This month, I conclude my conversation with Michael S. Shiff, general manager of RFID Recruiters, discussing some of the key dynamics driving the RFID (radio frequency identification) wave as it relates to business intelligence.
McKnight: Is tag reading primarily an operational event, designed to update inventory levels and trigger replenishment?
Shiff: To be clear, in this discussion we are primarily focused on passive tags in supply chains as opposed to active tags in, for example, a real-time locating system. Passive tags exist and are growing at an explosive rate largely because enterprises see an opportunity to substantially improve inventory management. Adopters of RFID technology believe that supply chains will become more efficient to the point that fewer sellers and customers will experience out-of-stocks, and sellers will experience less overstocks and other wrongly stocked products. Better inventory management translates into better cash flow. Additionally, labor savings and improved customer satisfaction are benefits that adopters are pursuing.
McKnight: Do you see this data being stored in data warehouses?
Shiff: I think that before companies make significant investments in deploying RFID systems that will generate significant new volumes of data, they should consult with data warehouse specialists to explore the challenges and opportunities.
McKnight: How much data will there be?
Shiff: I think it's difficult to characterize the volume of data in a simple or quantifiable manner, but I can provide a way to visualize where we are headed. Today, people's credit cards are "swiped" whenever they make a purchase with their credit card. A relatively small amount of data about an event is transmitted and is subsequently captured for various processing and storage purposes. Tomorrow (or sometime in the next several years), most pallets and cases will begin generating RFID data as they traverse each step of the way within facilities and between facilities throughout the supply chain. Over the next decade, tags will move from pallets and cases to the item level on retail shelves. As tag prices decrease, items of ever-lower value will be tagged. It has been envisioned that someday, every sheet of paper in a ream may have its own RFID tag. It's not too difficult to plot Moore's Law to see that whenever we reach the five-cent tag (and some people think that might be as early as 2008), we should then only be approximately three 18-month cycles away from the sub one-cent tag. It is therefore conceivable that within the next decade or so, it may be cost effective to tag almost everything worth less than one dollar. Take a moment to look around - see how many items immediately within your view are worth more than one dollar. Most products are only sold once, and yet the volume of credit card transaction data is huge. It is true that each credit card transaction is a business transaction that results in payments and settlements; however, with RFID, each product will generate many events prior to the business transaction - and eventually RFID will also participate in the business transactions. For people who are interested in making better products, improving the distribution of those products or improving customer service, the ability to tag and uniquely identify individual products seems to hold endless possibilities. For people who are interested in warehousing data and gleaning business intelligence (BI), the potential also seems limitless.
McKnight: What are the parallels to clickstream data management, which experienced a data storage deluge followed by a sanity check on what can really be dealt with?
Shiff: In terms of similarities, I think both offer access to a lot of data. Another similarity, hopefully, is that in both environments, people should be anonymous. While user anonymity is perhaps not the ideal situation for marketers, I think it is ideal for people as individuals.
In terms of dissimilarities, where clickstream applications have focused quite a bit on "virtual" behavior, RFID tags will be focused on physical behavior (i.e., how physical items move through physical environments to physical destinations). Certainly, improving the utilization of assets though better inventory management holds the promise of improving cash flow to a degree that clickstream management hasn't produced. Wal-Mart is reporting significant improvements in inventory management as a result of RFID tagging.
At the end of the day, the only two ways to improve profit are to increase revenue and/or decrease costs. RFID holds considerable promise for an enhanced understanding and balancing of supply and market demand. How well RFID fulfills the promise might depend on how well BI and warehousing applications are conceived and implemented.
McKnight: Will this be an industry driven by mandates?
Shiff: Today, the RFID industry is heavily driven by mandates. The most visible mandates have come from Wal-Mart and the U.S. Department of Defense (DOD). Wal-Mart and the DOD have required that their top suppliers adhere to their RFID requirements. Other military mandates in Europe and commercial mandates in the U.S. and overseas are gaining momentum.
McKnight: What about standards?
Shiff: For commercial supply chain applications, the key standard is the EPC standard. EPC is a set of evolving specifications that are driven by key technology provider organizations and influenced by key user organizations. EPC Global recently announced its "Gen 2" specification that had been widely anticipated. This Gen 2 specification has garnered considerable attention from the ISO standards community, and it is expected that EPC Gen 2 will become highly aligned with the forthcoming ISO 18000-6 specification. In parallel, the DOD - while very supportive of EPC - has developed specifications that are unique to the DOD's needs. Additionally, other industries such as the aerospace and pharmaceutical verticals have been advancing standards applicable to their industries. Importantly, standards for RFID involve regional considerations at the international level, not the least of which are frequency coordinations. Therefore, regions and countries around the world are working to develop specifications that will work locally and be interoperable globally. In a global economy, RFID tags will travel with their products throughout the world.
McKnight: Who is going to bring value to this emerging industry?
Shiff: Of particular value will be companies that have experience with enterprise software that automates workflow. Companies with enterprise resource planning (ERP), logistics, warehouse management, BI, customer relationship management and other application provider experience will be among the many new entrants into the RFID field. Software companies will bring value to RFID initiatives from two converging perspectives: 1) expertise regarding the ability of various application software packages to provide off-the-shelf automation with a reasonable amount of configuring (versus large-scale customization) and 2) expertise in .NET, J2EE, XML and other Web services technologies that will provide highly flexible means of customization and integration.
Regardless of the technology platform, the high value companies will be those that can translate their experience in supply chain management and other business processes within (and across) industry verticals into knowledge, skills and insights that can be leveraged by their RFID customers. Consultants and others who utilize consultative methodologies to develop innovative but practical RFID use-cases for their customers will be increasingly in demand. System integrators will be key to many RFID implementations.
Companies that can lead users to the automation of vertical and horizontal workflows in a manner that is cost-justifiable and consistent with users' strategic business objectives will be among the most valuable RFID providers.
Undoubtedly, RFID is a major factor reshaping information management. Jim Crawford, an analyst at Retail Forward in Columbus, Ohio, calculates that if Wal-Mart stored every RFID of every tagged item on every shelf, it would generate nearly eight terabytes of data per day. The CSI RFID strategy addresses the challenges of data quality, scalability and high-volume data management on a near real-time basis.
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