[Surfside] NYT: Radio tracking tags on the cheap
Tue, 25 Feb 2003 06:34:48 -0600
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
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,
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
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
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
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
"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
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."