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Reassessing item-level RFID for inventory management

Item-level RFID helps manufacturers fine-tune RFID inventory management and production planning.

Though radio frequency identification (RFID) tags are becoming increasingly common on cases, pallets and capital...

equipment, they have been slow to arrive on consumer items. Retailers and manufacturers balk at the cost of tagging large numbers of low-priced goods, and privacy concerns raise legal hurdles.

But recent success stories and retailer initiatives could have some manufacturers asking: Is it time to rethink item-level RFID?

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Improvements in RFID inventory management efficiency and accuracy could make it worthwhile, according to some experts.

"Increasing efficiency in the store isn't just good for the retailer," said Justin Patton, managing director of the University of Arkansas RFID Research Center. "It's good for the supplier for better forecasting and making sure they have the right product in the store."

The goal is perpetual inventory (PI) that is more accurate than what's achievable with bar-coding, a more manual process vulnerable to human error, Patton said.

For example, Conair, a seller of hair dryers and other personal-care and cooking appliances, recently released details of its project requiring Chinese suppliers to add item-level RFID. "We've been realizing substantial gains in efficiencies," said Paul Arguin, director of engineering and technology for USA ID, a Conair subsidiary dedicated to RFID. Cycle counts are more accurate, and information helps in production planning. "You have visibility into where the out-of-stocks are," Arguin said.

RFID inventory management trends

Some retailers are taking the lead. Walmart's Sam's Club division, for example, is encouraging suppliers to attach item-level tags. It originally mandated them by Oct. 31 but later hedged on the timeline, according to reports and a 2009 company letter. Conair says it complied in late 2008 with its Cuisinart and Waring lines and has seen increased sales.

Retailer incentives have evolved as the industry learns from experience.  Walmart mandated case- and pallet-level RFID by 2005. But the mandate didn't have the desired effect because the data wasn't widely shared and financial penalties weren't strong enough to force compliance, said Bert Moore, director of communications and media relations for AIM, an association of RFID, barcode and mobile computing vendors.

"Walmart's big push was, 'You give us RFID, we'll be able to get you better information,'" Moore said. "But they didn't. They only shared the information with some suppliers."

A more effective method is to get every business partner on the same page, with each clearly knowing how it stands to benefit from RFID inventory management, Patton said.

Much of the activity among manufacturers centers on apparel and pharmaceuticals. Moore said item- and case-level RFID is taking off among apparel makers because their products are the result of a long supply chain that includes manufacturers of original textiles and such ancillary materials as ribbons. Pharmaceutical companies use RFID for regulatory compliance and to keep hospital formularies well stocked.

"Most of the reason that retail apparel gets more attention is because in that space you need a lot more collaboration," Patton said. "You've got a whole lot of suppliers supplying one retailer."

The benefits -- inventory tracking and loss prevention -- quickly become apparent, and high profit margins on items such as $100 sweaters allow more room to experiment with tag prices. Furthermore, the industry has experience with electronic article surveillance (EAS) tags -- the familiar theft-detection devices that can set off store alarms.

"This is not just coming out of the blue for them," Patton said. "They're used to managing data at an individual item level." The RFID Center has been studying apparel projects, including a recent pilot by retailer JC Penney comparing RFID inventory accuracy with barcodes. The report found  significant improvement even though the accuracy with barcodes was already above average.

American Apparel is another manufacturer that has been open about its use of item-level tagging. A case study describes how the company used Motorola readers, Avery Dennison tags, and Vue Technology software in a 40,000-piece pilot to reduce out-of-stocks and improve store visibility while saving time on inventory counts.

Manufacturers have their own incentives, including streamlined recalls. RFID tags capable of mass serialization (a process that automates code assignment by starting with a given number and incrementing it) can reduce mass recalls by targeting specific lots and batches. Moore said manufacturers can begin to prepare by testing a database with RFID data encoded in 2-D barcodes, adding the RFID later.

While case-level RFID can be adequate for recalls, he said, item-level RFID is necessary on goods that are subject to counterfeiting, a category that increasingly includes not only designer handbags but toothpaste and baby formula. One of the main reasons manufacturers adopt RFID is brand protection, though the return on investment is hard to quantify, he said.

The technology can also close a gap in inventory management systems between stockrooms and sales floors, Moore said. Stores are good at tracking inventory that arrives at the loading dock, enters the stockroom or passes through point of sale (POS) systems, but they are less aware of what is actually on the floor, which can vary as a result of theft and other factors.

Getting a better handle on store inventory is especially important to manufacturers with money tied up in vendor-managed inventory (VMI) and rack jobbing, in which retailers provide space but don't pay for inventory until it is sold. "If your salespeople have to keep the inventory, then RFID is really useful," Moore said.

Advances in RFID technology

Passive ultra-high-frequency (UHF) tags have become the most affordable and convenient type for identifying individual items, according to Moore. Because they are passive, they don't need the transmitters and batteries of more expensive active RFID, and they can be more compact.

Patton said item-level tags have become more sensitive, which increases read range and lifespan. In addition, RFID readers are better at reading the tags in wider areas, sometimes even pinpointing their location. As an example, he cites RF Controls, whose antennas are accurate to within an inch, which could help locate missing inventory. "You can have these things where they are monitoring several dock doors," Patton said.

A system from Mojix excels at covering large areas, he said. The company claims its distributed transmitters can locate passive UHF tags inside a 250,000-square-foot range.

Moore said combination RFID/EAS tags are helping to further advance item-level tagging by allowing companies to invest in one tag for both security and inventory management. Conair chose the tags to avoid duplicate inventory counts, Arguin said.

"There are also tags that work for both near-field -- which would be more of a POS approach -- and far-field, which would be more for inventory," Moore said.

Their trick is to maintain a clear separation between the magnetic, near-field range and the radio-based far-field range. But Moore predicts that it will be years before RFID begins to displace barcode readers on POS systems because it faces the same chicken-and-egg problem that bar-coding did in its early years and provides no clear-cut advantage over the existing technology.

Nokia is also preparing a fourth-quarter release of cell phones containing both near- and far-field RFID readers, a breakthrough in affordability that could prove a boon to direct sales workers, Moore said.

He added that early forms of a new type of tag that can be printed directly onto items suffer from capacity and speed problems and are probably at least two years from viability.

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