It was first injected into animals. Then it made its way into a human arm. But radio frequency identification (RFID) these days no longer sounds like a scene from a sci-fi flick.

Earlier this year, Dr John Halamka injected himself with a microchip to test RFID's use in healthcare, such as emergency situations where patients lose consciousness or are non-responsive. Medical care officers can scan the tag like a bar code to call up personal information such as name, blood type and medical records.

But while this application is being tested, RFID deployment is ramping up in the commercial world.

RFID explained Radio frequency identification enables data to be captured wirelessly--via radio waves--and stored on electronic chips or tags. An RFID reader retrieves the information from the tag wirelessly and without having to establish line of sight with the tag, unlike barcode scanning or infrared. Transmission can take place at distances ranging from one inch to 100 feet. Some RFID tags can take temperatures at pre-defined times, which can be used to monitor the state of perishable goods as they make their way across the supply chain and are subjected to climate changes. Because of its form factor and ability to store more data than bar codes, RFID has been heralded as a way to improve inventory visibility and operational efficiencies, and even to provide better healthcare services.

Research firm In-Stat predicts that businesses will spend US$2.8 billion on RFID tags in 2009. This is a significant growth, considering spending last year totaled only US$300 million worldwide last year.

This emerging technology has the potential to enhance supply chain management and inventory management, said Mohsen Moazami, Cisco Systems' vice-president of Internet business solutions group, who is also on the board of governors at EPCglobal. A global body consisting of such tech heavyweights as IBM, NEC and Intel, EPCglobal develops standards for the deployment of RFID.

Moazami said improvements in inventory and asset management, and other operational efficiencies, could reduce overall supply chain costs by as much as 3 percent to 5 percent.

This is an attractive proposal for companies, particularly when the worldwide inventory cost is US$325 billion, he noted. Of this figure, US$224 billion is spent on excess inventory, he said, while another US$45 billion is the result of losses incurred from out-of-stock items.

Citing figures from various studies, Jon C. Stine, Intel's global manager for the retail-consumer packaged goods industry, noted that organizations hold "safety stock" for an average of 11 weeks. "That's 11 weeks of inventory just sitting in warehouses and doing nothing…it's taking millions of dollars and throwing it into a hole," he said.

RFID gives new visibility into the supply chain and generates data that can be used to rectify these bottlenecks and operational inefficiencies, Stine said.

Challenges ahead
Despite the hype and hoopla, the technology still faces some daunting challenges.

"While RFID is mature in some ways and have been around for decades, with its usage in the U.S. military, it is still young in terms of adoption in commercial markets," said Claude Ringuet, strategy and change leader for distribution sector, business consulting services, IBM Asean and South Asia.

RFID allows data about the goods to be captured and shared. photo courtesy of Auto ID Center

Most of the work in this region has centered around education and helping clients understand what is required to deploy RFID, he said. There are small-scale projects but actual adoption of the technology is still "very little", he added.

"Even though the government here has been driving it, there's still a general concern among our corporate clients about whether the technology is ready. There's also worry about what it will cost them and whether they're really going to get any returns on investment."

Critical mass adoption has largely taken place in the United States and Europe. As a result, very few manufacturers have any significant presence in Asia-Pacific, he noted. Without the needed economies of scale, the cost of adopting RFID in the region is falling too slowly, he added.

Apart from the high investment, there are also concerns about performance issues.

Ringuet noted that there are still problems associated with reading tags on metallic and liquid products. "Read rates can be quite low here," he said. "So the electronics and consumer industries especially are concerned about this."

But it is clear that, in spite of these challenges, early adopters of RFID have embarked on the journey decidedly without any regret.

Singapore-based LHT Holdings leases pallets that are tagged with RFID. Its customers include Carlsberg Singapore, F&N Coca Cola and Foods, and MDD Beverage.

The company's executive director, May Yap, said: "We recognize the challenges in deploying RFID, as is the case with adopting any new technology. But we are optimistic that our investment in this will yield benefits in the long-term, and enable us to provide better customer service and remain competitive.

"While I won't say it's cheap in the initial stages, but as awareness of the technology increases and with the government's support, the price of RFID will go down when there's mass production of the devices."

The Singapore government last November expanded the frequency bands for RFID applications in a bid to ensure systems developed locally can interoperate with those in the United States and Europe. It also pledged to invest S$10 million (US$5.9 million) over three years to drive the adoption and development of RFID technology in Singapore.

IBM's Riguet is hopeful that things will further improve with the next-generation RFID, specifically the Ultra High Frequency-based EPCglobal Class 1 Gen 2 standard (G2).

Next generation
Specifications for the royalty-free protocol was released in December 2004, and it is tipped to resolve interoperability issues that currently plague RFID implementations.

According to Tan Jin Soon, executive director of EPCglobal Singapore, G2 will enable equipment from different manufacturers to interoperate so a reader can retrieve data from a tag of a different make.

Industry players are just now starting to release products that comply with the new standard. More announcements on G2-enabled hardware releases are expected to follow.

But should businesses wait for a wider availability of G2 products before taking their first step towards RFID?

No, said IBM's Ringuet, especially if they have to fulfill requirements established by their business partners. These companies should continue to work towards ensuring compliance with the given mandates, as well as establish a roadmap that enables them to affordably move to next-generation RFID technology, he added.

Organizations that do not have compliance issues to worry about can move forward at their own pace, he said. "At the moment, it's still somewhat unclear exactly when G2 is ready to go," Ringuet noted. "It's also unclear how the tag manufacturers are really going to respond and the capacity they'll be able to come up with in terms of production."

Do not underestimate the amount of time and effort it would take to test the various RFID devices. Claude Ringuet, strategy and change leader for distribution sector, IBM Asean and South Asia

But companies should still consider deploying small-scale pilots "to get the right infrastructure in place", he said. So when G2 standard is released in the market¸ they can get this up and running at a low cost rather than "undo things" on a large scale, he added.

More importantly, it would be a big mistake for organizations to underestimate the amount of time and effort it would take to test the various RFID tags on their products, warned Ringuet. And companies today have already fallen into this pitfall, he said.

Companies should avoid focusing too much on the business benefits and using that as the only base to build a business case for deploying the technology, he noted. "I think that's not enough and in itself, is not going to sustain (a move toward RFID)," he added, noting that it takes time to make everything work.

For example, in order to achieve the best read rate, there are no shortcuts to testing and figuring out the best position to place tags. "It's part of experiencing it yourself," said Ringuet.

IBM uses RFID internally to track wafer carriers at its Fishkill semiconductor plant in New York. RFID readers, positioned throughout the plant, scan and retrieve data from tagged carriers to validate their locations as they move across the production line.

By deploying RFID, IBM was able to reassign its workers to more value-added manufacturing tasks.

Ringuet explained: "Employees were spending a lot of time and effort routing wafer carriers, which can contain up to two million dollars worth of finished products, to the right places. This distracted them from more important priorities like running process equipment slowing production, decreasing yields and draining profits."

The plant is now able to devote the equivalent of one person per shift to more value-added manufacturing functions, and at the same time, reduce product errors and production delays, he said.