Patience, My Dear

RFID has been the “talk of the town” ever since Wal-Mart laid out its expectations to its largest suppliers in 2003—lots of press, lots of hype. Now, it seems as though more participants are asking that famous question posed in Wendy’s® commercials many years ago, “Where’s the beef?”

It is true that the glowing light of RFID has dimmed during the last couple of years—reality has not lived up to the expectations that were created. That doesn’t mean, however, that RFID is no longer something package printers need to consider.

RFID is being implemented in a wide range of applications and some of the earlier expectations might be met—albeit during an extended time frame. Another potential outcome is that RFID fills the needs in specific markets and applications, such as in pharmaceuticals or brand security.

To gain some insight on today’s RFID reality, packagePRINTING posed a number of questions to several executives whose companies have made a commitment to RFID.

pP: Estimates of RFID implementation in the supply chain have not lived up to expectations. What do you attribute this to?

Robert B. Cornick, VP and general manager, Avery Dennison RFID—It took 30 years for bar codes to become a retail staple. The promise of RFID entranced the analysts and resulted in some very ambitious forecasts. Since the Gen 2 standard was ratified in 2004, the technology has improved dramatically and produced avid interest across a wide range of industries.

Max Golter, VP of sales, bielomatik—I think first of all, mandates were set without realizing the cost and time required to install the infrastructure. If we were to disregard cost for a moment, it has been physically impossible to install the infrastructure to meet the targets. The fallout of this has been mandates set by the major retailers and Department of Defense (DoD) having been “relinquished.” The pharmaceutical industry has, however, determined advantages that this technology offers and has moved forward without mandates being forced upon it. Cost reduction, improved transponder yields, and standards have been occuring recently which will all contribute to finally meeting expectations.

Jeff Feltz, director of product management, Mark Andy—There are a few reasons. First, read rates have not met acceptable levels for mass adoption. The quality of inlays has improved significantly, however not to a level to build full confidence in RFID as a reliable solution. Second, RFID inlay costs have not reached the point to make item-level tagging cost effective. Item-level tagging will be the driver of significant growth in RFID. Third, the infrastructure is not yet in place to support a widespread RFID system. Contrast this with bar code reading. Today, there is a significant infrastructure in place to support bar codes, but this took many years to reach the current state seen today. RFID will reach this level of infrastructure at some point, but it will take time.

Gerald Steinwasser, general manager, Muhlbauer—There’s been an incorrect discussion about the “5-cent label” instead of the advantages of RFID; also, it is missing infrastructure and software to make use of the data.

Jan Svoboda, sales and marketing director, UPM Raflatac, RFID Business Area—We need to keep in mind what have been the primary drivers in the supply chain, and they are mandates. While many retailers (and the DoD) have had a head start in learning and identifying benefits of RFID, many companies mandated to actually use and implement the technology have not. So as the world learns about the technology, more expertise is being built and solutions are more readily available; we are getting to the point where the “hype” thought we were going to be two years ago.

Dave Grove, RFID machinery sales, Schober USA—I would have to think the reasons are tied to the cost of implementation, plus I don’t believe that the technology has been fully embraced. Frankly, there are those that just don’t trust it yet.

pP: Cost structures and quality/productivity have improved significantly during the last couple of years. Are these factors close to where they need to be or do they still have a long way to go?

Cornick—As with most technologies, RFID chip and hardware manufacturers are actively pursuing ways to improve performance and reduce costs. As more pilots are conducted and new applications are identified, there will be new performance criteria identified. And, as the technology is more widely adopted and volumes rise, quality will also go up and costs will go down.

Golter—I can only speak to smart label and ticket manufacturing. Since 2005, the cost to produce a smart label/ticket has dropped 75 percent. New “out-of-the box” thinking in smart label/ticket converting, as well as smart packaging, has contributed to even lower costs in the foreseeable future. The long-awaited 5-cent UHF smart label, for example, will likely be acheived in Spring 2008.

Steinwasser—Quality has improved tremendously. The latest feedback from converters is less then one percent scrap. Quality needs to stay high, with higher speeds and throughput.

Svoboda—The industry has made incredible strides during the past couple of years in all areas of design, manufacturing, and delivery of RFID technology. That said, we have a long way to go and there are plenty of opportunities that will materialize as volumes grow and technology advances.

Talking about quality, efficiency, and reliability at current volumes (low hundreds of millions for the leading tag manufacturers) is not exactly the same when demand grows to several hundreds of billions of tags per year.

Grove—Costs still have to come down before item-level tagging is justified. Item-level tagging is key to RFID success.

pP: Are standards developments occurring quickly enough or is the market suffering because of lack of practical standards?

Cornick—The Gen 2 Standard (ratified in December 2004) was developed by a truly diverse group of RFID users and manufacturers, and provided a solid foundation for the technology to flourish on. As new applications are identified and data collection issues arise, new standards may become necessary.

