“Holy cow! I think we’ve got something here!” Rod Farrimond, manager of business analysis at Schiff Nutrition International Inc., was clearly thrilled.

Watching a second pallet of cases coat itself in a taut plastic cocoon, he could see the adjacent RFID reader rapidly recording every case tag as the pallet rotated on the shrink-wrap turntable.

The first time Farrimond had seen 100 percent RFID read rates, he couldn’t quite believe it. By the third time, he and his IBM colleague had gotten full read rates and they knew they’d solved the problem.

Not long before, in February of 2006, the developer and manufacturer of vitamins, nutritional supplements, and sports nutrition products had received the mandate from Wal-Mart to meet the retailer’s strict deadline for complying with radio frequency identification (RFID) tagging requirements. With roughly 40 percent of Schiff’s $200 million in annual sales coming from branded and private-label product sales to Wal-Mart, and further sales from big-name retailers such as Costco, Rite-Aid, and BJ’s, Farrimond knew they had to hit their marks with RFID.

But Farrimond saw more than just a mandate. He saw significant opportunity—a chance to learn enough about RFID technology to build a sizeable competitive advantage for the long-term. “We wanted to have a system that would be as compliant for as many scenarios as possible—ready for another big retailer when they came by. It may only be for a mandate right now, but we’ve studied RFID long enough to know it has real benefits,” says Farrimond.

Prior to implementing its RFID project in late 2006, Schiff had already experienced first-hand the upside of supply chain proficiency. Previously, the company lost a big order to a competitor that had come in with a lower bid. But the rival hadn’t been able to deliver to plan, and Schiff had done so. “We’ve won back quite a few product lines because we executed the supply chain the way it should be done,” Farrimond says.

Now, with a successful RFID pilot behind him, Farrimond sees ways to use the technology to give Schiff an edge in terms of faster cycle times, lower inventories or streamlined logistics programs.

This big-picture view helped Farrimond secure IBM as its key RFID solutions provider. According to IBM’s Scott Burroughs, the RFID solutions executive with whom Farrimond partnered: “We want to work with the innovative companies. Schiff was clearly in that category: mid-sized, but with big thoughts.”

Schiff has a track record of developing first-to-market products, and its R&D and marketing teams work closely to develop and carefully test highly-targeted products—calcium supplements and natural granola bars, for instance. In 1997, Schiff consolidated its tablet, capsule, and bar manufacturing at a new Salt Lake City facility to save costs using modern systems, equipment, and higher capacity. Clearly built with future growth in mind, the 418,000 square-foot plant has enough capacity to increase Schiff’s current annualized sales.

Competing for shelf space with giant drug companies, Schiff is assiduous about cultivating strong relationships with its distributors and retailers. When the mandate from Wal-Mart came along, Farrimond saw a way to strengthen those relationships further and thus solidify Schiff’s competitive position.

“We have this real opportunity to show Wal-Mart we can do it, and do it on time as well as they expect,” he says. Farrimond and his colleagues had been actively studying RFID processes and technologies for at least five years before the Wal-Mart notification arrived—quite long enough to know that if they didn’t implement their RFID pilot with enough flexibility and scalability, they would waste money on it.

And they had seen plenty of misses elsewhere: companies that thought they knew how to implement RFID but found that it worked properly under only one scenario—for certain packages in set configurations of readers and tags, for instance. “One company we talked to had to re-implement three times. With our size, we can’t do that,” says Farrimond.

The Wal-Mart mandate moved Schiff to action, prompting allocation of a capital budget of $461,000 to pursue a pilot implementation. Schiff also decided it was essential to work with a seasoned partner with experience on flexible RFID systems and with a wide range of vendors of hardware and software. Early evaluation quickly put IBM in pole position because the company offered extensive testing facilities, along with deep experience—but no allegiance to one vendor.

The tests took place from May to August 2006 at IBM’s Center of Excellence facility in Raleight, N.C. Before the actual experiments could begin, the Schiff team had to decide what to test, and how. Although all of the products that Schiff ships to Wal-Mart fall under the RFID mandate—roughly 10,000 cases a week—to date only five of Wal-Mart’s 40-plus distribution centers (DCs) are RFID-enabled. Schiff currently ships to three of those, meaning a total of 180 cases going to an RFID-enabled DC each week. However, Farrimond and his team saw huge potential to expand their Wal-Mart business as the giant retailer expands its RFID infrastructure. So the plans called for Schiff to build a very robust RFID system.

The goal was to be able to build a pallet “pedigree”—a kind of RFID manifest of all the packages on one pallet. But the central challenge was to find a flexible and economical way to tag outgoing product on pallets where no two shipments were alike. At a giant consumer goods producer there are likely to be 40 cases of the same product on one pallet, allowing for regular stacking and simpler and repeatable set-ups for tag reading. But Schiff’s smaller order sizes mean that every pallet is different, stacked with different products in cases of different shapes and sizes, all arranged as level and stable as the materials handler can make it without worrying about what direction the products and their RFID tags will face.

