The problem with RFID—and how to solve it

Tom Andel, Executive Editor -- Logistics Management, 5/31/2007

CHICAGO—Many people think RFID is magic—that it just works. Veterans of RFID trials know better. However, those same veterans will also tell you what does make RFID work: a good business case.

Logistics Management moderated a panel on this topic at last week’s DC Expo, held at Chicago’s Navy Pier. Panelists included John Hill, principal of Esync, Ken Ehrman, president and COO of I.D. Systems Inc., Hersh Bhargava, founder of RafCore Systems Inc., and William Newcum, vice president of Advanced Software Technology, Inc.

You need to make RFID work for you before making it work for a supply chain partner demanding that you adopt it, said Newcum.

“A closed loop system seems to provide the best payback, and although compliance is good and gets people involved, there’s no yield,” he said. “If you can take a compliance system and turn it into a closed loop and get your business partners to return data to you so you can analyze it and make business decisions from it, that’s very good.”

He noted that tag prices have come down to 10-15 cents a tag, depending on quantities ordered, but other panelists said the technology is really proving itself via high-end tags. John Hill said his company looks for those applications where the cost of implementing RFID is secondary in terms of the potential value of a successful implementation. Hill was founder of the Automatic Identification Manufacturers (AIM) Trade Association when this technology was relatively untried. In the ‘80s he was COO of IDX, a pioneering RFID vendor. He cited an early trial involving General Motors.

“The tag cost was $130 in 1984, but the value of that tag relative to the data it provided GM for tracking WIP and triggering automatic end of line inspection was trivial in comparison to the return they obtained,” Hill said. “Given that we were in a position at that time to construct a tag which would handle high temperature, lots of abuse and could take 200 or 300 trips through the assembly process before it died, there was a value proposition in terms of cost per trip, not initial cost of the tag.”

In the early ‘90s, Ken Ehrman was so convinced that tag cost should be secondary that his company actually went full force into developing an expensive tag—10 times more expensive than existing tags. That translated to anywhere between $1,500 to $5,000. He characterized these as miniature computers which tracked assets.

“If you can locate the assets that are the highest value to your organization you’ll find a business case and bring value to the organization,” Ehrman said. “Too much attention has been paid to creating standards that would make the technology cost effective enough for people to buy. That’s a backwards way of looking at it. The way RFID should have evolved is someone developing a truly cost effective tag that would become the defacto standard. That has happened with certain RFID applications like toll collection. There’s a chance that will still happen.”

All it will require is a technology breakthrough in the logistics world that will drive markets to open standards. Concluded Ehrman: “In the most successful applications the standard should come second.”