RFID & the label converter.

Applications for RFID are popping up everywhere. They range from the predictable--logistics, for instance--to the peculiar--RFID arm implants that grant patrons entry to a bar and an interesting way to pay the tab (It's happening at Bar Soba in Glasgow, Scotland).

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While RFID uses are seemingly endless, the market is still small. And not all applications require the assistance of a narrow web press. Still, many argue that RFID is an exciting opportunity for narrow web converters.

"The timing is right, the market is in its infancy, and the future demand is huge," says Max Golter, VP of sales for Bielomatik-Jagenberg in Windsor, CT.

The Wal-Mart mandate has certainly generated a lot of RFID business for narrow web converters. Converters usually supply blank thermal transfer labels that enable Wal-Mart suppliers to comply. These labels can be sold directly to the end use manufacturer, but are also sold to RFID printer suppliers and RFID systems integrators.

When Wal-Mart's rollout expands to include all suppliers and all products, the number of labels needed will be huge. "I think the visibility from Wal-Mart is that they are talking such large numbers. They are talking billions," says Joe Jiner, RFID development director for The Kennedy Group in Willoughby, OH.

"The whole RFID industry is hundreds of millions of tags today, and if you look at Wal-Mart alone, when they are fully rolled out it's going to be upwards of five billion tags just at the case level," says Stan Drobac, VP for Avery Dennison's RFID unit in Redwood City, CA.

While the logistics segment of the RFID industry might eventually dwarf other markets in terms of size, narrow web converters say its not the only opportunity.

"We have quite a bit of activity going on long-term outside the supply chain. There are niche applications for RFID. Some of our first involvement has nothing to do with the supply chain," says Mike Sanzone, RFID product specialist for MPI Label Systems, which is headquartered in Sebring, OH.

Item level pharmaceuticals is currently the biggest application for CCL Label, says Rob Ryckman, vice president of sales and marketing of its Healthcare Solutions Group, which is located in Hightstown, NJ.

Argent Tape & Label in Troy, MI is also excited about RFID within pharmaceuticals, confirming that item level tagging is already a reality. "They are already starting. Pfizer has started a pilot program with individual tagging for Viagra because it's such a high counterfeit, high theft item," says Jim Agney, president.

RFID baggage tags for airlines is also a hot market right now, as is the tagging of library books. At a Smart Labels conference last year, sponsored by IDTechEx, representatives from Delta Airlines, McCarran International Airport and the Singapore International Library shared their enthusiasm about RFID and their current use of RFID.

Label converter's role: Inserting or manufacturing inlays?

"Label converters are playing a role somewhere in the middle of the RFID supply chain. Five separate modules could be considered in the chain of providing RFID labels to market," says Peter Van Vegten, global business development director for Acheson Colloids Company. Acheson is working as a joint partner with ANI Printing Inks to bring RFID technology to the narrow web market. He lists the five supply chain steps as follows:

* Manufacture of the antenna;

* Manufacture of the inlay (also called transponder);

* Manufacture of the label or the smart card;

* Sale of the system to integrators;

* Sale of the package to the end users.

While label converters today are primarily concerned with taking the inlay and creating a finished product, there is excitement over the evolving narrow web role. Many foresee narrow web converters' increasing involvement in the manufacture of inlays.

The printing of antennae is an up-and-coming technology. In fact, it has already been used by some suppliers in Wal-Mart's initial RFID implementation. It is a hopeful area for the narrow web market.

Much of the excitement revolves around economics. For one, "We've seen that margin pressures are making label companies re-evaluate their position in the market. The more processes you control, the greater added value you can offer, so you can protect your margins more," says John Costenoble, sales manager, graphic prints systems, Stork Prints America in Charlotte, NC.

Besides better margins for label converters, printed antennae could also aid in bringing the RFID label down in cost. By distilling the supply chain to fewer steps, converters can pave the way for a more affordable label.

"There are just too many people involved in this supply chain," says Steven Van Fleet, president of new label converting company R and V Group in Chattanooga, TN. He says label converters are going to have "to figure out how to modify or buy converting equipment to start attaching printable antennas to straps and making a lower cost RFID label."

