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Get "smart": Electronic Product Code tags could provide the visibility shippers have been seeking for real-time control over inventory in transit.

Imagine walking down the aisle at Wal-Mart and seeing Gillette's Mach 3 razors on sale. Since it's your favorite razor you decide to buy 10 packs, leaving two remaining on the shelf. A recorded voice coming from the shelf announces, "Thank you for buying Gillette razors. 'The voice surprises you, but you smile and move on.

Meanwhile, a signal sent to the back room alerts employees that only two Mach 3 razor packs are left on the shelf. The store's information system knows that the product must quickly be replenished. But the system also knows that 10 packs disappearing at once is an unusual event and may indicate theft.

That unexpected "thank you" has a dual purpose. If you grabbed 10 packs of razors for a legitimate purchase, then the voice has communicated the company's gratitude. But if you're a shoplifter who snatched 10 packs of razors in an attempt to steal them, the voice has let you know that someone is aware of your movements. Just to be sure, the "smart" shelf alerts store security that something unusual has occurred and transmits a visual image from a surveillance camera.

Sound like science fiction? Not any more. This technology not only exists, but Wal-Mart reportedly is testing it in conjunction with major consumer-products manufacturers such as Gillette.

What makes it all possible is radio frequency identification technology (RFID) that uses an Electronic Product Code (EPC) to transmit information to computers. An EPC acts like a sort of "license plate," identifying the product in a format that can be read by computers and imported into a database. When an EPC is paired up with a transponder, the result is a "smart" tag that can track an item s movements. (Electronic Product Code is a trademarked term.)

Although "smart" shelves and consumer products are still in the pilot stage, pioneering companies already are starting to roll out this technology throughout their supply chains. That's good news, because EPCs could finally provide true, real-time visibility of products as they move through the distribution pipeline.

More Data and Flexibility

"Smart" intelligence is based on RFID technology that is now being tested by Wal-Mart, Gillette, Procter & Gamble, and other companies that sponsor the Auto-ID Center at the Massachusetts Institute of Technology (MIT) in Cambridge, Mass.

The EPC resembles the Universal Product Code (UPC) bar code in that it carries unique product information. EPC, however, offers some advantages over bar codes. For instance, it can include far more data than even the newly expanded 14-digit UPC number. And RFID tags transmit data via radio waves, so they don't need a direct line of sight between the tag and the scanner.

Once an EPC-encoded tag has been scanned, item-level information is integrated into a central database that determines precisely where and when the stock should be stored or shipped. Reading the tags at each point in the supply chain creates a real-time record of where those items are, where they've been, and what time they were there.

Smart tags may not have hit the grocery shelf yet, but they already are seeing action. The U.S. military attached RF tags to supplies moving into Iraq, says Peter Abell, research director for global retail at AMR Research Inc. in Boston, In the first Gulf War, wind-blown sand obliterated bar codes on military hard-ware. This time, the military used RFID to avoid that problem.

That same technology is now headed for the home front, where big-box retailers are pushing RFID applications. "Wal-Mart and Home Depot are leading the charge with compliance programs," says Matt Klein, vice president of Forte Industries, a supply chain consultancy in Mason, Ohio. "Wal-Mart has mandated their top suppliers will put an RFID tag on a pallet by January 2004, and by January 2005, every box will have an RFID tag."

Potential Roadblocks

If EPC tags are to become as ubiquitous as bar codes, though, their promoters will have to address two potential roadblocks to adoption: price and standards.

Right now, the price for individual tags is too high for companies to buy the huge quantities needed to achieve supply chain visibility. "I would say today's realistic price in large volume is 50 cents," says Matt Ream, senior product manager for RFID systems at Zebra Technologies in Vernon Hills, Ill.

Fifty cents may sound like peanuts. But consider that for its smart-shelf test, Gillette bought a half-billion individual RFID tags, and it's clear why that price is a bit dear for a $7 pack of razors.

The Auto-ID Center's original goal was to create tags that cost 10 cents or less so they could be commercially viable, says Paul Fox, director of global external relations for the Gillette Company in Boston. Gillette hit the magic 10-cent mark with the huge order it placed with Alien Technology Corp. of Morgan Hill, Calif. "This is the biggest order in the history of the industry," says Vice President, Corporate Development Thomas Pounds.

Fox says the new goal is to sell tags for a fraction of a penny, which would fuel adoption for even the cheapest products. Pound doesn't believe the price will ever fall that far, but he does say Alien could halve its price for orders of 10 billion per year.

