rfid policy 2010

8/8/2019 RFID Policy 2010

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RFIDFrom technology & economics

to business & policy

Yale BraunsteinSchool of Information

Updated April 2010


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Motivation

Opportunity to have policy informed byeconomics & technology

Opportunity for policy and technology todevelop in logical, coordinated manner

Todays approach:From technology & economics to business & policy


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Economic Background

Costs & features

One approach is to look at prior technologyfor analogs (e.g., barcodes)

Technical hierarchy

Where does RFID fit in with othertechnologies in terms of use, complexity, etc.

The next three slides portray theserelationships in different ways


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Y Y

Low(Line of Sight) Med-High

Y(Discount

Card)

Y(CalTrans)

12 digits(bytes) for

UPC

64 or 96 bits

$.001 $.05

Characteristics Barcode RFID

Persistence

Accessible to remotemonitoring

Link to user/consumerdatabase (example)

Bits/bytes of information

Cost per code/tag

Costs & features


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But, it is not an either-or case

Since it is likely that technologies old (barcodes)and new (RFID) can and will co-exist, it isimportant to look at the rationales and drivers for

each technology Economics Regulatory and policy issues

Each informs the other. The old approach was

to focus on optimal regulation. We now realizethis is impossible to define so we look atoptimizing strategic business decisions given theregulatory environment. (a la Michael Porter)


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Myth: The EPC is an RFID Replacement of the Current Bar Codes

(GTIN/UPC)

Truth: EPC used in RFID tags and bar coding are consideredcomplementary data-capture technologies. Even with large-scaleadoption of RFID, there will be a continued need for bar coding tocoexist with RFID in the future.

While current bar coding offers the same number for every case of agiven stock-keeping unit (SKU), EPC is a standard way to serialize allinventory. The unique attributes of RFID enable improved visibility intosupply chain movements and history. With RFID technology, the level ofinformation is deeper, allowing inventory to be tracked and data to be

more freely shared between suppliers and retailers.

While RFID has the potential to offer a closer technical fit as well asoperational benefits in certain applications, it will not serve as areplacement for bar codes. Both types of technology have a place intodays fast-developing business environment.


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Underlying economics

Potential to reduce transactions costs

Fixed cost to adopt/convert to RFIDs

Per-unit costs Other costs for adopters

Benefits for adopters

Increase capabilities to Discriminate in prices

Do versioning


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Standard Value Chain

- a linked set of value creating activities

- from raw material to end use product

Procurement R&D Manufacturing Marketing Distribution Service Customer

Value chain Customer Basis


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Redesign of the Value Chain

Redesign can create dramatic gains in:- cost structure- asset investment- speed of responsiveness to external

changes

What has to be redesigned?:- set of activities- the interfaces across the chain

We shall return to this later...


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Widely deployed;broad global freq.deployment;

minimum metalinterferences

Read rangelimited to lessthan 1.5 meters

Animal tracking

Containertracking

Antitheft systems

Widely deployed;broad global freq.deployment;

minimummoistureinterferences

Read rangelimited to lessthan 1.5 meters

Metal seriousproblem

Library assettracking

Baggage tracking

Retail producttracking

Low Freq.125 kHzto 134

High Freq.13.56 MHz

Advantages Liabilities Applications

Operating Frequencies

and Uses of RFIDs


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Widely deployed;read range MUCHgreater than otherstandards

Cant be used inJapan, affected bymoisture andadjacent tags

Pallet

Containertracking

Vehicle tracking

Read range isMUCH greaterthan even UH.

Not widelydeployed,compleximplementation,cant be used inparts ofEU

Vehicle accesscontrol

Ultra-high868 MHzto 928

Microwave2.45 GHz

Advantages Liabilities Applications

Operating Freq and Uses of RFIDs


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Supply Chain Economics

Overall ROI? Probably negative if one:

Just looks at costs

Does not restructure to take advantage of thetechnology

Competitive advantage (those with tagsworth $$ more than same quality w/o)

The haves and the have-nots

High fixed costs


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Myth: Replacing Bar Code-Based Processes with RFID ProcessesWill Achieve ROI

Truth: Feeling the pressure to incorporate RFID into their manufacturing andlogistics operations, some companies will tend to implement technology fortechnologys sake. Buyer beware: Implementing RFID does not instantlyguarantee a fast path to return on investment (ROI). To impact the bottom line,the decision to implement RFID must be linked to a definitive business goal.

For most companies, it is cost-prohibitive to convert to RFID on a broad scale.

