Magazine Article | August 21, 2008

Analyst Q&A: RFID Update

Source: Field Technologies Magazine

Need more info before embarking on a corporateradio frequency identification (RFID) initiative? Analyst Michael Liard outlines industry trends and strategies to ensure the success of your RFID implementation.

Integrated Solutions, Industry Leaders In RFID

The Wal-Mart hype surrounding RFID may have died down for the moment, but that doesn't mean adoption of the technology is on hold. Compliance mandates have been replaced by interest in the documented ROI benefits of RFID. Now more than ever, organizations are seeking to understand the role RFID can play in their business processes and the impact it can have on their bottom lines. To provide you with some insight into the RFID space and some strategies for a successful RFID deployment, we turned to Michael Liard, director of RFID and contactless technologies at ABI Research.

What is the current state of the RFID market as compared with 12 or 24 months ago?
Liard: The revolutionary role of RFID technology is rapidly being realized on a global scale. End user interest in RFID technology continues to climb. From finance card companies and retailers to pallet/reusable container providers, the industry has witnessed a bevy of high-profile pilot programs and deployments over the last few years across all verticals and application markets. But no market segment has been watched as closely as the passive ultra high frequency (UHF) space.

RFID solutions enable end users to improve productivity, enhance efficiency, and increase security — especially within supply chains. As the market matures, RFID suppliers are actively demonstrating the value proposition and benefit of RFID technology across vertical and application markets. 

The RFID market continues to be one of great anticipation. While growth over the past several years has been somewhat slower than projected, RFID continues to outpace other automatic identification technologies. Communicating RFID's business benefits and reducing hardware costs have been at the forefront of suppliers' strategic and tactical agendas over the last 12 to 24 months.

What is driving the RFID industry today?
: While RFID compliance mandates still garner their fair share of attention, pilot programs and deployments that demonstrate the value propositions and cost justification for RFID are driving the industry today. For example, tagging corporate IT assets, reusable items (such as pallets, totes, crates, shipping containers, etc.), and even vehicles provides a significant ROI and the opportunity to amortize the cost of the solution over several years.

Another reason more organizations are adopting RFID is that it addresses one or more of the following core business value propositions:
n Enhanced visibility (most basic)
n Enhanced security/authentication — physical and/or logical
n Enhanced condition monitoring/status reporting — RFID with  sensors
n Enhanced awareness — advanced decision support (most complex)

These core value propositions are unique to each business and implementation, and your RFID business case will be stronger (and cost justification easier) if it supports multiple value propositions. It's also important to remember that RFID is not solely about technology change, it's about business process change as well.

What trends are currently prevalent in the RFID space?
Liard: RFID compliance mandates have spurred a flurry of market activity in recent years, including new product development, additional RFID standards, new market entrants, and vendor consolidation, particularly within the passive UHF space. Given the amount of market activity and anticipation surrounding RFID technology, the industry should be experiencing explosive growth. However, sales and shipments of RFID systems — particularly those that support passive UHF technology — have not soared to the levels most industry participants had predicted or hoped. Most vendors feel the RFID market has yet to truly take off and agree it will take a few more years for RFID adoption to expand and for existing pilots and deployment to go 'wider and larger.'

While RFID applications in the open-loop retail CPG (consumer packaged goods) supply chain have not grown as expected, closed-loop applications continue to gain momentum. Much of the current pilot activity in key growth application segments, such as asset management, supply chain management, contactless ticketing, and others, are closed-loop solutions.   

For example, asset tagging is among the hottest RFID applications right now. Asset management initiatives continue to gain traction across vertical markets, especially healthcare, manufacturing (most notably automotive and aerospace), and transportation/logistics. From pilots to full deployments, activity has been brisk for active (including RTLS [real-time location services]) and passive asset management. According to our research, end users are increasingly evaluating and installing RFID-based asset management solutions that provide a high ROI while bolstering visibility, optimization, and utilization of high-risk, high-value assets. 

In recognition of the opportunity, RFID vendors and integrators from the passive and active RFID communities have been aggressively targeting the asset management space, with many specializing in vertical market approaches. RTIs (returnable transport items), medical equipment, corporate IT assets, key personnel, spare parts, capital equipment, and fleet vehicles are just a few examples of assets being tagged today with RFID. ABI Research believes the majority of RFID activity is centered on closed-loop asset management applications. However, open-loop asset management applications such as RTI tracking are being evaluated and deployed by several leading adopters. We expect additional solid ROI success stories to be revealed for open-loop asset management solutions in key verticals such as transportation and manufacturing within the next five years.

What strategies will RFID vendors need to deploy to emerge as leaders in the industry?
Over the last five years, the number of companies supplying RFID hardware and solutions has grown considerably. With new market entrants pursuing the supply chain opportunity and aggressively developing products, beginning pilots, and securing funding, the fact remains that few have generated big profits from installations. The supplier community remains fragmented between open-loop supply chain players and traditional, closed-loop system vendors — with several crossing both camps.

Although RFID has been around for decades, the market has not reached the level of maturity that its age would indicate. With the number of applications and opportunities for RFID growing across economic sectors and vertical markets, many supplier strategies have shifted (most notably toward the supply chain).

The primary focus of hardware manufacturers is no longer on selling the technology, but on selling solutions, efficiency, and the value proposition of RFID. Manufacturers have the technology; now they need to bring it to market. For the market to develop, the RFID vendor community will need to further distance itself from vertically aligned models (supporting niche applications) and move closer to horizontal-based business models.

What best practices CAN an organization USE to achieve RFID SuCCESS?
Liard: Developing an RFID blueprint is not a straightforward task, and the results will differ from company to company. But any plan must pull together the key lessons from each trial and then determine what is specific to each implementation and what can be replicated across all RFID deployments within the company. The blueprint should follow the approach that ABI Research has recommended to its clients: Focus first on the core application in which RFID can most readily deliver benefits and an ROI, but be aware that to maximize that investment the system must be able to support multiple applications in the future. While a single business objective can be served by an RFID system implementation, many users are (and should be) considering multiple value propositions that address multiple business problems through the use of RFID. A little foresight during the planning phase will go a long way toward maximizing the overall impact an RFID system can have on an enterprise.

Say, for example, the basic application is to enhance visibility of a product during production or in the supply chain. That application should also provide a foundation for later developments, such as improving product security or authentication. It could then enable condition monitoring or status reporting. Finally, and adding the most complexity, it could deliver enhanced awareness to power advanced decision-support applications, such as reducing out-of-stocks at retail partners during promotions.

To drive all these benefits, the blueprint must provide a way for any RFID application to be integrated within the company. That means designating a common approach to RFID data collection and sharing information with other applications. The blueprint also must cover a companywide approach to calculating any deployment's ROI and understanding the factors that impact the total cost of ownership (TCO). While many companies focus on the ROI, the TCO is often overlooked. But, since RFID deployments are often subject to licensing fees and future upgrades and integration, TCO is no less important.