rfid adoption and implications - empirica

RFID Adoption and Implications

Study reportNo. 07/2008

This report was prepared by IDC EMEA on behalf of the European Commission, Enterprise & Industry Directorate General, in the context of the "Sectoral e-Business Watch" programme. The Sectoral e-Business Watch is implemented by empirica GmbH in cooperation with Altran Group, Databank Consulting, DIW Berlin, IDC EMEA, Ipsos, GOPA-Cartermill and Rambøll Management based on a service contract with the European Commission.

European Commission, DG Enterprise & Industry

e-Mail: [email protected], [email protected]

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A Sectoral e-Business Watch study by IDC / Global Retail Insights

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September 2008

mailto:[email protected]


RFID adoption and implications

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About the Sectoral e-Business Watch and this report

The European Commission, Enterprise & Industry Directorate General, launched the Sectoral e-Business Watch (SeBW) to study and assess the impact of ICT on enterprises, industries and the economy in general across different sectors of the economy in the enlarged European Union, EEA and Accession countries. SeBW continues the successful work of the e-Business W@tch which, since January 2002, has analysed e-business developments and impacts in manufacturing, construction, financial and service sectors. All results are available on the internet and can be accessed or ordered via the Europa server or directly at the Sectoral e-Business Watch website (www.europa.eu.int/comm/enterprise/ict/policy/watch/index.htm, or www.ebusiness-watch.org).

This document is a final report of a Topic Impact Study, focusing on the adoption of Radio Frequency Identification (RFID) technologies and their impact on the manufacturing, transportation, retail and healthcare industries. The study describes how companies use ICT for conducting business, and, above all, assesses implications thereof for firms and for the industry as a whole. The elaborations are based on an international survey of enterprises on their use of RFID, econometric analyses, expert interviews and case studies.

Disclaimer

Neither the European Commission nor any person acting on behalf of the Commission is responsible for the use which might be made of the following information. The views expressed in this report are those of the authors and do not necessarily reflect those of the European Commission. Nothing in this report implies or expresses a warranty of any kind. Results from this report should only be used as guidelines as part of an overall strategy. For detailed advice on corporate planning, business processes and management, technology integration and legal or tax issues, the services of a professional should be obtained.

Acknowledgements

This report was prepared by IDC EMEA on behalf of the European Commission, Enterprise & Industry Directorate General. The main author was Ivano Ortis. The study is a deliverable of the Sectoral e-Business Watch, which is implemented by empirica GmbH in cooperation with Altran Group, Databank Consulting, DIW Berlin, IDC EMEA, Ipsos, GOPA-Cartermill and Rambøll Management, based on a service contract with the European Commission (principal contact and coordination: Dr. Hasan Alkas).

The SeBW would like thank the members of the Advisory Board in 2007/2008 for reviewing the draft report and providing valuable comments and suggestions: Andy Lee (Cisco), Antonio Lasi (Lombardia Informatica) and Jean-Francois Remy (HP).

Contact

For further information about this Sector Study or the Sectoral e-Business Watch, please contact:

Global Retail Insights, IDC Viale Monza, 14 20127 Milan, Italy [email protected]

Sectoral e-Business Watch c/o empirica GmbH Oxfordstr. 2, 53111 Bonn, Germany [email protected]

European Commission Enterprise & Industry Directorate-General, ICT for Competitiveness and Innovation [email protected]

Rights restrictions

Material from this report can be freely used or reprinted but not commercially resold and, if quoted, the exact source must be clearly acknowledged. Milan / Brussels, 2008

http://www.europa.eu.int/comm/enterprise/ict/policy/watch/index.htm

http://www.ebusiness-watch.org





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Table of contents

Executive Summary ................................................................................................... 5

1 Introduction ................................................................................................... 9 1.1 About this report .................................................................................................................. 9 1.2 About the Sectoral e-Business Watch................................................................................ 10 1.3 ICT and e-Business – key terms and concepts .................................................................. 14 1.4 Study objectives and methodology..................................................................................... 19

2 Context and background ............................................................................. 21 2.1 Topic definition — main goals and scope of the study ........................................................ 21 2.1.1 Main goals...................................................................................................................................... 21 2.1.2 Scope............................................................................................................................................. 21 2.2 RFID technology................................................................................................................ 22 2.2.1 A basic description of RFID............................................................................................................. 22 2.2.2 Types of RFID tags......................................................................................................................... 25 2.2.3 RFID standards .............................................................................................................................. 27 2.3 RFID benefit and impacts .................................................................................................. 29 2.4 Key trends and challenges for RFID applications ............................................................... 32 2.4.1 Responsive supply chains............................................................................................................... 32 2.4.2 Interoperability and standardisation: the importance of a global standard for RFID ............................ 36 2.4.3 Return on investment (ROI) for RFID – The challenge of creating the business case......................... 37 2.4.4 Value chain collaboration and RFID: opportunities to drive profitable growth strategies ..................... 39 2.4.5 RFID concerns: security, privacy and health risks ............................................................................ 41 2.5 RFID applications in the retail, manufacturing, transportation and healthcare industries ..... 42

