Can smart tags DELIVER?

New tagging and tracking technology heralds a supply chain revolution. Andrew Saunders reports.

Like a top-of-the range 5 Series BMW, the Extra Future Store in the sleepy northeast German town of Rheinberg doesn't shout about its market-leading technical superiority. This ordinary outlet is probably the world's most high-tech supermarket, but as with the Beemer, only a few discreet external clues indicate that this is anything other than a common-or-garden grocery store.

Under the bonnet, however, lurks a throbbing mass of techno-horsepower that is anything but ordinary. For the Future Store is home to one of the world's first live trials of radio frequency identification (RFID), the tagging and tracking technology that heralds the biggest supply chain revolution since the introduction of the now-ubiquitous barcode more than a quarter of a century ago.

Imagine a world in which every single manufactured good is tagged with a microchip the size of a grain of sand. The tag (in effect, a miniature short-range radio transmitter activated by an RFID reader) is programmed with a very large number that identifies the item uniquely as a bottle of shampoo or the gearlever of a car, a compressor blade for a jet engine or a DVD. Even farm animals, such as sheep and cattle bred for meat, can be tagged and identified.

These tags are supplemented by others, added as items are further processed (assembled into a car in the case of the gearlever, or reduced into cuts of meat), packed, shipped and sold. The tags can be read automatically at any point in the manufacture, delivery and retail cycle, so suppliers and customers will always know where anything is, supply can be matched to demand and provenance guaranteed.

Admittedly, that vision of the future is a long way off, but its foundations are being laid at the Future Store. Tags on every item are not yet practical, but RFID-tagged pallets delivered to the store are booked in to the inventory control system as they arrive, and tagged items are read again as goods proceed from the storage area to the shop floor. The company is even testing 'smart shelves', display units that read tags attached to individual items, so that each shelf knows' how much of what product is on it and automatically asks to be restocked. The level of transparency and real-time information is every profit-hungry shopkeeper's dream.

The pioneering test has been running since April 2003, and the store's parent company, Metro Group - one of Germany's leading retailers - is now rolling out RFID to 20 other locations and 20 of its top-tier suppliers, putting the firm first in the international RFID league table. RFID is also generating big interest in the US, galvanised by the fact that mall king Wal-Mart has told suppliers that they will have to embrace the technology if they wish to stay on its roster.

Here in Blighty, though, things are proceeding at a more stately pace, according to new research conducted jointly by MT and the Management Consultancies Association. The survey of managers at more than 300 British-based companies, in a variety of sectors and ranging in turnover from about £10 million to over E500 million, reveals that the predominant attitude to RFID in the UK at present seems to be a cautious wait and see'.

Whereas more than two-thirds of respondents think RFID is of considerable potential value to businesses, a much more modest 35% think it will be of value to their own organisations, and a mere 5% are actually piloting or rolling out RFID systems in their supply chain. This despite the fact that 51% of the same sample accept that five years hence RFID will be an everyday part of the business landscape.

So although a few UK businesses-including retailer Marks & Spencer and drugs business AstraZeneca - are trying out RFID systems, the rest of UK plc is watching from the sidelines, hoping to learn from the mistakes of early adopters.

There's nothing wrong with a bit of healthy scepticism, but companies should be fully aware of the risks of doing nothing, says Gerd Wolfram, managing director of Metro Group Information, the group's RFID division. If you wait, you will lose a lot of the potential benefits. We did not suffer as many technology problems in our implementation as I expected, but we did have to make a lot of process and organisational changes. These kinds of changes take longer than technology changes, so it is crucial to start as early as you can.'

It's also crucial to understand what the technology can do and how it might be applicable in your business. At the heart of a typical system are the RFID tags or 'smart labels' programmed with the number that identifies the product it's attached to in the inventory database. The microchips themselves are tiny, but they need relatively large aerials to be read easily, so the whole label is typically about the size of two postage stamps.

They are passive and do not need to be visible to the scanning device, so they can be read at any angle and in any position, and multiple tags can be read simultaneously. This means that, say, a delivery of a pallet-load of air fresheners can be automatically registered just by wheeling the pallet through an RFID gate (which looks like a large walk-through airport metal detector) in the delivery bay.

If the use of these labels is adopted through the entire supply chain, the traceability and authenticity of everything from sports shoes and razor blades to drugs and fresh produce can be guaranteed. More sophisticated versions of smart labels can be updated as they pass along the supply chain. So a tag attached to a container of frozen meat could keep track of where the container came from and the temperature at which it has been stored and transported. If it hasn't been kept properly chilled all the way down the line, the customer can reject it.

Admittedly, such a scenario calls for a lot of infrastructure and prodigiously powerful inventory control computer systems that don't exist yet, but it is technically possible. 'It will be about five years until we get to full pallet-level tagging,' says Wolfram, and 10-15 years at least for the tagging of individual items and packages to become commonplace.

One of the best reasons for getting into RFID on the ground floor is good old-fashioned business sense, says Albert Roger, vice-president of RFID solutions for Checkpoint Europe, one of Metro Group's closest partners. 'If you are a leader in RFID, you will gain a competitive advantage that will last for years. If you are a follower... well, you will have to do it sooner or later, but while you are catching up there is no competitive advantage.'

At present, a good deal of the commercial activity around RFID is in the retail supply chain, but there are many potential applications beyond this sector. Pickberry, a north Californian grape grower that supplies some of the region's most prestigious wine makers, uses an RFID system to collate live data about the growing conditions in its vineyards, compare it to the weather forecast and match the likely water demand with its own available supply.

And IBM's Fishkill semiconductor plant in New Jersey is a fully automated factory where the progress of valuable silicon wafers is monitored using RFID technology. In three years, it hasn't lost so much as a single wafer. Some rather less space-age manufacturing plants use RFID systems to monitor equipment wear levels and minimise machine downtime, or to pick and pack complicated mixed orders for despatch straight off the production line.

One of the biggest concerns that companies have over working with RFID is that the business benefits are not properly understood - well over a third of all the surveyed companies saw this lack of understanding as a serious obstacle. Checkpoint's Roger agrees. 'There's a lack of experience with these technologies across the whole industry, even in the biggest companies. It's a very common concern. You should choose your RFID partners very carefully, as in my opinion there is currently no one company that can supply everything you need.'

But for those hesitant about taking the plunge, Roger has this advice. 'RFID is not a magic pill to improve your supply chain; you need to improve your processes too. You must gain understanding of what RFID will mean for your business through your own experiences of using it.' In other words, it's time to swap your Focus for a 5 Series and get that pilot programme out of the car park.

Radio Frequency Indentification: The gap between perceptions and reality, brought to you jointly by MT and the MCA, will be launched at a seminar on Thursday, 17 March at a central London venue. Visit for more information or e-mail to register your interest. The full report is available in print for £100 or in pdf format for £150. To order, e-mail


Which of the following statements best reflects your organisation's current RFID strategy?

27% - Not relevant to sector

34% - Interested to see how others develop it - 'wait and see'

4% - Evaluating RFID due to customer/regulatory pressure

6% - Actively considering RFID pilot

3% - Piloting RFID in part of the business

2% - Rolling out RFID across the business

0% - Have evaluated and rejected RFID for the moment

Percentage of respondents agreeing or strongly agreeing with the following statements:

67% - RFID is of considerable potential value to business in general

35% - RFID is of considerable potential value to my organisation

48% - Effective use of RFID technology is still several years away

51% - In five years' time, RFID will be an accepted part of the business landscape

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