Golter—When the Gen 2 UHF standard was ratified, it accelerated the implementation of RFID in numerous applications. A common worldwide UHF frequency has yet to be established. At the moment, conflicts exist due to overlap with various countries’ military and communications frequencies. In other words, a frequency which is desirable in the U.S. may not be ideal in an Asian or European country. EPC Global is currently working on these issues.

Steinwasser—No, standards take a long time and are not occurring quickly enough; e.g., standards for straps through JEDEC organization started late and there are patent issues.

Svoboda—There is ongoing work on RFID protocols and current standards that is resulting in features and capabilities that we did not have (or did not think of) earlier to satisfy general or specific industry requirements. In general, RFID adoption is not lagging because of a lack of RFID standards.

Where we may be lagging is in the area of data structure, management, and sharing standardization. RFID, as a data collection technology, has the ability to present a lot of valuable data—a lot of it! Effectively and efficiently utilizing this data is where the greatest benefits of RFID lie and in many cases, the challenge becomes how to take advantage of this wealth of data across various functions within an organization, among organizations, and even across industries.

Grove—I don’t think standards are the main problem. It is still the cost to implement, plus questionable performance on fluid and metal products. When these problems are solved, standards can be established.

pP: Do you believe that early adopters of RFID technologies will benefit significantly from this positioning, or will a “wait-and-see” attitude be more profitable in the long run?

Cornick—Early adopters should see more benefits because of the competitive advantage RFID provides. Also, in order to use RFID most effectively, companies should explore their technology infrastructure and business processes to identify the areas that need improvement. The wait-and-see proponents will still have to take the time for that analysis eventually, even if the technology becomes easier and faster to implement.

Golter—Early adopters will, without a doubt, have an advantage over those who wait and see. Although they will have experienced the bleeding edge, they will have the advantage of established relationships, and a huge running start as far as experience goes over the newcomers. If they have been successful in providing reliability, value, and extraordinary service to their RFID clients, the client would likely not change suppliers due to uncertainty of the newcomers’ track records.

Feltz—There is always an advantage to early adopter positioning; getting your company in the mind of potential consumers as an expert in the field. However, as RFID becomes more prevalent, more companies will begin to invest, making it difficult for an early adopter to hold its position as an industry leader.

Steinwasser—Early adopters have the advantage that they are in a position to dominate the market in the current time frame.

Svoboda—Early adopters that responsibly invested in the technology, together with proper due diligence, will most certainly gain competitive edge over those who just follow—as businesses have seen with other technologies such as bar codes, wireless data communications, WMS, etc.

Grove—Early adopters will have the advantage of workable knowledge. As the business grows, the early bird will grow with it and will be positioned to take advantage of opportunities as they are presented. Tag buyers will want to look for suppliers that have experience, not someone who doesn’t even own a machine, let alone expertise.

pP: Do you feel your company has achieved its objectives relative to its RFID business?

Cornick—Yes, our design and production teams have done an outstanding job creating high-performance, multi-application inlays, as well as a high-volume, roll-to-roll inlay manufacturing process, which enables us to produce high volumes of inlays at an affordable cost. As the technology grows and matures, we continue to set high goals to meet our customers’ current needs as well as new and emerging applications.

Golter—Our objective was to accelerate the adoption of RFID by offering a converting process which offers the lowest cost smart label/ticket, as well as smart packaging. At Labelexpo, bielomatik and NXP (formerly Philips Semiconductor) launched the RFLoopTag product. This revolution enables a converter to produce low-cost, high-volume, and reliable “do-it-yourself” UHF transponders. The process uses materials and practices common to everyday label converting. Pressure-sensitive chip modules in roll form are unwound and placed onto rolls of any antenna material whether diecut aluminum, electroplated copper, or conductive ink. Inductive coupling versus mechanical contact ensures that the circuit is complete and functioning. Inductive coupling also permits a label facestock or box wall to exist between the chip and the antenna and still function properly.

Feltz—As with most companies involved in RFID technology, overall acceptance and growth have not met the expectations set a few years ago. With that said, we have had several equipment sales with RFID inlay insertion modules integrated inline with our presses. We continue to sell both new presses and retrofits to our customers to add inline insertion capabilities.

Steinwasser—We have been able to meet our objectives to approximately 70 percent.

Svoboda—Absolutely, although it is a little premature for us to talk about completing objectives in such a young, dynamic industry. Our ultimate goals are long term; but, of course in order to achieve those, we need to continually evaluate shorter-term conditions and build on those as stepping stones.

Grove—No, new RFID applications are emerging all the time. Some of these applications require the development of new machinery, which is our forte. As long as imagination is not dead, our work is not done.

pP: What interest in your RFID products are you experiencing from potential customers?

Cornick—We talk to end users, converters, and systems integrators every day, and new applications with different requirements continue to spring up.

Steinwasser—Capacity, which was idle for the last one and a half years, is now filling up and demand has come back.

Svoboda—Interest we are experiencing from our customers points to many positive things to come. The technology awareness is increasing across multiple industries and multiple disciplines. The focus on ROI and the ability to identify the ROI are increasing the potential for RFID growth. The expertise and understanding of the technology is growing and helping to fuel current and future growth in areas that we have not seen before.

