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Monday, Apr 26, 2004

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It fits the bill!

M. Chandrashekhar

Radio frequency identification technology can help get the goods moving in the retail scene.

A NEW technology - radio frequency identification, commonly referred to as RFID, is quietly, but steadily, gaining ground.

RFID technology provides a wireless, over-the-air interface. Unlike bar code data storage, line-of-sight communication is not necessary. RFID uses an integrated microchip and antenna that reads information. The combination of the chip and antenna is called an RFID transponder, tag or inlet. When the RFID transponder is placed in the field of an RFID reader, information is transmitted to the reader and processed by a computer.

Originally adapted during World War II to identify `friendly' aircraft, RFID has proliferated into other applications such as toll payment, supply chain management, cashless payment, ticketing, brand authentication, security access, patron identification and amusement parks.

RFID can ensure tremendous cost savings in many areas of application, most notably in supply chain management. It is estimated that by deploying RFID nationwide, the US economy can save over $500 billions annually in inventory management.

The two mandates for 2005, set by Wal-Mart and the US Department of Defence (DOD), pushed RFID into the public eye and moved it from company science experiment to boardroom priority with a focus on improving enterprise-wide operations. Wal-Mart, the world's largest retailer, hopes to save billions by employing RFID in its already super-efficient supply chain. The relative tamper-proof nature of RFID makes it an attractive proposition. Indian firms that are looking to supply their merchandise to Wal-Mart need to be RFID-compliant by 2005.As tag prices continue to fall, many Indian companies would be interested in RFID as other US and European firms are likely to insist on RFID tagging.

According to a recent report by IDC, the market for RFID technology in the US retail supply chain will increase from $91.5 millions in 2003 to $1.3 billions by 2008. Globally, the RFID market is expected to rise to over $3 billions by 2007-08 from about $1.3 billions in 2003. The bulk of revenues will come from sale of hardware, including RFID tags, readers and antennas, in addition to spending on servers to run these readers and network equipment to handle the data. The remaining revenue is expected from middleware and services for providing consultancy, system integration and maintenance and support.

Segments set to benefit

Industries that will drive RFID spending include consumer packaged goods and retail, automotive and military. After the terrorist attacks of September 11, many airlines are also looking at using RFID to ensure tamper-proof security. The US Transportation and Security Administration estimates that the US airline industry will have to spend about $5 billions over the next 10 years to upgrade baggage screening systems to comply with laws passed after 9/11. Airlines see RFID as the technology that can help them comply with the new regulations.

Among the many industries sure to profit from RFID, retail tops the list. RFID will improve inventory control, reduce out-of-stocks, cut theft and enhance in-store marketing and sales. With more accurate price and inventory information through the store chain, RFID lets retailers spend their time actually selling products, rather than tracking and stocking them. An IBM study finds that RFID systems can reduce picking errors and cut labour costs in warehouses by as much as 36 per cent. P&G expects to reduce its $3 billion inventory to $2 billions by combining real-time information about its own operations with more timely data about sales from its retail partners. If this can be achieved, P&G will free up $1 billion in working capital and cut inventory carrying costs by over $200 millions per year. This will offset most of the cost of the infrastructure and tags that will significantly contribute to its bottomline.

In June 2003, Boeing installed an RFID system at its airplane unit in Wichita, Kansas, to track parts as they are received in the factory. Boeing's suppliers attach RFID tags to the parts before delivery and send advance shipping notices over the Internet, which lets Boeing know the serial number associated with each part. On receipt at the factory, the RFID tags are automatically read matching the parts with the purchase orders and confirming that everything is in order. Inventory is updated automatically. Boeing is yet to determine the exact return on investment (ROI) on its investment, but has identified at least three savings:

  • There is no need for people to scan parts on receipt.

  • There are fewer mismatches between purchase orders and deliveries.

  • It has a more accurate inventory.

    Indians in the lead

    RFID faced two main challenges, one the cost of the tag and another the lack of standards in the industry. Sanjay Sharma, a professor of mechanical engineering at MIT and a former Director of the Auto-ID Center at MIT is referred to as the father of RFID. Since 1998 his efforts were concentrated on addressing the main issue of creating standards that would drive global adoption. His efforts have borne fruit and a new global standards organisation - EPCGlobal - has been formed to work further on this subject. As volumes increase, the price of RFID tags is bound to get reduced further. The other challenges will be dealing with the enormous volume of data generated and integrating it with existing applications.

    It is heartening to note many Indians in the US are in the fore-front in riding the RFID wave, most notably amongst them being Vikram Verma of Savi Technologies, Piyush Sodha of Matrics Inc, and Prasad Putta of OAT Systems Inc. Indian companies like Infosys, Wipro and Cognizant Technology Solutions are also eying the RFID pie seriously. In addition to giving Indian IT companies a great opportunity for exporting services and software, RFID can also modernise India's antiquated supply chain infrastructure, saving thousands of crores for the economy and reducing costs for the consumers.

    The author is Head - Channel Sales, Intelligent Security Solutions at Danlaw Technologies India Ltd, Hyderabad, and can be reached at [email protected]

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