3 Deployment of RFID solutions..................................................................... 46 3.1 RFID adoption trends ........................................................................................................ 46 3.1.1 RFID adoption: international comparison ......................................................................................... 46 3.1.2 RFID adoption in the EU ................................................................................................................. 47 3.2 Key business objectives driving RFID adoption.................................................................. 52 3.2.1 Improving supply chain efficiency, visibility, and predictability ........................................................... 57 3.2.2 Improving product or service safety and authenticity ........................................................................ 58 3.2.3 Enabling faster operational turnarounds and improving production processes efficiencies ................. 59 3.2.4 Augmenting asset management capabilities .................................................................................... 60 3.2.5 Regulatory compliance.................................................................................................................... 61 3.2.6 Market-driven mandates.................................................................................................................. 62 3.2.7 Reducing out-of-stock situations...................................................................................................... 62 3.3 Benefits and opportunities for SMEs.................................................................................. 63


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3.4 Key barriers to RFID adoption and lessons learned from case studies ............................... 72 3.5 RFID investment plans and adoption roadmap................................................................... 77 3.6 Summary and conclusions of RFID deployment................................................................. 80

4 RFID benefits and business impact............................................................. 83 4.1 Impact on productivity and innovation ................................................................................ 83 4.2 Impact on employment and workforce composition ............................................................ 89 4.3 RFID ROI .......................................................................................................................... 95 4.3.1 RFID costs...................................................................................................................................... 95 4.3.2 Business case assessment ............................................................................................................. 96 4.4 Summary of impact analysis ............................................................................................ 101

5 Case studies .............................................................................................. 103 5.1 METRO Group (Germany)............................................................................................... 105 5.2 Hewlett-Packard (Brazil) .................................................................................................. 112 5.3 Euro Pool System (Belgium)............................................................................................ 118 5.4 Hong Kong International Airport....................................................................................... 123 5.5 Land Rover (UK) ............................................................................................................. 128 5.6 Istituto Nazionale dei Tumori (Italy).................................................................................. 134 5.7 New Look (UK) ................................................................................................................ 144 5.8 Futura Systems (Spain)................................................................................................... 147 5.9 Schuitema (Netherlands) ................................................................................................. 152 5.10 Motol university hospital (Czech Republic)....................................................................... 158 5.11 Summary of case study findings ...................................................................................... 162

6 Conclusions: outlook and policy implications .......................................... 163 6.1 Outlook on further possible RFID developments .............................................................. 164 6.2 Policy implications ........................................................................................................... 165 6.2.1 Supporting RFID skills development to improve European Industry Competitive Performance ......... 166 6.2.2 Long-term regulatory framework for radio frequency standards....................................................... 167 6.2.3 Analyse potential environmental impacts resulting from the diffusion of billions of RFID devices and

provide recycling guidelines for consumer products........................................................................ 168 6.2.4 Promote EU level R&D cooperative research for medium-long term RFID applications and innovations

– a focus on wireless mesh-network communication protocols........................................................ 169

References ............................................................................................................. 170

Annex I: The e-Business Survey 2007 – methodology report ............................... 174

Annex II: RFID standards ....................................................................................... 180

Annex III: RFID standard bodies and regulation.................................................... 182


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Executive summary

Key findings

RFID may become mainstream in Europe over the next 5 to 10 years. A significant adoption uptake in the retail, transportation, and logistics sectors over the past years indicates that RFID is expected to grow at a fast pace over the coming 5 to 10 years.

Business stimuli will foster the implementation of RFID. Key business drivers for RFID adoption include mainly operational incentives such as the opportunity to achieve cost reductions and productivity improvements along the supply chain and in production processes. The focus is expected to gradually move from operational execution activities to the optimisation of business planning and intelligence capabilities motivation.

Average payback time for RFID investments is estimated to be between 2 to 3 years. Empirical evidence indicates that the implementation of RFID can enable labour and total factor productivity growth. It also fosters innovative activity leading to increases in turnover. Depending on the implementation scale, companies can expect a 12 to 18 months competitive advantage from the implementation of RFID.

RFID adoption affects workforce composition. About 30% of companies already using RFID report some workforce reductions. These reductions in RFID-enabled departments are often compensated by a reallocation of the workforce to other business functions.

Outlook for further developments. Technological innovations will lead to greater integration of RFID with other technologies, real-time locating systems (RTLS), and business intelligence platforms. Other trends are embedding RFID in products -such as contact-less cards- and incorporating RFID into product packaging, to enable recycling.

Objectives and scope of the study

This document is the Sectoral e-Business Watch study on Radio Frequency Identification (RFID) activities in the manufacturing, transportation, healthcare and retail industries. Its objective is to describe how companies in these industries use RFID for conducting business, to assess impacts of this development for firms and for the industries as a whole, and to indicate possible implications for policy. Findings presented in this report are based on literature, expert interviews, case studies and the results of an international survey of enterprises on their RFID usage conducted by the Sectoral e-Business Watch (SeBW) in August and September 2007 in seven European countries.

