Pinpoint Control

Tiny chips may revolutionize all areas of supply-chain management — if the cost comes down and the standards come together.

RFID technology promises to transform supply-chain management from end to end — tracking pallets in warehouses, monitoring parts on assembly lines, and even following products after purchase. But for all its potential, the technology faces significant hurdles before it can achieve widespread adoption.

Unilever is among the early corporate adopters, working with pallet rental company CHEP International to develop reusable shipping pallets with built-in RFID tags, and with RedPrairie Corp. on warehouse management applications. Yet even Unilever's own implementation has limits: the company hasn't yet tested how RFID data will be managed across its SAP applications, or how the new data sources will affect its databases. "It's still not entirely clear how the whole system is going to work," says Unilever's Ellis.

The Auto-ID Center is slated to publish a complete standard in the second half of next year — a prerequisite for the kind of interoperability that would make RFID truly transformative. "If this technology is going to deliver the benefits, it's going to require a common approach, and that's not what we have today," Ellis says.

Cost remains the central obstacle for many potential adopters. A 5-cent RFID tag "isn't cost effective for gum," says Jeff Martin, director of Wm. Wrigley Jr. Co.'s Global Center of Excellence. "Even at the box or pallet level, it's just not in our future right now." For some retail applications, tags need to drop to a penny or less before the economics make sense.

Others aren't waiting. Old Dominion Freight Line is using RFID tags on 12,000 pieces of trucking equipment to control inventory in its freight yard, track shipments, and monitor employee productivity — with a one-year payback. "It saves clerical time and helps us manage yard time," says David Congdon, president and COO.

Looking further ahead, NASA's Marshall Space Flight Center is developing a "sprayable" RFID tag, due commercially in three to five years, that could allow automakers to monitor parts on assembly lines and service them later. But such capabilities raise privacy concerns: the prospect of products tracking their owners' movements after purchase could trigger a consumer backlash that no technology standard can resolve.