Printable technology can also offer more flexibility in design and order size. "Printing allows you to do some things that aren't really available to designers of antennae in etched copper or aluminum," says Dan Lawrence, director of technology and commercialization for Precisia in Ann Arbor, MI. In other words, "You can change the antenna design when you change printing plates."

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As with any new technology, challenges must be worked out before some of the benefits of printed antennae are fully realized. As far as condensing the supply chain, converters might currently be able to print the antenna (step one) and insert the inlay (step three), but chip attachment technologies have proven prohibitive for label converters to enter into today.

"There is a possibility that down the road converters may print antennas and mount straps to those antennas and insert that finished inlet into a label structure, but I wouldn't anticipate converters mounting chips from wafers to antennas," says Bob Zaccone, vice president of Graphic Solutions International in Burr Ridge, IL.

Today, "Only a few chip manufacturers have made their chips available in straps. It's not widely adopted," he adds. "The process of mounting that strap to the real antenna is not nearly as precise a science as the chip mounting itself."

There is also a potential obstacle for label converters, associated with the printing process converters most use. Antennae are mainly printed using screen and gravure. Flexo, the process of choice for most narrow web printers, poses some difficulty.

"There are some challenges. One, our inks need a thermal cure and most flexo lines don't have a thermal capability. And two, flexography puts down very little ink, so they have to use multiple stations, which require a registration challenge at the place where the chip is attached," says Steve Ludmerer, president of Parelec, a manufacturer of conductive inks based in Rocky Hill, NJ.

One converter questions the future demand for printed antennae. "There are some areas where the printed technology is going take off. But as soon as you get into hostile environments, then there are issues. I'm not saying it's good or bad--but there are certain applications where the printed antenna is going to work really well, and other areas where it will not," says Jiner.

Considering the benefits of printed antennae and the challenges that they pose for label converters, will this emerge as a new role for narrow web converters? "Label converters' roles will change eventually. I think it will become more of an integrated part of construction, but I don't think you'll see a lot of it in the next few years," says Ryckman. "The average narrow web company doesn't have a demand or a need to do that at this point. And these products are very specialized, they are not what I'd call commercialized yet."

Printed technology remains something to watch. And perhaps of more excitement is the possibility of printing the entire transponder (See Item Level article on page 64) in the future, not just the antenna.

Business challenges

Orders are starting to come in, but the big question for the narrow web industry is whether or not label converters are making money on RFID.

Not yet, says one converter. "The marketplace is excited about the application, about the technology, and about applying the technology to their own operations. They have started to allocate research and development money to investigate the use and benefit and do a value analysis of RFID. What it has done to companies like ourselves, and many companies that are already into RFID, is to drain us for information: trials, prototypes, samples. There's a high cost to the dynamics of our industry," says Jim Agney.

The converting process is also not as efficient as it could be. "Right now, many inlays are furnished in one-across reels. It's pretty hard to convert economically in one-across reels when you are talking large volumes. How you adapt to that, or how you change that, is one of the issues," says Alan Davis, president of Tapecon, headquartered in Buffalo, NY.

Apart from issues related to profit, there are some technical obstacles as well. Inlays coming into label converters still offer questionable yields. "Trying to solve the problems furnishing 100 percent good product has been a large challenge, and the early converters who have learned to understand and get around those issues are the ones who have stayed in it," says Davis.

Fortunately, this is changing. "Another thing synonymous with UHF transponders [inlays at 915 MHz frequency in the US] until recently was poor quality. It has been a big problem because the failure rate on transponders has been 20 and 30 percent," says Golter of Bielomatik. "Now, UHF transponder manufacturers are boasting quality levels in the 99 percent yield range. That's huge as well, because the poor quality has frustrated the converters, frustrated the end users."

Inlay shortage has also proven to be a challenge, at least in the short term. Golter says that transponder manufacturers currently have up to a 22 week delivery time.

Capacity constraints, some say, are in every part of the supply chain as demand increases. "There are capacity constraints at each and every segment of the marketplace," says Bob Zaccone.

"With the adoption of the Class One, Generation Two standards, we'll start to see people putting capacity in place, realizing that the market has developed. Still, there's going to be a lag of capacity to demand, probably for the rest of '05 and into '06. My personal expectations are that the marketplace will really begin to explode in '07 and '08 and capacity will barely be able to keep up. So I think we'll be looking at capacity constraints for the next few years," he adds.