And, in some cases, it doesnt make sense. For example, if your warehouse isreliably scanning bar-coded cartons on a conveyor as they are loaded onto atruck, switching this process to RFID doesnt really buy you anything. Why?Because the labor savings resulting from replacing an automated bar code scanwith RFID simply dont amount to much.However, if every carton is currently scanned manually, changing the process toautomate the data capture could reduce labor requirements and increase facility

throughput. In addition, if there are areas in which data is lacking, adding RFIDcan increase visibility and accuracy.

The reality: RFID technology isnt new. It has been around for the past decade,whereas bar code technology has surpassed three decades. The promise ofachieving greater ROI with RFID is not time-sensitive as many may believe; it isapplication-dependent.


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Myth: RFID Benefits Only Retailers, Not Suppliers

Truth: While the RFID spotlight has clearly illuminated major retailers (Wal-Mart, Tesco, Metro, Target and Albertsons), several major Fortune 500suppliers including Procter & Gamble, Gillette, and others are driving towardRFID implementation across the supply chain.Suppliers might not achieve incremental ROI, but there are benefits to begained. As the Wal-Marts and Metros of the world implement new RFIDrequirements, suppliersin their efforts to complymust be prepared toexecute the right technology strategy to serve their own business.

Suppliers should view RFID compliance as a means to capture moredetailed inventory information, increase visibility throughout the supply chainand reduce the number of claims. For the first time, suppliers can use

shared data to gain new insights, better source products to meet demandpatterns, take preemptive corrective actions to avoid claims and bettersatisfy their customers needs. More satisfied customers and increasedstocks in-store lead to more business.


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Myth: RFID is the Only Way to Automate Manual Warehouse ReceivingProcesses

Truth: In certain cases, RFID may be appropriate for warehouse automation,but it is not the only solution. In fact, one of the biggest paybacks ofevaluating potential RFID uses in the warehouse is that this investigationactually helps uncover big savings opportunities that dont require RFIDtechnology.

Savings can be significant for manufacturing companies that are looking toeliminate their labor-intensive, paper-based processes by automating thereceiving function. Tagging of cases can be done with bar code (versus RFID)technology and still yield tangible ROI because the company has eliminatedthe potential for manual intervention and thus human error.

Another example is a manufacturer that bar codes pallets and scans themonto containers. If the company discovers that it never sends the advancedshipping notice (ASN) to the receiving warehouse, theyve identified a gapthat can be rectified and this can therefore lead to improved customer service.This scenario does not require RFID; rather, it involves the addition of asimple step to close the warehouse receiving process loopan especially

important link for capable-to-promise (CTP) manufacturers.


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Transactions costs

Savings throughout entire supply and retailchain (shipping, inventory, pricing, etc)

RFIDs have potential to lower transactionscosts, but benefits probably will beunequally spread across the supply chain

This raises contractual supplier vs. retailer

issues


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Fixed costs to adopt

Readers costs appx. $1,000 4,000

Tag Printers $2,000 5,000

Middleware $25,000 200,000 More easily afforded by larger players

Large players more likely to have moredifficult logistics, with costly errors.

According to Forrester, companies mustspend as much as $100 million to see realbenefits from deployment


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Unit costs

At least fifty times that of barcodes(remember the comparisons chart)

But this will change (learning curve)


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Other costs for adopters

RFID strategy and technology $50,000 -$300,000

Training and maintenance Specialized, network-connected tagging

equipment (ex: factor floor equipment)

Reoccurring fees toE

PCglobal and/orUCCnet (15%-20 of cost of system)


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Benefits for adopters

(Varies for every adopter) Avoided shipping errors Reduced labor costs

Accurate inventory counts and improvedforecasting demand Avoided incidents of counterfeiting (which can

also damage brand value and public confidence) EPC/RFID adoption saves between $500 million

and $1 billion/yr for pharmaceuticalmanufacturers, and between $200 million and$400 million/yr for healthcare distributors


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Price discrimination, etc. To successfully discriminate, the seller needs to:

Identify two or more market segments

With different elasticities of demand

Prevent arbitrage

For versioning to work:

New versions need to add functionality, at least in theminds of some users

Old versions need to expire RFIDs can facilitate either of these


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RFID in casinos: pricediscrimination?

In the past, casinos have relied on pit bossesand dealers to continually estimate how muchgamblers were wagering, which in turn enabledthe casinos to figure out about how much a

customer spent overall, and what level ofdiscounts and freebies he or she was entitledto. With RFID, the chips are automaticallyscanned at each bettor's position, and the dataare displayed in real time on a personal

computer behind the table visible to the dealerand pit bosses -- thus eliminating the humanguesswork.


