Making the Case for RFID

By Larry Barrett  |  Posted 2005-02-01 Print this article Print

Your distribution network is vast. You sell your product to distributors. You have no way to track what happens after that. So how can you be held accountable for how your cartons and packages hit the stores—or the street? A $1.25 billion settlemen

Making the Case for RFID

While still unproven on a large scale in distribution of consumer packaged goods, the technology is widely used to track the movement of cars going through toll booths, and in similar applications where radio tag readers can be fixed in place.

Using it to track a pack of cigarettes from factory to sales outlets on seven continents to each individual customer raises a host of issues. Even if the tags could be produced at a cost similar to that of the cellophane wrap on a package, how many readers would be needed and where would they be put to maintain control of the supply chain?

Still, more data can be encoded on an RFID chip than in a standard bar-code strip, making it possible to track every pack. Compared with a 12-digit standard UPC, the 28-digit Electronic Product Code (EPC) being promoted for use with RFID has much more information-carrying capacity. An EPC can contain the same company and product information as a UPC and still have room left over for a serial number that uniquely identifies an individual object. In a track-and-trace scenario, that serial number could be used to identify a product shipped for sale in Switzerland that is turning up in New York instead.

According to Holleran, Philip Morris in the U.S. and in Europe has spent millions to examine how RFID technology could be implemented into its supply chain.

Philip Morris, however, isn't providing details. "We don't talk about it at all for security reasons, but we are monitoring all options that pertain to tracking and tracing our products," Holleran says. "But at this point, we haven't implemented anything beyond the standard bar codes that are applied to all our products."

One of the first decision a company like Philip Morris would have to make about RFID would be how to track cigarettes by the carton.

Attaching tags to each box is time-consuming. Holleran says PM production lines can crank out more than 14,000 a minute. Thus far, all tracking and tracing systems tested by the company slow down production.

How fast is not fast enough?

"We can't comment on how much these various systems would slow production," Holleran says. "But it's significant."

The tags would assign each carton a unique identity that would include its location of manufacture, date and time of production, intended sales destination and price.

After a tag was affixed to each carton, the carton would then be scanned by a reader at the end of the production line and the data would be entered into the company's supply chain database. The cartons would then be shipped or flown to authorized distributors in, say, Germany or South Dakota, where they would again be scanned to ensure the right products and quantities were ready for distribution.

RFID readers would then need to be installed at each distribution location. So when that shipment of 50,000 cartons of Marlboro cigarettes manufactured in Switzerland arrived at the port in Antwerp, Belgium, the distributor and customs officers could scan each carton as it arrived or spot-check cartons in the large "igloo" containers to ensure they were sent directly from the PMI manufacturing site.

Once the authenticity of the cartons was validated by the readers, the cartons would then be assigned their appropriate tax and import duty fees before being distributed to second-tier distributors or directly to retail locations.

Eventually, RFID scanners could be found at receiving docks at each retail location and, ultimately, checkout lanes.

This station-by-station data collection, from one distributor to another and possibly another before arriving at a retail location, could be fed into PMI's enterprise resource planning and customer relationship management software systems. This would give Philip Morris greater insight into where and when products are being sold and resold—and help it better gauge demand and the impact of marketing efforts in various regions.

With such a system, local and national law enforcement agents could theoretically take any carton of Philip Morris cigarettes and scan it with a handheld reader to determine when and where the carton came from and whether it had been taxed appropriately. Rather than manually wave a scanner across each item, as is necessary with bar codes, they could verify the identify of products high up on shelves, using radio signals from across the room.

SAP, Altria's primary business software vendor, is participating in the movement toward RFID by partnering with RFID hardware makers, working with Altria's customers to figure out the implications of the technology, and adding capabilities for tracking RFID-generated data to its software platform.

But Amar Singh, SAP's vice president of global RFID and business development, says even the early adopters are still figuring out where RFID makes sense. "RFID is theoretically better than bar codes in every respect. If cost were no object, RFID would win hands-down," he says.

But, of course, cost is an issue, as is the broad deployment of RFID readers. In addition to costing $500 to $1,000 each, RFID readers need to be tuned for the places in which they operate. For example, a reader at a receiving dock door must be tuned so it doesn't accidentally retrieve codes from products arriving at an adjacent door.

Tags remain an even more fundamental hurdle. Where applying a bar code might cost a fraction of a cent, an RFID tag and the label to contain it can cost 40 or 50 cents—or more—even in volume (see Gotcha! p.44).

"I can't think of any company that in the next few years is going to go 100% RFID,'' Singh says. "In some cases, bar codes are still going to be more practical and more effective for a long time to come."

Which is why even Wal-Mart isn't demanding that its suppliers apply RFID tags to individual packages at this point. According to Singh: "In most cases, because the cost of the tags is so high, they're looking at it more for the case level or the pallet level."

On the other hand, the pharmaceutical industry is seriously looking at RFID tracking of individual bottles of pills, particularly controlled substances, Singh says.

The U.S. Food and Drug Administration (FDA) gave its blessing to leading drug makers early last year to invest in RFID systems for tracking and tracing drugs to prevent counterfeit medications from entering the supply chain. The FDA says the adoption and common use of RFID to track and trace a variety of products through the supply chain will be "feasible" by 2007.

Take the addictive painkiller OxyContin, which began being illegally "diverted" to drug dealers in the late '90s. Its maker, Purdue Pharma of Stamford, Conn., started shipping 100-pill bottles, with RFID-enabled tags, to Wal-Mart and wholesaler H.D. Smith in mid-November. Purdue also plans to tag bottles of its new painkiller, Palladone. New York-based Pfizer plans to use tags to track its erectile dysfunction medication, Viagra, and GlaxoSmithKline of London says it will begin tagging various drugs within the next year.

The FDA's reach has also extended to the food-services supply chain to ensure meat, fish and agricultural products are safe as part of the Bioterrorism Act of 2002. And in Europe, the EU Food Safety Law, scheduled to take effect this year, requires the traceability of food, livestock and any substance incorporated into them through all stages of production and distribution, including records detailing to whom the products were sold or distributed.

"It's not overkill for pharmaceutical products," Singh points out. "But obviously if you were going to put a 30-cent tag on a $1 retail item, that's a 30% increase in cost."

A breakthrough in manufacturing, such as making tags from organic polymers rather than silicon, could dramatically lower cost and broaden use of RFID, Singh says.

When a tag is a penny a pack or so, RFID technology could be used to help cigarette makers and other manufacturers prevent counterfeiting. If a maker or distributor loses track of a known pack with a known ID, it can trace where the item left the supply chain and close the leak. If cartons or cases with duplicate codes pop up, that should set off alarms that counterfeiting is taking place. If a pack with a code assigned to a specific country shows up in another, that would be a sign of smuggling.

Senior Writer
Larry, of San Carlos, Calif., was a senior writer and editor at CNet, writing analysis, breaking news and opinion stories. He was technology reporter at the San Jose Business Journal from 1996-1997. He graduated with a B.A. from San Jose State University where he was also executive editor of the daily student newspaper.

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