Good things come in small packages. This familiar cliché usually refers to precious stones, but today it's taken on new meaning, in that small things are now protecting items we deem valuable.
Analysts estimate that the retail industry loses US $50B a year to theft and up to ten times that much to counterfeiting. High-end products such as cosmetics, fragrances and pharmaceuticals are most likely to be stolen or counterfeited. Many retailers and manufacturers believe that this big problem may have a tiny solution - RFID smart tags.
RFID (Radio Frequency Identification) is an automatic data capture technology that offers unparalleled accuracy in inventory control and supply chain management. Although RFID is a relative newcomer to the media spotlight, the technology has been quietly working its way into our culture and into our lives since it was drafted by the military 60 years ago.
The US Department of Defense first used RFID to track military aircraft during World War II. Since then, this compelling technology has been used extensively in highway toll collection, building security, library circulation, parcel delivery and airport luggage transportation.
What exactly is RFID and how does it affect the future of packaging?
RFID functions as a network of microchip "smart tags" and receivers. Each smart tag is embedded with a unique electronic product code (EPC) and a micro-antenna. Once assigned, the EPC becomes a DNA-like marker for the item, identifying it from every other item in the world. When a tagged item passes within range of a reader, the reader retrieves the EPC via radio waves, identifies the item and its exact location, and relays this real-time information to a central computer. Taken together, the series of transactions comprise a comprehensive record of the tagged item's movement from point of origin to point of sale.
The greatest promise of RFID lies in its application versatility. Smart tags can be affixed to either individual products or to pallets containing multiple units, and can be "read" through most materials. RFID readers can scan multiple items at one time, making them functionally superior to traditional, uni-task bar code scanners.
Scientists at the Massachusetts Institute of Technology (MIT) Auto-ID Center began to explore commercial applications of RFID in 1999. Wal-Mart, The Gillette Company and Proctor & Gamble were among the first to conduct pallet-level pilot tests. They quickly found that RFID offers improved supply chain visibility and more accurate inventory forecasting. Because RFID does not require line-of-sight operations (contrary to manual bar code scanning) the end users achieved improved inventory control with reduced labor costs.
Encouraged by their success, British retailers Marks & Spencer and Germany's Metro AG quickly adopted RFID applications in their production and distribution channels. The US Department of Defense, Benetton, CVS, Home Depot, Gap, Target, Kohl's, Tesco, Coca Cola and Albertsons have all begun incorporating RFID into their supply chain operations. In 2004 Wal-Mart issued a mandate that their Top 100 suppliers become RFID compliant by 2005, and the FDA plans to convert to item-level RFID distribution tracking by 2007.
In spite of strong industry support for RFID, widespread adoption of the technology has been slow. One reason for the delay is the lack of uniform standards for network and data management. For example, smart tags are currently available in low, high or ultra-high frequency versions, with read ranges of as little as a few inches to as much as 30 feet. AIM Global is a consortium of RFID developers and suppliers who are working to establish global RFID standards. Their goal is to educate manufacturers and suppliers about the potential benefits of RFID, and to provide the education and resources necessary to realize ROI from the use of this technology.
Cost and quality concerns have further dampened enthusiasm for RFID. Tag failure rates are reported to be as high as 20% to 30%. At an average cost of $.30 per tag, many suppliers find the prospect of item-level tagging prohibitive.
So far, RFID compliance has been the responsibility of suppliers. Retailers have generally refused to accept any price increases resultant from RFID start-up expenses. As a result, suppliers have had to either absorb the cost of becoming RFID compliant or risk losing lucrative commercial contracts.
However, as RFID becomes the norm manufacturers will look for converters who can provide pre-tagged packaging that is market-standard compliant and ready for entry into the RFID regulated supply chain.
Technology is inherently evolutionary. The logistics of RFID are changing rapidly, with ongoing advancements in ink, labels and methods of smart tag attachment. In a future article I will explore specific developments in converting techniques and the impact of this compelling technology on the packaging industry.