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Potential winners & losers - I

Who wins? Who loses?

The quick answer is that RFIDs will producesome big winners and a lot of losers. Even forthe winners, RFIDs requires so much capitaland change that the risk is very great.Successful transition management requiresinsight, finesse, and careful planning.

Smaller firms may be particularly at risk


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Potential winners & losers - II

Participation will be costly for the manufacturers.Nevertheless, they will have to adopt Auto-ID.Large manufacturers may see a decrease in

profitability, but many smaller manufacturers willnot have the resources to remain involved at all.

At the same time, many smaller retailers will nothave the incentive or resources to adopt Auto-

ID. This may well accelerate the split in the retailsector between "haves" and "have-nots."


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Issues I - Standards

Myth: There Are no Set Standards forRFID

Today

Truth: GTAG? ISO 18006.A? ISO 18006.B? Gen 2 EPC? The acronym souphas thickened into a murky layer of complexity, further complicated by somevendors claims of owning the standards. The fact is that there are severalRFID standards today.The major reason that the prior standards were never adopted on a broad

scale was that the technology companies were the main drivers of thesestandards. They had a solution and were seeking a problem to address. EPCstandards, however, were developed by end user companies to ensure thatthe technology developed addressed a specific business need.Recent rumors regarding the Global Proposal verses the Freedom Proposalwithin the EPC community, along with company lawsuits, have added to theuncertainty. EPCglobal is helping to define the standards for next-generationtechnology, but the big playersWal-Mart, Metro, the U.S. department ofDefense, and select Fortune 500 companiesare aggressively movingforward on the RFID adoption curve, and many have already implementedcurrent-generation EPC technology.Smaller businesses will likely take their cue from the industry leaders as RFIDstandards continue to evolve, emerge and ultimately become moreentrenched.


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Issues II - Regulation

Reasons to regulate

It may be more efficient to treat RFID as aspecial case

Reasons not-to-regulate

Avoid the problem of building a regulatorymodel based on defunct technology

General approaches to privacy, pricediscrimination, etc., may be sufficient


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Recently in California

California Bill Seeks to Ban Tags in IDs

California's Identity Information Protection Actwould prohibit the use of contactless integrated

circuits in government-issued identificationdocuments.

(The Identity Information Protection Act of 2005,SB 682, authored by State Senator Joe Simitian)

See: http://www.rfidjournal.com/article/articleview/1565/1/1/

and http://www.aclunc.org/pressrel/050517-rfidbill.html


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Consumer applications - 1

Could RFIDs be valuable once the consumerhas purchased products with them?

Clothes, DVDs, passports, car parts, etc.

Another: Pharmaceuticals

Supply chain, especially with third-party payers

Smart Medicine Cabinets

Are there consumer analogs to high reliabilitysystems such as nuclear power plants,airplanes, etc.?


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Eventually, do items w/o RFID becomeless valuable?

May not be able to return items w/o active

RFID Could not find item in home

Could not generate list of items

Could be difficult to sell per second hand ifthey also have adopted RFID (ex:textbooks)


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Potential for complementary effects

Imagine if your mobile phone had a reader

(PhillipsE

lectronics is trying to do this.) The PDA may have a revival

Innovative software that works with RFIDs

RFID jammers and protectors


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Government applications - 1

May be useful to distinguish between:

Cases driven by economics (these can be analyzedwith similar approaches to business applications)

Cases driven by non-economic concerns National security

National identity

Government can also direct technology adoption

by its (very large) purchasing decisions Historical example: microfiche in the U.S.


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The Federal Highway Administrationawarded a contract to develop a 5.9 GHzRFID system to cut road fatalities in the

U.S. by 50%. New U.S. Civilian and Soldier Passports

with RFID

DoDs supply chain Satellite tracking of commercial vehicles inEU

Government Applications - 2


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Final Thoughts - 1

Old economics rules still apply

Dont think of just the Low Freq. chips there ismuch room for innovation with other chips as

well Try to think of what consumer pain to solve (is

an idea a pain killer or just a vitamin?)

Think of why there may be the winners and thelosers with RFIDs can we make everyonewinners?


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Final Thoughts - 2

RFIDs.. just an asset tracking system ?

However, in combination w/ other systems, RFIDis far-reaching capabilities

What types of implementations will beencouraged? Those that track importantresources.

What are important resources?

Either expensive (cars, razors, electronics) Dangerous (toxic wastes, drugs, weapons)

Emotional Attachment (pets, children, iPod)

rfid policy 2010

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