High cost of RFID slows progress

Greater sharing of costs and information is needed for all players to profit from radio frequency identification (RFID), because the high price of the chips is preventing retailers and manufacturers from using tags on individual goods.

Speaking at the second annual RFID ROI Forum in London this week, consumer goods giant Unilever said that RFID tags will need to drop below 3p before it could afford to use them on lower cost product lines.

"Item-level tagging in this industry is five to seven years away," said Marco Waas, vice president of supply chain and technology at Unilever.

Confectionery manufacturer Nestlé Rowntree also stated that it would not use item-level tagging until prices dropped.

RFID is currently beneficial for retailers looking to cut costs and improve stock visibility. But as chip prices fall tagging could become increasingly profitable for manufacturers, according to Unilever.

"I am absolutely sure that RFID technology for the whole supply chain will have huge benefits, but you can see most of the benefits at the retailers' end," said Waas.

"The balance of investment needs to be an area of discussion between manufactures and retailers, so that it is not all one sided."

But Nestlé suggested that greater stock awareness through item-level tagging can boost sales for manufacturers by increasing on-shelf product availability and in-store cross-promotional activity.

"We are looking for opportunities to sell more product and ensure on-shelf availability," said Paul Roberts, manufacturing systems manager at Nestlé Rowntree UK.

"Item-level tagging could help us do this, but it's a non-starter with the current privacy issues."

Unilever believes that RFID tags could be used in the households of the future so that products could communicate with intelligent kitchens and fridges to inform consumers when stocks are running low.

Agreement of common RFID tagging and reader standards is also needed to keep prices low and reduce miscommunication in the supply chain.

"[RFID] will only work if we really adhere to global standards, because as soon as we get into local dialects things will become difficult," explained Waas.

Vendors are increasing their support for RFID. Microsoft and Oracle have followed SAP and ObjectStore by adding RFID capabilities to warehouse management and supply chain packages.

Oracle's next version of its Warehouse Management System will include new RFID and electronic product code capabilities in a bid to improve inventory control and reduce supply chain costs.

Microsoft announced that it is working with customers to link RFID with enterprise resource planning systems, and to update its Axapta and Navision software in 2005.

Microsoft's Retail Management System is not planned to incorporate RFID until 2006.