November 19, 2001
A growing number of companies that make and sell consumer products are testing a budding technology that could transform the way industries use the Internet to track goods in their supply chains.
The technology, under development at the Massachusetts Institute of Technology, takes over where bar codes leave off. Whereas bar codes use an imprint that must be manually scanned, the so-called Auto-ID technology uses a microchip tag that contains an electronic product code. The tag is affixed to a pallet of goods, and wireless readers placed on forklifts, walls or store shelves automatically track the merchandise as it moves from place to place.
As the technology improves, pallets will give way to cases and perhaps individually packaged goods, ultimately enabling companies to follow those goods to the point of sale.
The Auto-ID project is spearheaded by some of the world's largest consumer packaged goods, retail and computer companies, including International Paper, Procter & Gamble, Sun Microsystems, Unilever and Wal-Mart, and is supported by the Uniform Code Council, a standards body that represents companies in 23 industries.
After two years of planning and design, MIT's Auto-ID Center started test-driving its prototype on Oct. 1. In the test, a commercially made radio frequency (RF) tag was affixed to a pallet of Procter & Gamble's Bounty paper towels at a factory in Cape Girardeau, Mo., to track the pallet's progress all the way to a Wal-Mart Sam's Club warehouse in Tulsa, Okla.
Two million such tags have been tested, and next month the trials will escalate when Unilever and Gillette join in. The second phase of the trial will begin early next year, when participants start tagging cases of goods instead of pallets.
Consumer goods companies are hopeful that RF ID tags will cut supply chain management costs by billions of dollars. Today's manually operated bar code scanners are imperfect because they're prone to human error. Companies can easily lose track of cases that accidentally aren't scanned.
Taking the human out of the equation could mean better accuracy, reduced costs and improved productivity, said Sam Ellis, supply chain futurist at Unilever.
Of course, consumer goods makers and retailers aren't the only beneficiaries. Auto-ID offers a chance to redefine the role of a package in virtually all industries, said Steven Van Fleet, program director of smart packaging at International Paper. "By placing something on the package, the package becomes a source of information," he said.
In parallel with the Auto-ID program, Van Fleet has been developing "smart shelving," which detects when items are added or taken away. International Paper has also used readers to track rolls of paper, and it has placed lightweight readers on forklifts. The company will provide the forklift readers, used to track cases of goods, in the next phase of the trial.
Tags' DNS System
One important consideration is who will manage an MIT-developed object naming service, which helps identify new items as they arrive on a loading dock for the first time. The ONS, a key part of the system, works the same way the Internet's Domain Name System searches for URLs.
When a product arrives on a shipping dock and the receiver can't identify the contents, the tag's ID code is sent via the Internet to the ONS, which looks up the information. The ONS uses a specially created physical markup language, based on XML but for physical objects, to cross-check information on the RF tag with information in the ONS. Future owners of the ONS might be either the World Wide Web Consortium or the Internet Engineering Task Force, said Kevin Ashton, executive director of MIT's Auto-ID Center.
Getting the system to work is critical, but it's really just the beginning. Enterprises now must figure out what to do with all the information they expect to mine from the tags.
Executives expect RF ID to be disruptive, but how much so is still a question. And no one knows when the technology will become commercially viable.
Unilever's Ellis said he thinks companies will begin replacing some bar codes with RF chips and capture data at the same places where bar codes are used. Over time, companies will add to the number of places they collect data. The risk is that there may come a point where they have more information than they can handle, he said.
C. Larry Kellam, director of B2B supply chain innovation at Procter & Gamble, said he expects all of his company's computing systems will be impacted. Though he's not sure how, he knows "trillions of transactions will have to be on servers somewhere."
The potential advantage of a universal product code with a real-time trigger is enormous, Kellam said.
"I want to integrate this across our entire ERP system so we make decisions that take time, cost and cash out of the system and add value to our customer," he said. SAP and Sun are helping companies figure out how much data should be integrated with ERP or other corporate systems.
Unilever is thinking about how this data will impact its SAP R/3 ERP software, its Manugistics supply chain planning system and its McHugh Software warehouse management system. "If none of those companies decide to adopt RF ID integration, then we've got a problem," Ellis said.
Unilever has discussed the ID tags with McHugh, but other manufacturers must adopt RF IDs for the potential of the tags to be unlocked. Two of Unilever's suppliers, International Paper and Westvaco Corp., are active members of the Auto-ID Center, but a third, Georgia-Pacific Corp., isn't. "It makes a lot of sense for us if the tag comes in from the supplier," Ellis said. "So we've got lots of questions."
At the center of the Auto-ID system is the RF ID tag, which contains 96 bits of product information. Initial chips will be 64 bits because they're cheaper to make. The Auto-ID center's Ashton describes the tag as "somewhere between the size of a grain of sand and a speck of dust."
Unilever's and Gillette's participation is key, because the chips will become affordable only if more companies demand them, said Ashton, who is on hiatus from Procter & Gamble.
Supply chain executives say the tag must cost no more than 5 cents and ideally closer to a penny. After all, Ashton said, consumer goods makers as a whole ship half a trillion new objects every year. Procter & Gamble alone makes 20 billion items a year.
So far, at least two semiconductor companies are building the integrated circuits: Philips Semiconductor and Alien Technology, a start-up in Morgan Hill, Calif. The tags won't be available until at least mid-2002, so today project participants are using commercially available programmable chips that cost about $2 each and are retrofitted for this application.
When the custom chips are ready, Ashton expects the initial price to be about 20 cents each. Some 20 companies will begin testing prototypes toward the second half of 2002, which should help drive down the price, Ashton said.
At the right price, the chips will do far more than pay for themselves, said Procter & Gamble's Kellam. "It will be one of the largest initiatives across the company," he said.
But International Paper's Van Fleet has begun questioning whether silicon is the best way to get the price below 5 cents. Companies should consider using plastics or printable ink, which can be more easily applied, he said.
Of course, the microchip isn't the only thing that has a price tag. Each reader costs about $100. They must be placed in doors, in walls, on shelves and anywhere else tags may pass. How many readers are necessary is up to the individual company.
Some significant workability kinks must still be ironed out in the trial. For instance, the RF tags use the same 2.4-GHz radio spectrum as 802.11b wireless LANs and devices that support the Bluetooth wireless application specification, so there's potential for conflict. Participants are confident that adjustments can be made to avoid interference.
It's also not clear how well RF tags will read certain items. Next month Unilever wants to test the tag with its All brand of liquid detergent soap. Unilever's Ellis said the density of liquids has made them somewhat opaque to RF signals.
Experts disagree about when the entire Auto-ID system will be ready; opinions range from two years to more than five years. MIT will publish the standard, perhaps next year. Initial field trials won't finish until mid-2002.
Even before the building blocks are in place, it's possible to imagine applications for RF ID that go beyond supply chain integration. Theft prevention or location tracking are two examples. If a store manager can see that, in one moment, 10 bags of razor blades or 10 DVDs were removed from a shelf, he could surmise that a crime may be taking place, said AMR Research analyst Peter Abell.
And just as FedEx is able to tell its customers where packages are, a consumer goods company could use the Internet to gather location information so retail partners know exactly where cases of detergent are in the shipping process. Suppliers can even use the tags to track raw material.