Getting to the source code

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getting-to-source-code.jpgWith the growth of the retailing sector one can see an obsolesce of the bar code reader. RFID tags offer retailers an easier way to manage inventory than bar codes. But one has to wait till there are enough big players which will also reduce its cost.

We have all stood in the long queues in front of the billing desk in any supermarket or mall. Recently when I was at Bangalore Central I heard a customer yell at the counter executive for having only few counters open. The executive had a tough time explaining that it was already quite late and most of the staff had left since they had been working through the day. He was passing the goods on the bar code reader as fast as possible, yet people waiting in line were impatient. I wondered that such a revolutionary technology found in the fag end of 20th century is already becoming inadequate to face the speed of growth in retailing.

 

A familiar question asked in quiz contests is, ‘which was the first product to be barcoded.’ The first commercial scanning of a Universal Product Code was on a 10-pack Wrigley’s chewing gum on June 26, 1974. Now we find barcodes in every product we buy, be it a book or canned food. But in the recent years, retailers have observed that many times barcodes failed to give 100% accurate read when scanned at a retail outlet or a warehouse. When a barcode fails to read correctly, an avalanche of costly errors occurs.

 

We can safely assume that all printing processes develop mechanical problems once in a while, resulting in unreadable bar codes. It is not a question of “if” the printer makes bad labels, but it is a question of “when”. Just when people started to question the efficacy of barcodes, Radio Frequency Identification (RFID) technology is emerging as a revolutionary change in real-time supply chain management of retailing.

 

The RFID technology was being talked about in the industry circles for quite some time now, but the decision of the world’s biggest retailer, Wal-Mart to implement it, brought in rapid acceptance in the retail industry. Surprisingly an organisation headed by an Indian technocrat is leading the development of RFID technology with already four top MNC brands becoming its customers.

 

Dr.Sanjay Sarma, CTO of OAT Systems who is regarded as the pioneer in RFID technology, was in city recently to open their R&D facility. “We have launched a joint initiative with Infosys and leverage its business expertise to deliver the services to large enterprise customers in a global scale. Currently we have 20 employees working on product development in our R&D facility,” said Sarma.

 

To explain simply, RFID is a tiny micro chip carrying electronic product code embedded in a price tag of an item or a box placed in a warehouse. When the RFID reader scans the tag just like a barcode reader, it provides a lot of data stored in its memory chip, which could be read-only or re-writable. The reader retrieves data stored on an RFID tag by sending radio waves to it and converting the waves back into data. RFID readers read a lot of data from the tag and OAT Systems provides the software to digest the info and present it to the handling personnel.

 

getting-to-source-code1colo.jpgEnormous gains can be achieved in reducing counterfeits, theft, package damage, loss or expiry due to RFID technology. Trial runs have proven that the efficiency in supply chain increases by 20-30%. Item-level RFID saves a lot of employee time in looking for and retrieving inventory and enables 50-60% reduction in out-of-stocks and improvement in the on-shelf availability. Added benefits like lower labour costs in shipping, increased inventory turns, improved order accuracy can give the return on investment companies a look for.

 

January 2005 marks the momentous change in product coding with RFID replacing barcode in some of the consumer durables stocked in Wal-Mart. It is moving to deploy it at the pallet and case level, even before all the answers are known, because the technology has the capability to improve efficiency and boost sales.

 

Estimates say that Wal-Mart could save nearly $8.4 billion per year when RFID is fully deployed throughout its supply chain and in stores.

 

The Wal-Mart RFID mandate means its top 100 suppliers not only have to put tags on pallets and cases, they must also install RFID readers in their manufacturing facilities, warehouses and distribution centers. Since Wal-Mart sells auto parts, clothes, groceries, pharmaceuticals and entertainment products, the network can quickly spread to other industries. And as more suppliers adopt the technology, it will make more sense for other retailers to take advantage of RFID, which will drive down the cost of tags and readers, encouraging still more companies to jump in.

 

The first order of 500 million RFID tags came from Gillette Corporation. After Wal-Mart, the next biggest retailers like Tesco and Metro are about to implement this technology. US FDA regulations are already pushing pharmaceutical companies to look into item-level RFID; same with the weapon suppliers for U.S. Department of Defence. But with 3-4 dollars per tag, it is worrying both the suppliers and retailers. With larger column coming in from all retailers, chips on RFID could be cheaply produced in China or Taiwan.

 

At present most retailers are content to let Wal-Mart spend the money and work through any hassles, but analysts say they would be reckless to let the dominant player get too far ahead on what could one day become the industry standard. Since many Indian manufacturers supply goods to Wal-Mart, they are gearing up for a major technology upgradation. But it will take a long time for us to see RFID tags in our supermarkets. First we have to ensure that the neighbourhood Kirana store has a bar code reader for faster dispensing of goods!

 

 

Issue BG49 Apr05