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From baggage to tires to beer, industry is rapidly embracing RFID as the ultimate tracking technology. Can reality match the hyped expectations?
July 13, 2004

At first blush, the voicemail menu that greets callers to Delta Airlines corporate headquarters doesnt sound that different from any other large company directory. Callers can access an employee listing, make reservations, and speak to an agent. But the fourth option given to callers, For lost or mishandled baggage, press four, has motivated Delta to make a big change in the way it does business.

Lost or mishandled baggage costs Delta around $100 million dollars a year, according to a spokesperson (who insists that such mishaps occur less than one percent of the time”). Its for that reason (and the good PR the company stands to receive) that Delta announced in early July that it was investing $1525 million to implement a radio frequency identification (RFID) system in its luggage handling process. According to the spokesperson, the airline hopes to have the system up and running on its domestic routes by 2007.

Delta is hardly alone. In industries as far afield as brewing, animal husbandry, health care and apparel, big money is being made, saved, and spenttoday. On July 2, IBM opened an RFID chip testing facility in Francethe company’s third such RFID operation.

One of the most compelling cases of RFID usage comes from the British brewing industry. In late May, Trenstar, a Denver-based logistics company, signed a deal with Coors UK, and now has partnerships with the three largest brewing companies in Britain to manage their keg shipments. Previously, the breweries owned their own kegs and managed their shipment and returnsa costly and labor-intensive process. Trenstar bought the kegs from these companies and outfitted each with an RFID tag. The breweries now contract the keg coordination with Trenstar, which provides detailed audit trails of exactly where the kegs are and when theyre due back. The biggest benefit to brewers from RFID is the reduction of asset loss,” says David Adams, vice president for corporate strategy at Trenstar. “Breweries lose on average five to six percent of their kegs every year.  Weve cut that by more than half already.

RFID implementation by the British breweries also had some positive unintended consequences. Because the technology provided an audit trail for each keg, the breweries were able to claim tax credits on the amount of beer left in each keg. Typically, a brewery is taxed on the amount of beer shipped out. With an airtight audit trail now in place, breweries weigh the kegs upon their return and receive tax credits on the bottom swill or, if the keg was defective, the full keg. “Companies save roughly $1 to $12 per keg, depending on how much beer is left in the container,” says Thomas Ryan, an analyst with the Aberdeen Group.

The tax credit alone paid for the early implementations of this system, says Adams.

Though real world examples of RFID success exist, theyre still not plentiful enough to balance the enormous hype that surrounds the technology. The expectations that have been ratcheted up for RFID are outrageous, says Jeff Woods, an analyst with Gartner Research. Im a big believer in RFID, and I may be more optimistic than others, but anytime you have over-inflated expectations, the harder they fall. Another issue that could hamper the technologys growth, according to Woods, is an unrealistic notion of how much financial commitment RFID entails. There’s a huge disconnect between the actual costs of the technologycurrently 40 to 50 cents per tag for most applicationsand the magical price point of 5 cents per tag that many CEOs erroneously believe is right around the corner.

One good way to see what really is right around the corner is to investigate patent applications. Bruce Nappi, president of High Impact IP, an intellectual property consultancy, recently released a report called RFID 2003 Patent Report. His study found that between 1970 and 2003, 1,256 patents have been issued that contain the term RFID. The application mentioned most often in the patents is in automobile tires, with 20 patents filed. Examples go beyond the obvious one of tracking the tires through the supply chain; RFID tags could, for example, continually monitor the tires structural integrity, air pressure, and other factors, and report that information back to the cars central computer. Other ideas include unlocking access doors in buildings based on who is trying to gain entry, keeping track of cattle on the range, and even inserting RFID sensors into poker chips.  

Many casual observers of the RFID scene have circled January 1, 2005 on their calendarsthat’s the deadline issued by Wal-Mart has issued to meet its RFID goals. But plenty of other companies are rolling out the technology right now and are providing excellent insight into the business realities of RFID technology. RFID may be over-hyped because of the visibility Wal-Mart brings to the picture, says analyst Ryan. But when you look at it from a realistic point of view, theres no reason to be disappointed. RFID brings a lot of value that is real.

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