Grove—It is our ability to develop special machinery that our customers are interested in. We get regular inquiries concerning our equipment.

pP: Wal-Mart helped drive the “feeding frenzy” around RFID implementation a couple years ago. To the best of your knowledge, is Wal-Mart achieving its targets in terms of RFID implementation from its suppliers? Have other wholesale/retail chains jumped on the bandwagon to require RFID implementation?

Cornick—Wal-Mart continues to move its implementation forward with additional infrastructure at its stores and distribution centers. Many of the suppliers we talk to are using the Wal-Mart compliance implementation to propel their uses of RFID into other areas of business process improvements within their companies. Certainly other major retailers, such as Target, have seen the promise of RFID and are moving their own implementations forward, albeit without the fanfare of Wal-Mart.

Golter—At the various tradeshows during the last two years—RFID World for example—Wal-Mart executives have indicated that they are on schedule with their implementation. Recently however, we read reports about how the pace has been “relinquished.” Nevertheless, numerous other wholesalers and retailers have, as a minimum, launched pilot programs in order to determine how RFID technology can contribute to their efficiency, reduced theft, and profitablility.

Feltz—Wal-Mart has not met its initial RFID targets. Implementation has been much slower than expected. The company has pushed back supplier adoption dates a couple of times.

Steinwasser—Wal-Mart (DoD also) does with RFID what makes sense for the company. The feeding frenzy was fueled by others. With the focus now more on actual use and advantages that RFID can bring, more wholesale/retail chains are seriously looking at it.

Svoboda—Retail supply chain adoptions are moving forward, although it is clear they have not come up to the hype created several years ago. The publicity generated by the Wal-Mart mandate has helped in creating awareness and interest in RFID technology in other markets and applications. There are many players around the world in retail that are at various stages of evaluating or piloting RFID technology.

pP: What role do you see RFID playing in the growing concerns around brand security? Will brand security be a significant driver for RFID growth?

Cornick—Brand security and anticounterfeiting are huge drivers of RFID interest at the moment. RFID provides a pedigree for each individual product, ensuring the authenticity of pharmaceuticals for patient safety, and the authenticity of consumer goods, such as apparel, footwear, and accessories to prevent counterfeiting and ensure customer satisfaction.

Golter—Brand security will be a strong driver for RFID growth. Expensive items such as pharmaceuticals, designer clothing, and premium liquor are less sensitive to the cost of the smart label. If a drug company is able to avoid paying lawsuits due to counterfeit drugs which victims or families of victims claimed caused injury or death, then it does not matter if the label is 10 cents or 20 cents. High-end wine or tequila producers are also embracing RFID since it will protect them from counterfeiters.

Feltz—RFID is one of many technologies that brand managers can use to protect their products. The best brand security practice is to incorporate several levels of production in their packing, including RFID, 2D bar codes, microprint, DNA-enabled inks, nanotechnology, and others. Brand security will be yet another factor that will help speed RFID growth.

Steinwasser—Security is always a mix of features; RFID will be one of them.

Svoboda—RFID technology will play a significant role in helping to protect products, brands, and the end consumers. We know product and brand security is a big global problem and we can assign a price tag to that problem. Systems utilizing RFID technology can help identify and better control this problem in overt or covert approaches. Considering the major products and industries affected the most by counterfeiting and piracy—such as pharmaceuticals, digital media, and fashion—the potential for growth is enormous.

Grove—Security is probably the area that will see the greatest growth in RFID implementation in the near future. It is very well-suited for these applications and is easier to justify.

pP: Do you think pharmaceutical requirements will help lead the way for extensive item-level RFID implementation in the foreseeable future?

Cornick—The pharmaceutical industry continues to investigate RFID implementation for specific high-value drugs. The e-Pedigree legislation provides additional impetus to move RFID across their product lines to ensure patient safety and well-being. As with all things RFID, once the infrastructure is in place, widespread adoption will occur more easily and quickly.

Golter—Without a doubt. Since the technology is still in it’s infancy, the guidelines that the pharmaceutical industry establishes will likely be adopted by other industries for item-level implementation. The pharmaceutical industry is about as stringent as industries get. Other industries should adopt the proven implementation which the pharmacetutical industry has determined and avoid the cost and likely disappointment of an alternative plan.

Feltz—The pharmaceutical industry will definitely be a driver for item-level implementation. First, this industry is less price-sensitive than the typical CPC products. More importantly, the pharmaceutical industry has a responsibility to ensure that its supply chains are not being compromised. RFID provides yet another technique for product authentication.

Svoboda—The lack of firm requirements in the pharmaceutical industry has been one of the major causes of ongoing delays in more widespread adoption of RFID. The technology has proven to have the capabilities to secure and streamline the pharmaceutical supply chain, but the lack of unified mandates and requirements continues to delay its implementation.

Grove—Yes, it makes a lot of sense. Tracking of pharmaceutical products has long been a problem. pP