Fox believes the Gillette-Alien deal will spur greater use of RFID. "The most important aspect of that agreement is that it sends a clear signal to the world that the goal of low-cost tags is a reality," he says. "...Once the cost comes down further, you'll see fast adoption."

But cost isn't the only hurdle for EPC. Universal standards will be needed if companies are to share EPC data. EPC's promoters are swiftly moving in that direction: The Uniform Code Council (UCC), which oversees North American bar-code standards, and EAN International, which does the same for international standards, have announced a joint venture called AutoID Inc. that will work with MIT's Auto-ID Center to create EPC commercial and technical standards.

Another issue is compatibility with existing software. One group that's addressing that problem is Accenture Technology Labs in Chicago. Accenture has developed a tracking system based on EPC technology that is compatible with enterprise resource management (ERP) systems and the inventory and warehouse systems they include, says Joe Tobolski, director of the Labs' Silent Commerce Center.

Even if companies do quickly embrace smart tags, there's bound to be some overlap between UPC and EPC codes for a while. That's why NCR Corp. of Dayton, Ohio, is marketing a hybrid scanner that reads both bar codes and RFID tags. "We're not going to wake up Thursday morning and find integrated circuits in our grocery shelves," says Craig Maddox, director of product management for bar-code scanners at NCR. "We're going to have hybrid scanners for years and years."

Benefits for All

The potential benefits of real-time item tracking are enormous. But will those benefits justify the cost? Gillette's Fox expects that companies will quickly realize a return on their RFID investments. For one thing, he says, users will greatly increase their data accuracy and problems such as lost shipments could become a thing of the past.

Fox also predicts RFID will solve one of retailing's biggest problems. "The retail industry loses billions annually because it can't get the product on the shelf when and where the consumer wants it," he says. Because RFID technology will provide inventory visibility, it will let retailers shift production and inventory to meet changing demand--a capability that will lead to increased sales, he suggests.

Fox believes the advantages of EPC/RFID will dramatically increase as more companies up and down the supply chain adopt those technologies. "The true benefit occurs when you have end-to-end vision from manufacturing and logistics through retail, with all companies accessing the same system," he says.

Editor's Note: For more on EPC, see "Ready for the Auto-ID Revolution" in the May/June 2003 issue of Supply Chain Management Review (

RELATED ARTICLE: Why Companies Want EPC/RFID--or Not

Earlier this year, Boston-based AMR Research surveyed senior executives about their companies' adoption of radio frequency identification (RFI D) technologies at the research firm's Retail and Consumer Goods Conference in Chicago. Sixty percent of those respondents--all from retail, consumer products, and apparel companies-said they were currently evaluating EPC/RFID. Another 10 percent said they had implemented the technology or had pilot projects in place.

Here's what they said about why they are investigating these technologies, and what they see as possible roadblocks to implementation.

Reasons for adoption, ranked in order of importance:

1. Reduction of out-of-stocks

2. Increased inventory turns

3. Improved order-fill rates

4. Reduction of warehouse operating costs

5. Improved consumer shopping experience

Potential roadblocks to adoption:

1. Consumers' concerns about privacy

2. Consumers' fears about health effects

Source: AMR Research

EPC Tags: Supply Chain Visibility and a Whole Lot More

Researchers are coming up with a whole crop of potential uses for radio frequency identification (RFID) and Electronic Product Code (EPO) tags. Some of their ideas sound like science fiction, but the technology is here today.

Some uses would require keeping certain portions of data on the tag after a sale. 'Instead of killing the tag, let's set a bit in the tag saying, 'I've been sold" says Craig Maddox, director of product management for barcode scanners at NCR Corp. in Dayton, Ohio. "When you buy that Nintendo, all the information from your wallet can go to the company's center and your warrantee clock starts ticking. Some computer will know when you in particular bought that product."

Because RFID tags can hold such data as the manufacturing source, date of purchase, and buyer's identity, they could help manage product recalls. A smart tag could also alert store personnel when a returned item had been purchased elsewhere, thus preventing theft and fraud.

RFID tags could even show up in the pantry Futurists envision a day when "smart" shelves alert the consumer when the last jar of spaghetti sauce has been taken out of the cupboard. A tag could specify if a tee shirt should be washed with the darks or the whites. Even end-of-life recycling information may be included on tags, helping consumers avoid placing items into an inappropriate "smart" recycling bin.

Robert Spiegel is a freelance writer who specializes in technology and the electronics industry.
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Author:Spiegel, Robert
Publication:Logistics Management (Highlands Ranch, Co.)
Geographic Code:1USA
Date:Jul 1, 2003
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