The manufacturing, transportation, healthcare and retail industries as defined for the study purpose cover the business activities defined in section 2.1.2.

RFID technology

RFID is mostly used for identifying people, objects, transactions or events through a wireless communication connection. It is an automatic identification and data capture method (AIDC), which not only helps to identify, but also to collect data attributes about a certain object or person, including localisation and environmental measurements when integrated with sensor networks. The development of RFID technology emerges to be one of the most interesting innovations for the improvement of business process efficiency across the manufacturing, transportation & logistics, wholesale distribution and retail trade sectors.


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This is due to the fact that RFID systems offer enterprises an advanced way of gathering and processing business data. RFID is becoming a real opportunity to drive business process re-engineering and business models re-thinking through a systematic usage of RFID-collected data in specific-use case scenarios.

RFID may become mainstream in Europe over the next 5 to 10 years

Compared to the estimated RFID adoption rate of 18% of enterprises in 2006 and 25% in 2007 – resulting from a significant adoption uptake in retail, transportation and logistics - adoption of RFID is expected to grow in the EU-7 at a fast pace over the next 5 years (see sections 3.1 and 3.5):

On average, an annual growth of approximately 27% in the number of enterprises adopting RFID is estimated during the period 2007-2009.

By 2011, approximately 44% of enterprises are estimated to have implemented RFID.

Potentially, by 2012 half of EU-7 enterprises may have implemented RFID.

The leading sectors in the usage of RFID are the transport sector (27% of respondents) and the retail sector (26%). The highest percentage of pilots and ongoing implementations was reported in the manufacturing sectors, due to the increased pressure from their retail customers and with the objective of improving production efficiency while safeguarding product safety and authenticity. In the hospital activities sector, only 18% of respondents indicated that they have adopted RFID with 10% that are already using RFID in their regular business.

RFID adoption is positively correlated with company size: diffusion rates vary from 31% for large enterprises (over 1000 employees) to approximately 12-15% for the other enterprise classes.

Projected growth rates in RFID adoption will be driven by key business motivations including the opportunity to achieve cost reductions and productivity improvements along the supply chain, achieving regulatory compliance, increasing quality of service provided to customers and improve enterprise assets management efficiencies (see sections 3.2, 3.3, and 4.1).

The increasing momentum for investment in 2008 is also a consequence of the fact that RFID usage may be driven not only by the opportunity to optimise business process efficiency but also to enable informed decisions across the enterprise effectively. Thus, the focus of RFID implementations is expected to move gradually from operational execution activities to the optimisation of business planning and intelligence capabilities.

Among the key lesson learned from RFID case studies and best practices is that the required process re-engineering effort always turns out to be more than companies would initially expect. However, this shall not cause enterprises to stop innovation, as RFID is a tangible opportunity to drive new value creation and improve enterprise competitiveness.

Short-term business drivers to RFID adoption

As illustrated in more detail in sections 3.2 and 3.3, key drivers to RFID adoptions in the short-term include:

Improving product and service safety or authenticity.

Improving the efficiency of production processes.

Improving product track-and-trace capabilities and increasing supply chain efficiencies and visibility. Warehouse and logistics productivity improvements emerge as the major supply chain goal in the short-term. Global traceability represents a major medium to long-term objective for the industry, with RFID


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holding the potential to increase consumers' safety.

Achieve regulatory compliance in a more efficient way.

Improving asset management efficiencies.

Market-driven mandates issued by large retail companies (for example WalMart and the METRO Group) are expected to further stimulate RFID adoption among consumer product goods manufacturers.

Impact of RFID

RFID-enabled companies can achieve on average a 12 to 18 months competitive advantage depending on the implementation scale, as demonstrated, for example, with the RFID projects conducted by the METRO Group, Royal Ahold and NYK Logistics.

Empirical evidence indicates the implementation of RFID can enable labour and total factor productivity growth as well as innovation in the way enterprises conduct business. RFID-enabled innovative activity on products, services and within collaborative value networks, positively affects the likelihood of a firm reporting a turnover increase. As a result, the average payback period for RFID investments is estimated between 2 to 3 years, based on an average lifetime of 10 years for RFID implementations.

About 30% of companies already using RFID have experienced some workforce reductions. Companies piloting or planning to use RFID expect even slightly higher reductions. In turn, workforce reductions in RFID-enabled departments are often compensated for by a reallocation of the workforce to other business functions. A minority of enterprises created new technical (22%) or business process oriented (18%) jobs.

Although it is difficult to assess whether an increasing use of RFID creates or destroys jobs, it may be deduced from empirical

evidence that high and medium-skilled labour is required to maximise the impact of RFID implementations on productivity, both on the demand-side (e.g. within end-user organisations) and the output-side (e.g. within technology vendor organisations).

