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Saturday, November 13, 2004Chief Executive magazine has published an article titled, " How CEOs are grappling with the breakthrough tracking technology ".Typically, CEOs don’t want to get into the nitty-gritty of technology like this, but the problem with something as radical as RFID, CEO’s need to understand the technology and strategise to derive differentiated competitive advantages to their business. Excerpts:
By embracing radio-frequency identification technology wholeheartedly, Wal-Mart Stores and the U.S. DOD have given CEOs across the globe reason enough to follow suit. Pacific Cycle, started working with RFID three years ago, has invested nearly $3 million in its implementation and has already begun using RFID in some shipments of its bicycles. “We’re the only bike company that is even beginning to look at this technology,” says Hornung, CEO of the Madison, Wis.-based concern he founded 30 years ago. “We’re light years ahead of everyone else.” Improving on traditional bar-code technology, RFID uses radio signals to read and transmit data from electronic tags placed on pallets of goods or even on individual pieces of merchandise, giving companies an unprecedented tool for turbocharging a variety of inventory-management, supply-chain and security functions.
Spending on the technology is expected to triple over the next three years, to $3 billion, projects the Wireless Data Research Group. “It’s the next bar code, and because of that, you can’t ignore it,” says Lyle Ginsburg, managing partner of technological innovation for Accenture, the consulting firm. “Many companies don’t really have a choice whether to deploy. It’s more how and when.” Indeed, some of the economy’s biggest purchasers are forcing much of the action. Wal-Mart is requiring its 100 largest suppliers to be RFID-capable by Jan. 1 for shipments to the retailing giant’s Texas region. The Department of Defense, as well as other major retailers including Target and Metro, the large European mass merchandiser, have set imminent supplier deadlines of their own. Seeing this, IBM recently announced plans to invest $250 million over the next five years and hire 1,000 people to develop and promote RFID applications. Recognizing that small and midsize businesses will have an even tougher time with this technology, Microsoft has been testing an RFID software solution for that market and plans to incorporate it into upcoming releases of its enterprise resource planning solutions.
Compliance incentives aside, many early adopters are acting for strategic reasons as well, confident they can gain big competitive advantages by integrating RFID into their supply chains as quickly as possible.
- Johnson & Johnson and a handful of other drug companies are in the midst of a $3 million test of RFID for tracking products and protecting against counterfeiting and package tampering.
- Delta Air Lines is investing up to $25 million to use RFID to track all domestic luggage over the next two years.
- And Harley-Davidson—one of about 30 Wisconsin manufacturers working out their approaches as part of a statewide RFID consortium—is considering RFID to better match motorcycle engines with bodies in the assembly process.
- After two years, Hewlett-Packard already is so far along in using RFID to track shipments of printers and servers that it is helping some retail customers, even at the CEO level, with their own implementations.
Individual RFID tags still cost at least 25 cents apiece, indicating a significant and continuing added expense that doesn’t attend to bar codes. Stubborn technical issues remain that make it difficult for RFID to operate around some wooden pallets or to read tags on containers made of metal or filled with liquid. Consultants who can help companies plug into the RFID world are in short supply. Another signal that the technology is in its infancy stage is the fact that RFID systems will produce way more data than companies possibly can sift and winnow for truly valuable insights—they generate as much as 100 times more information than traditional bar-code technology. Technical standards still aren’t in place to ensure that an RFID system that works for one customer will work for all the others. The entire field remains in its early stages, meaning the longer CEOs can wait to make outlays on the technology, the more the quality of RFID systems will improve and costs will come down.
(Part II shall follow.)
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