[Surfside] NYT: Radio tracking tags on the cheap

[Roman Zimmermann]

http://www.nytimes.com/2003/02/25/technology/25THEF.html?pagewanted=all&position=top

A Radio Chip in Every Consumer Product

By CLAUDIA H. DEUTSCH and BARNABY J. FEDER

Here's a tip to thieves: If you are bent on stealing packages of 
Gillette Mach3 razor blades, go someplace other than Tesco's Newmarket 
Road store in Cambridge, England. There, a "smart shelf" continuously 
queries tiny radio chips embedded in the packages it holds, and senses 
the silence when one is removed. The system may soon be programmed to 
alert security when several are taken at once, Greg Sage, a Tesco 
spokesman, said.

And, yes, Procter & Gamble will notice if a case of Pantene shampoo does 
not make it to the Wal-mart Supercenter in Broken Arrow, Okla. Its truck 
is equipped to monitor signals continuously from chips hidden in each 
case. If any case stops sending its "Hi, I'm still here" signal, a 
monitor in the "smart truck" will record exactly when and where.

Such technology, known as radio-frequency identification -- the same 
techniques that enable an electronic sensor to record data from an 
E-ZPass tag or an office door to open for people with chip-equipped 
cards in their pockets -- could one day stymie pilferers. But it is also 
capable of doing much more for commerce. Beyond Gillette and Procter & 
Gamble, companies as diverse as International Paper and Canon USA are 
teaming up with retailers and customers to apply R.F.I.D., as it is 
known, to tracking products from the time they leave an assembly line to 
the time they leave the store.

The companies are tagging clothes, drugs, auto parts, copy machines and 
even mail with chips laden with information about content, origin and 
destination. They are also equipping shelves, doors and walls with 
sensors that can record that data when the products are near. "We want 
to track all of our merchandise, and that includes items that people are 
unlikely to steal," William C. Wertz, a spokesman for Wal-Mart Stores, 
said.

Chip manufacturers are busily spreading that gospel. "That need to have 
the right product on the right shelf in the right store at the right 
time -- ultimately, that's what will drive our business," said Karsten 
Ottenberg, a senior vice president at Philips Semiconductor, the leading 
maker of radio frequency chips and a unit of Royal Philips Electronics.

Early tests are encouraging. For three months in 2001, Gap tested radio 
frequency tags on denim clothes at a store in Atlanta. Sales jumped 
because the tags prevented the store from running out of popular items, 
and the tags made it quicker to find any items in stock.

Typically, 15 percent of shoppers leave clothing stores without getting 
what they want; during the test, fewer than 1 percent of Gap shoppers 
left empty-handed.

Radio frequency identification still has too many kinks, however, to be 
an immediate panacea for retailers. Cordless phones, two-way radios, 
local wireless networks and other communications devices that are widely 
deployed in factories, warehouses and stores can interfere with the 
signals. And, although radio tag readers can, under ideal conditions, 
identify well over 100 tagged items every second from quite a distance, 
radio waves have a hard time penetrating metals and liquids -- something 
that Procter & Gamble is addressing with the Pantene test.

And costs are still prohibitive. The electronic tags cost at least 30 
cents apiece; most experts think anything above 5 cents is too expensive 
to be widely used for individual packaged goods. Prices would have to 
fall to less than a penny for virtually everything in stores to be 
tagged. Sensors, which can be either hand-held or built into walls, can 
cost $1,000 each.

But costs are coming down fast. Alien Technology, for one, says that it 
can now sell radio frequency identification tags profitably at 5 cents 
each for orders of a billion tags or more. Just last month, Gillette 
said it would buy up to 500 million tags over the next few years from Alien.

But Alien's manufacturing capacity is currently just a small fraction of 
what it would need to fill orders over a billion quickly. And experts 
warn that while the silicon chips continue to shrink in size and fall in 
price, making the attached antennas small enough and cheap enough is 
much harder.

Moreover, most retailers say they are reluctant to invest in the 
technology until product tags are universally readable, as bar codes are 
today. That means that every retailer, manufacturer and carrier must 
agree to standards, and use tags and sensors that speak the same language.