Strategic recommendations to approach RFID investments

Understanding whether a company can achieve concrete competitive advantage from RFID and whether RFID is the right solution to implement requires detailed assessments. The implementation of RFID is a business journey, and as such, enterprises should not position RFID as a new and complex technology project to run, because business performance improvements may result.

What drives companies' performance after the implementation of RFID data collection is the automated use of accurate information that is available in real-time, not the availability of the data in itself.

The following emerge as key trends:

Actual productivity improvements that are obtainable by enterprises depend upon a number of variables that are specific to the actual use case scenario. A phased implementation approach seems the most viable solution to enable quick ROI opportunities (e.g. between 12 to 36 months) while ensuring the attainment of long-term strategic goals.

The major cost component of the total value of an RFID project seems to be the cost of project implementation, system integration and business process re-engineering. Cost for RFID tags and readers is the second major component of the total investment while software costs come third.

RFID-enabled innovations are correlated with company size. As opposed to large-scale enterprise implementation scenarios, RFID applications by SMEs


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tend to focus on enabling productivity improvements that have a positive business impact in the short-term.

RFID will run parallel to barcodes for many years.

RFID is not the sole technology choice available to enterprises. Therefore, enterprises are recommended to assess RFID ROI following the guideline provided in the study (see section 4.3), whilst assessing the impact of selected technology options on the specific use case and their eventual synergies. The development of multigenerational RFID programs to accommodate new technologies when they become available is highly advisable.

Extending supply chain visibility and performance objectives to the edges, in other words beyond the "4-walls" of an enterprise, will be instrumental to maximise RFID ROI. Therefore, the recommendation is to move gradually from a closed-loop implementation scenario to include the extended boundaries.

Outlook for further developments

Technological innovation will lead to greater integration of RFID with other technologies such as sensor network technologies, real-time locating systems (RTLS), and business intelligence platforms. This may enable innovations such as the self-service totally automated store. Trends towards embedding RFID in products -such as contact-less cards- and incorporation of RFID into product

packaging, to enable recycling can also be envisaged.

Policy implications

In the light of the current policy context for RFID, considering the key barriers to RFID, as well as the expected impact on employment and workforce composition, the following political activities are suggested to the European Commission, national and regional governments as well as European and national industry associations:

Supporting RFID skills development to improve European Industry Competitive Performance (section 6.2.1)

Developing a regulatory framework promoting radio standards for the medium to long term (present standards are too fragmented and valid only up to 10 years horizon) (section 6.2.2).

Analyse potential environmental impacts resulting from the diffusion of billions of RFID devices and provide recycling guidelines for consumer products (section 6.2.3).

Invest in EU level R&D cooperative research for medium-long term RFID applications and innovations (section 6.2.4). In sight of the emerging wireless and universal communication scenario, a possible need may arise for interoperability guidelines and a new wireless communication protocol standard based on mesh-networks.


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1 Introduction

1.1 About this report

Purpose, sources and addressees

This is the final report of the “Sectoral e-Business Watch” (SeBW) study on Radio Frequency Identification (RFID) in the healthcare, manufacturing, transportation and retail industries. The study analyses how companies from these industries use RFID for managing their business processes, both internally and in exchange with suppliers and customers. It identifies related opportunities, possible barriers for RFID adoption and digital integration and assesses the impact of RFID integration for firms and for the industry as a whole. Possible implications for policy actions are indicated.

Findings presented in this report are based on literature, expert interviews, case studies and the results of an international survey of enterprises on their RFID usage conducted by the SeBW in August and September 2007 in seven European countries. The study addresses, in particular, policy makers in the fields of innovation and RFID-related policies and in sectoral economic policy. It also addresses representatives of the retail, manufacturing, transportation and healthcare industries, notably decision makers in industry associations as well as firm managers in marketing, procurement, ICT and e-solutions, and human resources.

Study structure

This report is structured into six main sections. Chapter 1 explains the background and context why this study is being conducted: it introduces the Sectoral e-Business Watch (SeBW) programme of the European Commission, a conceptual framework for the analysis of e-business, and the specific methodology used for this study. Chapter 2 provides some general information and key figures about RFID in Europe and beyond. Chapter 3 analyses the current state-of-play of RFID adoption and plans for adoption in this industry, focusing on specific ICT-related issues that were found to be particularly relevant. Chapter 4 assesses the impact of RFID developments on productivity and innovation, work processes and employment, and on Return on Investment (ROI). Chapter 5 presents case studies which provide further evidence for the issues discussed in chapters 3 and 4. The final Chapter 6 provides an outlook to future developments and draws conclusions on policy implications.

Combining exploratory, descriptive and explanatory approaches

The study approach is exploratory, descriptive and explanatory, thus applying a broad and sound methodological basis: A qualitative case study approach (chapter 5) is combined with a descriptive presentation of quantitative survey data (chapter 3) and an economic analysis of ICT adoption and its impacts (chapter 4). This threefold approach is meant to produce an in-depth understanding of current e-business issues in the


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industry (the "practitioner's view") as well as the state of the art of e-business practice (the “empiricist’s view”), while also assessing the economic effects of this practice, for instance on firm productivity and innovation (the "economist's perspective"). While the results from these different approaches are presented like self-sustained pieces of research in separate chapters, they are intertwined and cross-referenced.