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Class One, Generation Two

Last year the issue of standards was a hurdle for the RFID industry. This year that concern has subsided with a new standard. The EPCglobal UHF Generation Two standard was ratified by EPCglobal last December. It marks a significant milestone for the RFID industry.

According to the EPCglobal, an organization whose aim is to drive RFID standardization, it is the first royalty free, global standard related to RFID. Developed with input from over 60 member companies, the new standards offer interoperability around the world, and security improvements, such as advanced encryption technology.

The standard is important for the further development of the RFID industry. "Now chip companies can build to a standard and it will be interoperable with other people's equipment that has been built to talk to that standard," says Lawrence. "It takes a lot of the uncertainty out of manufacturing. A company that wants to implement RFID doesn't have to worry about using proprietary technologies that may or may not be compatible now or in the future."

It may also ease capacity issues. "This should now make it easier for more companies to start manufacturing larger quantities," says Van Vegten.

For label converters specifically, "Standards are good, and help the converter better understand exactly what equipment he needs to produce labels that will work with a variety of equipment," says Ken Daming, product development manager for Mark Andy in St. Louis, MO.

Generation Two standards are not available commercially yet, but Lawrence predicts that in the next six to nine months, they will start to appear in the marketplace.

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Getting in or staying out

According to a survey conducted by Labelexpo officials in 2004, 37 percent of converters were interested in getting into RFID. That interest was apparent from the crowds around RFID equipment vendors.

"Last year at Labelexpo, we introduced our machine and since then we've been inundated with requests, not only about our machine, but about RFID in general. The interest is increasing dramatically," says Dave Grove, sales engineer for Schober USA in Cincinnati, OH.

Label converters are watching this technology closely. For those who are involved with the industry, they offer both words of encouragement and words of caution.

"Let's begin first of all painting a picture of why it's in a converter's best interest not to wait. Over the past 12 months, orders from transponder manufacturers have quadrupled resulting in delivery times as far out as 22 weeks," says Golter. "Quadruple production and long deliveries are proof that usage of smart labels and smart tags are increasing dramatically."

He continues, "Those electing to wait have partially done so because of the lack of that standard [Generation Two]. That standard is here now. Instead of waiting and seeing what's going to happen, converters should be saying 'I need to look at getting the capability in-house sometime soon, I need to broadcast this is up and coming on my web site, and I have to start training my sales force in RFID technology'."

Others advise caution because of the expense. "It's an expensive technology to learn, for a couple of reasons. One is that you need a set of skills that you don't have typically if you are a converter. You need electronics personnel, for one thing, and they are hard to find and fairly expensive. And the other thing is that as you learn your manufacturing processes you will have to go through quite a bit of expensive material," says Drobac.

"It's a gamble whether you want to be an early adopter, take the risk and be there when it really takes off, because it will take off and it will take off very fast," says Mike Cove, senior marketing manager, thermal and advanced technical product business for Appleton, located in Appleton, WI. "But it's going to cost you a lot of money to learn."

R and V Group, founded in October, has decided to take the plunge. They have invested significantly in RFID--purchasing high speed quality control equipment, as well as equipment that will ultimately allow them to attach printed antennae to straps.

The president, Steven Van Fleet, had this to say to those converters who are examining the market: "Two pieces of advice would be: Before you invest in equipment, don't base your return on investment on today's market sell price because it's just not going to be sustained. If you are in it for the long term, you have to look beyond the current cost structure to make the labels, and the current technology. Number two, you need to understand that things are going to change with UHF Generation Two. The players are going to change, the dynamics are going to change. You have to look beyond the traditional short investment period, because this technology is very dynamic."

It's been a year since Label & Narrow Web's last feature article on radio frequency identification. Much has changed since then. The market continues to grow and evolve amidst a bevy of financial and technical challenges. A new standard has been ratified. And one of RFID's biggest drivers, Wal-Mart, proclaims it's "right on track" with the mandate requiring suppliers to tag cases and pallets.

In this special section, five articles will provide comprehensive coverage of this fascinating technology. The first four are written by our in-house RFID analyst, Associate Editor Leah Genuario.