Adam Gifford: Why it's wise to be cautious on tracking technology

Ask the vendors for real local examples of radio frequency identification technology in use and their eyes shift sideways.

There are lots of pilots, they say.

But when will RFID overtake barcoding as the preferred way to tag and track items through the supply chain, and how will it affect New Zealand firms?

In the United States, the course has been set by big retailers such as WalMart, which now requires its top 100 suppliers to put RFID tags on their shipments, and the Department of Defence, which is trying to get 43,000 suppliers to use RFID at the pallet and case level.

Gillette is buying 500 million tags to put in its packets of razor blades, which have a habit of walking out of the store if non-alarmed.

Down here, no one is imposing mandates, and people are holding back on implementing systems.

That doesn't mean they aren't thinking about it, though. A two-day conference in Auckland last week, hosted by bar code standards authority GS1, attracted more than 150 attendees.

Will Duckworth, the wireless leader for IBM's business consulting services for Asia-Pacific, says the lack of pressure is good in that businesses can work out how RFID will benefit them, rather than all the benefits going to the customer.

The EPC (electronic product code) standards behind RFID work are clear and a lot of hardware and software is available, but there are still technological and business challenges.

The radio frequencies available for RFID can vary from country to country, so exporters need to get the right tags for their target markets.

Tags are still not cheap, despite the talk about economies of scale bringing the price down to cents or fractions of a cent.

There are also challenges about getting 100 per cent reads, given the short range of most tags and the way weather and environmental conditions can affect readers.

Some wild claims have been made for RFID which make it appear as a way to keep track of people and their activities.

A Californian school is under fire from parents for requiring children to carry RFID-enabled identification tags.

The reality is likely to be that difficulties in getting consistent reads would make such a system less than useful.

Many of the challenges are cultural and organisational, as in most technology projects.

The experience of Con Colovos, information chief at Sydney-based produce company Moraitis, is a good example.

Colovos came into the family-owned firm four years ago to consult on problems it was having putting in an accounting system, and stayed to build an IT infrastructure.

After tackling the basics he started looking at what RFID might do for the business.

Last year Moraitis produced 45 million 10kg bags of potatoes and 600,000 trays of hydroponic tomatoes. This year it plans to more than double tomato production, without the doubling of costs such growth usually entails.

Because RFID tags can store more information than bar codes, there was the prospect of being able to offer retailers much more information on the products - right down to who picked the tray from what glasshouse on what day.

There are also lower handling costs - once a tag is in place, it can be read multiple times automatically. Each tag is also a bar code, so it can be read anywhere in the supply chain.

Colovos hired IBM to write the software interfaces and put the system together.

A lot of the work was around business process re-engineering, mapping out how the company did things, reorganising the chart of accounts in the general ledger, and making sure all the reporting systems worked.

He says the total cost of the work so far, which is concentrated on the tomato grading and packing operation, is about $50,000. The company will save three times that sum a year by not having to employ more casual staff to swipe bar codes as the trays leave the hothouses.

"It means that when Woolworths, Coles or the other chains say they want RFID, we are already there," Colovos says.

Fresh produce is the battleground for the supermarket chains, so anything that can help them maintain quality will be used.

Duckworth says many of the pilots IBM has worked on have been about security and traceability - how to stop that CD or plasma screen walking out of the store, or identifying where medical equipment is in a hospital.

Although some exporters will be caught up by the mandates, most New Zealand companies will still look for value and quick return on investment before they race out and buy their first million tags.

They shouldn't feel they are falling behind. The important thing in most supply chains is not the identifying tag, but the infrastructure behind it.

Innovation continues in bar coding, with more information being put on codes and sophisticated networked applications being developed around that information.

RFID will find a place in areas with high volumes, low margins and highly developed supply chains, such as electronic components and consumer electronics, or industries where tracking products for compliance reasons is vital, such as pharmaceuticals.

The rest of the economy will follow on more slowly, and the decision of New Zealand business to ignore the RFID hype seems sound at this time.