1.2 About the Sectoral e-Business Watch

Mission and objectives

The "Sectoral e-Business Watch" (SeBW) explores the adoption, implication and impact of electronic business practices in different sectors across the European economy. It represents the continued effort of the European Commission, DG Enterprise and Industry to support policy in the fields of ICT and e-business, which started with "e-Business W@tch" in late 2001.

In ICT-related fields, DG Enterprise and Industry has a twofold mission: "to enhance the competitiveness of the ICT sector, and to facilitate the efficient uptake of ICT for European enterprises in general." The services of the SeBW are expected to contribute to these goals. This mission can be broken down into the following main objectives pertaining to this study:

to assess the impact of RFID on enterprises, industries and the economy in general;

to highlight barriers for RFID uptake, i.e. issues that are hindering a faster and/or more effective use of ICT by enterprises in Europe;

to assess the role of RFID;

to identify and discuss policy challenges stemming from the observed develop-ments, notably at the European level;

to engage in dialogue with stakeholders from industry and policy institutions, providing a forum for debating relevant issues.

By delivering evidence on RFID uptake and impact, the SeBW is supporting informed policy decision-making, in particular in the fields of innovation, competition and structural policy.

Policy context

The initial e-Business W@tch programme was rooted in the eEurope Action Plans of 2002 and 2005. The eEurope 2005 Action Plan had defined the goal "to promote take-up of e-business with the aim of increasing the competitiveness of European enterprises and raising productivity and growth through investment in information and communication technologies, human resources (notably e-skills) and new business models".1

1 "eEurope 2005: An information society for all". Communication from the Commission,

COM(2002) 263 final, 28 May 2002, chapter 3.1.2.


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The i2010 policy2, a follow-up to eEurope, also stresses the critical role of ICT for productivity and innovation, stating that "… the adoption and skilful application of ICT is one of the largest contributors to productivity and growth throughout the economy, leading to business innovations in key sectors" (p. 6). The Communication anticipates "a new era of e-business solutions", based on integrated ICT systems and tools, which will lead to an increased business use of ICT. However, it also warns that businesses "still face a lack of interoperability, reliability and security", which could hamper the realisation of productivity gains (p. 7).

In February 2005, the European Commission proposed a new start for the Lisbon Strategy. While it recommended changes in the governance structures, i.e. the way objectives are to be addressed, the overall focus on growth and jobs remained unchanged. Some of the policy areas of the renewed Lisbon objectives address ICT-related issues. Central Policy Area No. 6 deals with facilitating ICT uptake across the European economy. Policy-makers in this area will require thorough analysis of ICT uptake based on accurate and detailed information on the most recent developments. Such evidence-based analysis is also needed when targeting individual sectors to fully exploit the technological advantages, in alignment with Central Policy Area No. 7 “Contributing to a strong European industrial base”. Furthermore, Guideline No. 9, addressed to Member States, encouraging the widespread use of ICT,3 can be effectively addressed only if actions are based on understanding of the potential for and probable effectiveness of interventions.

"ICT are an important tool …"

"More efforts are needed to improve business processes in European enterprises if the Lisbon targets of competitiveness are to be realised. European companies, under the pressure of their main international competitors, need to find new opportunities to reduce costs and improve performance, internally and in relation to trading partners. ICT are an important tool to increase companies’ competitiveness, but their adoption is not enough; they have to be fully integrated into business processes."

Source: European Commission (2005): Information Society Benchmarking Report

Also in 2005, in consideration of globalisation and intense international competition, the European Commission launched a new industrial policy4 to create better framework conditions for manufacturing industries in the coming years. Some of the policy strands

2 "i2010 – A European Information Society for growth and employment." Communication from the

Commission, COM(2005) 229 final. 3 "Working Together for Growth and Jobs: a New Start for the Lisbon Strategy", Communication,

COM (2005) 24, Brussels, 02.02.2005. Available at http://europa.eu.int/growthandjobs/pdf/COM2005_024_en.pdf.

4 "Implementing the Community Lisbon Programme: A Policy Framework to Strengthen EU Manufacturing - towards a more integrated approach for Industrial Policy." Communication from the Commission, COM(2005) 474 final, 5.10.2005.

http://europa.eu.int/growthandjobs/pdf/COM2005_024_en.pdf


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described have direct links to ICT usage, recognising the importance of ICT for innovation, competitiveness and growth.

The SeBW is one of several policy instruments used by DG Enterprise and Industry in this context. Other instruments include

the e-Business Support Network (eBSN), a European network of e-business policy makers and business support organisations,

the eSkills Forum, a task force established in 2003 to assess the demand and supply of ICT and e-business skills and to develop policy recommendations,

the ICT Task Force, a group whose work is to draw together and integrate various activities aiming to strengthen Europe's ICT sector, and

activities in the areas of ICT standardisation, as part of the general standardisation activities of the Commission.5

In parallel to the work of the SeBW, the "Sectoral Innovation Watch" (see www.europe-innova.org) analyses sectoral innovation performance and challenges across the EU from an economic perspective. Studies cover, inter alia, the following sectors: chemical, automotive, aerospace, food, ICT, textiles, machinery and equipment.