"It's one thing to say something is a great technology, but quite 
another to say that you're ready to scrap existing systems to 
accommodate it," said Daniel Butler, vice president for retail 
operations at the National Retail Federation, a trade association based 
in Washington.

Consumer privacy is also an issue. It would be easy to combine credit 
card data with information from the retail chips to know who bought 
what, and when -- and, conceivably, track the product even after it left 
the store.

"I don't think the average consumer understands the threat to personal 
privacy that these kinds of technologies can present," said Alan N. 
Sutin, a partner specializing in information technology at the law firm 
of Greenberg Traurig.

William H. Steele, a consumer products analyst with Bank of America, 
doubts companies will "succumb to the temptation to keep tracking 
products in the consumers' hands," but he, too, stops short of calling 
the issue specious. "There should be a certain level of skepticism on 
the part of the U.S. consumer," he said.

Still, companies are increasingly viewing the identification technology 
as a potential savior. In 1999, Gillette, Procter & Gamble and the 
Uniform Code Council, which administers bar code standardization, 
founded the Auto-ID Center at the Massachusetts Institute of Technology 
to be a standards and research clearinghouse. The center has satellite 
labs at Cambridge University in England, and in Japan and Australia.

The technological limitations of bar codes makes the growing interest in 
R.F.I.D. easy to understand. Kevin Ashton, a P.& G. executive who 
directs the Auto-ID Center, estimates that on average 10 percent of 
stores are out of items the managers think are in stock -- and as many 
as 40 percent do not realize they are out of a color or size.

The monetary impact of losing track of goods is huge. According to a 
survey by the University of Florida, shrinkage -- the common retailing 
term for goods that disappear either through theft, misplacement, fraud 
or just bad record keeping -- cost retailers a record $31.3 billion last 
year. Only a third was a result of shoplifting. Nearly half was employee 
theft, about 5 percent was vendor theft and 15 percent was paperwork 
errors.

Suppliers have as much at stake as retailers. Colin Peacock, the leader 
of a Gillette task force to study shelf availability, said that 73 
percent of customers left a store if Mach3 blades were out of stock; 27 
percent bought a competitor's blades. He said Mach3 sales had gone up 
288 percent at the Cambridge Tesco store that had the smart shelf.

Stores often resort to putting frequently pilfered items behind glass or 
behind counters. That means customers must wait for a clerk to get the 
products. The practice drives away impatient shoppers and all but 
eliminates impulse buys.

Mr. Peacock suspects that sales are halved when products are hidden 
away. "The impact of such defensive merchandising can be worse than the 
problems it solves," he said.

Once it is perfected, radio frequency technology may solve not just 
those problems, but some that are unrelated to stocking issues. Because 
the tags, unlike bar codes, are programmable chips, a store like 
Wal-Mart that frequently changes prices can attach the price to the item 
and know exactly what a consumer paid if the item is returned -- even if 
the customer lost the receipt.

And then there are product recalls to consider. Radio frequency 
technology could pinpoint a tainted batch, and -- if customers paid with 
credit cards or used store discount cards -- identify customers who 
purchased such items.

"It would be wonderful to be able to spot just those items that came 
from a plant that has a flaw, or those perishable items that took too 
long to arrive and thus might spoil sooner," Mr. Wertz of Wal-Mart said.

Canon USA wants to deploy radio frequency identification to track 
machines at locations that use dozens of printers and copiers. "It would 
help us schedule preventive maintenance, and alert us to get equipment 
back when the lease expires," said James J. Gordon Jr., Canon's vice 
president for logistics.

Even the United States Postal Service has gotten into the act. Last 
month, it promoted Charles E. Bravo, until then its chief technology 
officer, to the new job of senior vice president for intelligent mail 
and address quality, and charged him with studying tracking technologies.

"We'd love to be able to tell a company that a customer's check is truly 
in the mail, or that its direct mail flier was just delivered to a 
customer's door," Mr. Bravo said.

And imagine if the company can also be sure that the item the flier is 
advertising will be available.

"Increasing productivity, lowering inventories, decreasing theft, all 
are important," said Paul J. Rieger, Procter & Gamble's associate 
director of supply chain innovation. "But ending out-of-stock 
situations, that is still our biggest goal."