The type of product package also makes a difference to RFID effectiveness. Schiff currently ships bottled tablets and capsules to Wal-Mart. But Farrimond and his team added three challenging categories of product to their experiments in order to put the RFID technology to the test: blister-pack tablets with a metal foil lining; nutrition bars, also in foil wrap; and liquid in glass bottles. Although Schiff was going to be using Generation 2 tags that emit stronger signals, it wasn’t certain that those product types would be easy to detect deep in the middle of a pallet at the shipping dock. Four tag types were used on each product, testing first on the cases, where the Alien Squiggle model—named for its antenna’s “squiggle” pattern—worked well, and then on the pallets, where Alien Squiggle worked satisfactorily but Omron Excaliber worked better.

The puzzle was how to read the disparate tags accurately among a unique assortment of products and cases. Could a good pallet pedigree be obtained with a reader mounted on the forklift? Would it mean a reader at the end of every case chute? Or on the automated sorter? Or should it be read with a hand scanner?

Each method posed problems. Hand scanning was impractical, with too much potential for error. The forklift-mounted reader did a good job for the cases next to the forks and just to the side, but missed plenty on the far side of the pallet.

After spending long hours at the Raleigh center, Farrimond had an idea. What if they could read it as the pallet spins at the shrink-wrap station? With about 120 cases on a pallet, it takes over a minute to wrap the plastic sheet all around and over the top of the cases—long enough, he thought, for an adjacent RFID reader to be able to pick up data from the case tags. In practice, the reader, placed just feet from the turntable, was aggregating the data from every case on the pallet—in about 20 seconds. Farrimond no longer needed to worry about poor read rates from cases packed densely in the middle of the pallet—a Eureka moment.

Farrimond offers a simple analogy to explain the physics of what he and Burroughs discovered. He compares it to a playground merry-go-round. Put some kids, all with different names, on the merry-go-round so they are distributed all over it. Start it spinning and have each child repeatedly call out his or her name. Stand in one place and act as the RFID reader. As all of the kids are calling their names at the same time, you tend to hear those closest to you. As the merry-go-round turns, the names of the kids you hear best will change as different children are presented directly in front of you. All you’re trying to do is get the name of every child on the merry-go-round, so once you hear a name you can ignore it and listen for different names.

The method is proving so effective that Schiff has now scaled the reader back to 40 percent of its power. That will benefit the company if it wants to locate another reader nearby; since the reader is now emitting less energy, it does not pick up extraneous reads from further away.

Implemented in just seven months and in place at Schiff’s loading dock by November 2006, the RFID pilot project came in well below budget. IBM deployed OATSystems’ OATxpress software platform to process and verify the case counts, ensure that everything is tagged correctly, and then print the EPC tag that is applied to the shrink wrap on an upper right-hand corners of the pallet.

So what are the benefits so far? There is no metric that points to a quick return on the investment, however, according to Farrimond, the benefits are many—but longer-term. “This builds us a huge RFID infrastructure backbone—that’s the important thing,” he says. Now that it’s clear that the technology is usable and stable, he can start seeing where Schiff’s emerging RFID capabilities can generate strategic advantage—for instance, giving Schiff an edge in terms of faster cycle times or lower inventories.

Farrimond believes that the rich views of Schiff’s RFID data—now available through supplier portals such as Wal-Mart’s Retail Link and in Electronic Data Interchange form as receiving advice document EDI 861—will help Schiff identify new ways to shave a couple of percentage points off inventory levels or push cycle times by about the same amount. Anything that helps Wal-Mart reduce its out-of-stocks or trim inventory will be looked on favorably—and can be used as leverage with other customers.

Schiff’s sales force can already go to retailers’ buyers with stories of 100 percent read rates. “They think they’re going to come back with good opportunities,” Farrimond says. The new capability also allows Schiff to think about bypassing distributors to ship more product directly to Wal-Mart’s centers; indeed, Schiff has just started shipping to a distribution center that supplies Sam’s Club, Wal-Mart’s membership warehouse club, and the Schiff team is considering boosting the overall number of RFID-tagged cases sent to Wal-Mart to 500 a week. Schiff’s sales staff has also become interested in RFID’s potential to tighten up promotion compliance in its retailers’ stores—essentially getting palletized end cap displays in place in two or three days instead of five or six, and using one 20-cent tag on a whole pallet instead of one per case.

There are few “soft costs” to the RFID operation. The learning curve for shipping dock operators is minimal: it involves just half an hour of training for a material handler. When the shrink-wrap operation starts, the RFID system turns itself on, indicates that it has verified the tag readability and case count, and then turns itself off when complete. “The handler doesn’t need to know anything about RFID,” says Farrimond.

It might seem tempting for the company to roll out RFID on a broad scale now that the pilot has been successful—but it’s too early. Even at 500 cases a week, Farrimond isn’t seeing a critical mass that would justify large-scale investments in RFID systems. “I would love to make a better business case for RFID, but until that critical mass hits, I’m not going to make any big process changes.”

One potential change would be to have cases coming through to the palletizing area already tagged as RFID items, but it will only make economic sense at greater volumes. “We’ll move that way soon,” he says. For now, there is satisfaction in knowing that Schiff has achieved what many larger companies have not. “We’ve demonstrated that RFID really is practical, affordable—and a game-changer for the long term.”