Within the policy context for ICT and the Information Society, the EU Commission supports widespread deployment of RFID through a set of policies and legal frameworks, after a public consultation opened in 2006, involving five thematic expert workshops and an online consultation to which 2190 participants contributed. Among the most relevant actions are:

'Radio Frequency Identification (RFID) in Europe: steps towards a policy framework', EU Communication, March 2007 – identify actions concerning security, radio spectrum policy, standardization and research & innovation policy as instrumental factors to drive RFID adoption by European enterprises. Of particular relevance are 'ethical implications, the need to protect privacy and security; governance of the RFID identity databases; availability of radio spectrum; the establishment of harmonised international standards; and concerns over the health and environmental implications'. The 2007-08 work programme of the ICT theme of the 7th Framework Programme (2007-2013) 'has identified four challenges which mention RFID in a number of situations (healthcare, intelligent vehicle and mobility systems, micro and nanosystems, organic electronics, and future networks) as well as the eMobility22 Platform. In the future, the Commission will stimulate research on security of RFID systems, including light-weight security protocols and advanced key distribution mechanisms, with a view to preventing direct attacks on the tag, the reader and the tag-reader communication.'

Draft Recommendation on the implementation of privacy, data protection and information security principles in applications supported by Radio Frequency Identification (RFID) – following a public consultation open until April 25, 2008, the Commission expects to adopt a final recommendation by the summer of 2008.

5 The 2006 ICT Standardisation Work Programme complements the Commission's "Action Plan

for European Standardisation" of 2005 by dealing more in detail with ICT matters.


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Commission Decision 2006/804/EC of 23 November 2006 on harmonisation of the radio spectrum for radio frequency identification (RFID) devices operating in the ultra high frequency (UHF) band.

Decision No 676/2002/EC of the European Parliament and of the Council of 7 March 2002 on a regulatory framework for radio spectrum policy in the European Community (Radio Spectrum Decision).

2008 ICT Policy Support Programme (PSP) in CIP – 'A European concerted effort on RFID' is part of the 2008 work programme. The platform aims at federating existing initiatives in a European initiative on RFID, maintaining a roadmap of the relevant technologies, their applications and potential privacy and security threats; creating the environment for progress in related European standardisation and critical infrastructure governance issues; monitoring and, where appropriate, linking to RFID policy initiatives in other regions of the world; identifying best practices to achieve progress towards a single market for RFID applications by raising awareness and removing barriers to its effective, secure and privacy-friendly deployment; supporting the EU/US transatlantic "Lighthouse priority project" on RFID. The first instrument is the promotion of a thematic network to 'explore new ways to implement RFID solutions and identify potential areas for future RFID pilot projects'

Scope of the programme

Since 2001, the SeBW and its predecessor "e-Business W@tch" have published e-business studies on about 25 sectors6 of the European economy, annual comprehensive synthesis reports about the state-of-play in e-business in the European Union, statistical pocketbooks and studies on specific ICT issues. All publications can be downloaded from the programme's website at www.ebusiness-watch.org. In 2007/08, the main studies of the SeBW focus on the following 10 sectors and specific topics:

No. Sector / topic in focus NACE Rev. 1.1 Reference to earlier

studies by SeBW 1 Chemical, rubber and plastics 24, 25 2004, 2003 2 Steel 27.1-3, 27.51+52 -- 3 Furniture 36.12-14 -- 4 Retail 52 2004, 2003 5 Transport and logistics services 60, 63 (parts thereof) -- 6 Banking 65.1 2003 7 RFID adoption and implications (several sectors) -- 8 Intellectual property rights for

ICT-producing SMEs 30.01+02, 32.1-3, 33.2+3; 64.2; 72 (parts thereof)

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9 Impact of ICT and e-business on energy use

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10 Economic impact and drivers of ICT adoption

--

6 see overview at www.ebusiness-watch.org/studies/on_sectors.htm.

http://www.ebusiness-watch.org

http://www.ebusiness-watch.org/studies/on_sectors.htm


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The SeBW presents a 'wide-angle' perspective on the adoption and use of ICT in the sectors studied. They assess how ICT is having an influence on business processes, notably by enabling electronic data exchanges between a company and its customers, suppliers, service providers and business partners. (The underlying conceptual framework is explained in more detail in the following section.) In addition, the studies also provide some background information on the respective sectors, including a briefing on current trends. Readers, however, should not mistakenly consider this part as the main topic of the analysis. The introduction to the sector is neither intended, nor could it be a substitute for more detailed industrial analysis.

