of marketing and sales at Philips Semiconductors' Identification group.
"RFID is an emerging application that we've been working on for a number of years, but RFID is becoming mainstream now. With a retailer the size of Wal-Mart really pushing RFID, it puts a lot of pressure on people to use the technology," Duverne said.
Wal-Mart, in Bentonville, Arkansas, is requiring its top 100 suppliers to use RFID tags on shipping pallets and cases of merchandise by January 2005, with the rest of its suppliers facing a deadline of 2006.
"2004 is going to be a real crazy year for RFID," said Evelien Vredeveld, IBM's worldwide RFID leader. "Last year there was a lot of concern about privacy issues with RFID but this year, I think consumers will begin to learn the many benefits of the technology." For example, if a product with the RFID tag breaks and needs to be returned to the store, the consumer won't need a receipt as all of that information will be part of the tag's data.
Vredeveld expects to see such disparate industries as the automotive, electronics, pharmaceutical and travel industries to quickly jump on the RFID tagging bandwagon due in large part to the technology's ability to drive down operating costs.
According to estimates from research company IDC, within four years retail demand for RFID tags will be US$1.3 billion.
Philips is partnering with IBM to provide a "one stop shop experience" that customers are already beginning to demand, Duverne said. "It is an ideal match with IBM, combining their expertise with ours and putting two very well known brands together. This project will also drive a number of separate projects."
"With Philips we can bring the technology to market quickly," Vredeveld added.
Duverne expects joint IBM-Philips RFID pilot projects to reach the U.S. by the second half of this year.
For its part, Microsoft has tapped Scandinavian snack company, Kims Danmark A/S to help develop its system for automating a company's supply chain, which includes a pilot program for using RFID tags. The project was launched in September, went live on Dec. 15 and will run for six months, according to Bjarne Schon, Microsoft's director of supply chain.
Microsoft is not releasing any financial details of its RFID pilot program, or its larger supply chain management (SCM) strategy, according to Microsoft spokeswoman Kate Rowlands
Kims was picked for the pilot program as Microsoft found it typical of mid-sized companies, Schon said. It employs about 270 people, ships approximately 100,000 pallets of snacks per year and has been using Microsoft's Axapta Warehouse Management system since June. The company is using the RFID tags in its main warehouse to monitor pallets of finished goods as they move out of production and into third-party warehouses, Schon said.
So far the pilot program is running smoothly, according to Kims Chief Executive Officer (CEO) Jorn Tolstrup Rohde. "I can actually sit in my office and follow where all of the pallets are going," he said.
But at Euro 0.40 (US$0.50) to Euro .50 per tag, Tolstrup Rohde said the price is rather prohibitive. "Because of the price of the tags, it is not possible at this stage to do a full roll-out of the RFID program. At that price it is OK to use the tags on pallets but not on the individual consumer goods," he said.
The costs need to go down to "a few Euro cents" per tag, before Kims could consider using the tags on goods, Tolstrup Rohde said.
Kims selected Microsoft for its warehouse management system after looking at three different suppliers, in large part because of Microsoft's ownership of Navision A/S, which it bought in July 2002. "We thought that Navision had a very good system and coupled with the support we believed we'd receive in future from a company the size of Microsoft, we signed on in June," Tolstrup Rohde said.
The next step of the Microsoft-financed RFID pilot program with Kims will be to trail the tags in consumer products, Tolstrup Rohde said. "We believe that RFID really is the way of the future and this program is a great opportunity for us to use and understand the technology," he said.
Microsoft partnered with Samsys Technologies Inc., of Richmond Hill, Canada, to produce an RFID reader or UHF (ultrahigh frequency) RFID pallet tracking system, which then feeds the data into Microsoft Axapta. As part of the program Samsys Technologies had an engineering team work directly on-site with Kims to build a custom reader.
Philips Semiconductors is also part of Microsoft's Kims pilot program, providing the RFID chip software, while Avery Dennison Corp., in Pasadena, California, is producing the RFID tags. Aston Business Solutions, of Copenhagen, was in charge of the initial implementation of Microsoft Axapta at Kims.
The UHF tags transmit at 889 MHz and use writeable as well as readable text. "We wanted to try the most complex technology, to test, if you will the 'worst case' scenario first," Schon said. With writeable tags, information such as dimensions, weights and expiration dates can be included on the tag's data. The tags Philips is using with IBM are also writeable and readable.
"There are more than 39 million mid-market companies throughout the world, so if we get this right, RFID will be very profitable for Microsoft in the future," Schon said.