1.3 ICT and e-Business – key terms and concepts

A definition of ICT

This study examines the use of information and communication technology (ICT) in European businesses. ICT is an umbrella term that encompasses a wide array of systems, devices and services used for data processing (the information side of ICT) as well as telecommunications equipment and services for data transmission and communication (the communication side). The European Information Technology Observatory (2007) structures the ICT market into four segments with an estimated total market value of about € 670 billion in 2007 (Exhibit 1.3-1).

Exhibit 1.3-1: The EU ICT market according to EITO (2007)

Market segment Products / services included (examples)

Market value for EU (2007)

(EITO estimate) ICT equipment Computer hardware, end-user communications

equipment (such as mobile phones), office equipment (such as copiers) and data communications and network equipment (such as switching and routing equipment, cellular mobile infrastructure)

€159 billion

Software products

System and application software €76 billion

IT services Consulting, implementation and operations management €140 billion Carrier services

Fixed voice telephone and data services, mobile telephone services, cable TV

€293 billion

Source: EITO 2007

In its widest sense, 'e-business' refers to the application of these technologies in business processes, including primary functions (such as production, inbound and outbound logistics or sales), and support functions (such as administration, controlling, procurement and human resources management). Companies in all sectors use ICT, but they do so in different ways. This calls for a sectoral approach in studies of ICT usage and impact.


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Gaining momentum after a phase of disappointment

When the bust phase of the previous economic cycle – commonly referred to as the 'new economy' – started in 2001, the former internet hype was suddenly replaced by a widespread disappointment with e-business strategies. Companies adopted a more reserved and sceptical attitude towards investing in ICT. Nevertheless, ICT has proved to be the key technology of the past decade (OECD 2004, p. 8), and the evolutionary development of e-business has certainly not come to an end. The maturity of ICT-based data exchanges between businesses and their suppliers and customers, fostered by progress in the definition and acceptance of standards, has substantially increased across sectors and regions over the past five years. In parallel, recent trends such as "Web 2.0" and social networking are widely discussed in terms of their business implications and it is widely recognised that 'e'-elements have become an essential component of modern business exchanges. In short, e-business has regained momentum as a topic for enterprise strategy both for large multinationals and SMEs.

"Measurement of e-business is of particular interest to policy makers because of the potential productivity impacts of ICT use on business functions. However, the ongoing challenges in this measurement field are significant and include problems associated with measuring a subject which is both complex and changing rapidly."

OECD (2005): ICT use by businesses. Revised OECD model survey, p. 17

Companies use ICT in their business processes mainly for three purposes: to reduce costs, to better serve the customer, and to support growth (e.g. by increasing their market reach). In essence, all e-business projects in companies explicitly or implicitly address one or several of these objectives. In almost every case, introducing e-business can be regarded as an ICT-enabled process innovation. Understanding one's business pro-cesses and having a clear vision of how they could be improved (be it to save costs or to improve service quality) are therefore critical requirements for firms to effectively use ICT.

The increasing competitive pressure on companies, many of which operate in a global economy, has been a strong driver for ICT adoption. Firms are constantly searching for opportunities to cut costs and ICT holds great promise in this respect as it increases the efficiency of a firm’s business processes, both internally and between trading partners in the value chain. While cutting costs continues to motivate e-business activity, innovative firms have discovered and begun to exploit the potential of ICT for delivering against key business objectives. They have integrated ICT into their production processes and quality management and, most recently, in marketing and customer services. These last sectors are widely considered key to improve competitiveness in the current phase of development of European economies. Competing in mature markets requires not only optimised cost structures, maximal efficiency, and products or services of excellent quality but also the ability to communicate effectively and cooperate with business partners and potential customers.


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A definition of e-business

As part of this maturing process, electronic business has progressed from a specific to a very broad topic. A central element is certainly the use of ICT to accomplish business transactions, i.e. exchanges between a company and its suppliers or customers. These can be other companies ('B2B' – business-to-business), consumers ('B2C' – business-to-consumers), or governments ('B2G' – business-to-government). In the broad sense, transactions include commercial as well as other exchanges such as sending tax return forms to the tax authorities.

If transactions are conducted electronically ('e-transactions'), they constitute e-commerce. Transactions can be broken down into different phases and related business processes, each of which can be relevant for e-commerce (see Exhibit A.V-2). The pre-sale (or pre-purchase) phase includes the presentation of (or request for) information on the offer, and negotiations over the price. The sale / purchase phase covers the ordering, invoicing, payment and delivery processes. Finally, the after sale / purchase phase covers all processes after the product or service has been delivered to the buyer, such as after sales customer services (e.g. repair, updates).

Glossary

Definitions by standardisation groups (ISO, ebXML)

The term 'business transaction' is a key concept underlying the development of e-standards for B2B exchanges. Therefore, definitions have been developed by standards communities to underpin their practical work. Examples include:

Business: "a series of processes, each having a clearly understood purpose, involving more than one party, realised through the exchange of information and directed towards some mutually agreed upon goal, extending over a period of time" [ISO/IEC 14662:2004]

Business transaction: "a predefined set of activities and/or processes of parties which is initiated by a party to accomplish an explicitly shared business goal and terminated upon recognition of one of the agreed conclusions by all the involved parties even though some of the recognition may be implicit" [ISO/IEC 14662:2004]

e-Business transaction: "a logical unit of business conducted by two or more parties that generates a computable success or failure state" [ebXML Glossary]

Exhibit 1.3-2: Process components of transactions

Pre-sale / pre-purchase phase

Sale / purchase phase After sale / after-purchase phase

Request for offer/proposal Offer delivery Information about offer Negotiations

Placing an order Invoicing Payment Delivery

Customer service Guarantee management Credit administration Handling returns

Practically each step in a transaction can either be pursued electronically (online) or non-electronically (offline), and all combinations of electronic and non-electronic


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implementation are possible. It is therefore difficult to decide which components actually have to be conducted online in order to call a transaction (as a whole) ‘electronic’.

In 2000, the OECD proposed broad and narrow definitions of electronic commerce, both of which remain valid and useful today7. While the narrow definition focuses on 'internet transactions' alone, the broad definition defines e-commerce as "the sale or purchase of goods or services, whether between businesses, households, individuals, governments, and other public or private organisations, conducted over computer-mediated networks. The goods and services are ordered over those networks, but the payment and the ultimate delivery of the goods or service may be conducted on- or offline" (OECD, 2001). The addendum regarding payment and delivery illustrates the difficulty mentioned above to specify which of the processes along the transaction phases constitute e-commerce (see Exhibit 1.2-2). The OECD definition excludes the pre-sale / pre- purchase phase and focuses instead on the ordering process. The SeBW follows the OECD position on this issue,8 while fully recognising the importance of the internet during the pre-purchase phase for the initiation of business.

Glossary

Definition of key terms for this study

e-Transactions: commercial exchanges between a company and its suppliers or customers which are conducted electronically. Participants can be other companies ('B2B' – business-to-business), consumers ('B2C'), or governments ('B2G'). This includes processes during the pre-sale or pre-purchase phase, the sale or purchase phase, and the after-sale / purchase phase.

e-Commerce: the sale or purchase of goods or services, whether between businesses, households, individuals, governments, and other public or private organisations, conducted over computer-mediated networks. (OECD)

e-Business: automated business processes (both intra- and inter-firm) over computer mediated networks. (OECD)

e-Interactions: covers the full range of e-transactions as well as collaborative business processes,. such as collaborative online design processes which are not directly transaction focused.

Using the OECD definition, e-commerce is a key component of e-business but not the only one. A wider focus oriented on business processes has been widely recognised. This vision of e-commerce also covers the digitisation of internal business processes (the internal processing of documents related to transactions) as well as cooperative or collaborative processes between companies that are not necessarily transaction-focused (for example industrial engineers collaborating on a design in an online

7 In 1999, the OECD Working Party on Indicators for the Information Society (WPIIS) established

an Expert Group on Defining and Measuring Electronic Commerce, in order to compile definitions of electronic commerce which are policy-relevant and statistically feasible. By 2000, work of the Group had resulted in definitions for electronic commerce transactions.

8 The respective survey questions ask companies whether they "place / accept online orders".


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environment). The OECD WPIIS9 proposes a definition of e-business as "automated business processes (both intra-and inter-firm) over computer mediated networks" (OECD, 2004, p. 6). In addition, the OECD proposed that e-business processes should integrate tasks and extend beyond a stand-alone or individual application. 'Automation' refers here to the substitution of formerly manual processes. This can be achieved by replacing the paper-based processing of documents by electronic exchanges (machine-to-machine) but it requires the agreement between the participants on electronic standards and processes for data exchange.

e-Business and a company's value chain

In some contexts, the term c-commerce (collaborative commerce) is used. Although this concept was mostly abandoned when the 'new economy' bubble burst in 2001, it had the merit of pointing towards the role of ICT in cooperations between enterprises and the increasing digital integration of supply chains. These developments go beyond simple point-to-point exchanges between two companies.

Despite dating back 20 years to the pre-e-business era, Michael Porter's framework of the company value chain and value system between companies10 remains useful to understand the relevance of e-business in this context. A value chain logically presents the main functional areas ('value activities') of a company and differentiates between primary and support activities. However, these are "not a collection of independent activities but a system of interdependent activities", which are "related by linkages within the value chain".11 These linkages can lead to competitive advantage through optimisation and coordination. This is where ICT can have a major impact, in the key role of optimising linkages and increasing the efficiency of processes.

The value system expands this concept by extending its scale beyond the single company. The firm's value chain is linked to the value chains of (upstream) suppliers and (downstream) buyers; the resulting larger set of processes is referred to as the value system. All e-commerce and therefore electronic transactions occur within this value system. Key dimensions of Porter’s framework (notably inbound and outbound logistics, operations, and the value system) are reflected in the Supply Chain Management (SCM) concept. Here, the focus is on optimising the procurement-production-delivery processes, not only between a company and its direct suppliers and customers, but also aiming at a full vertical integration of the entire supply chain (Tier 1, Tier 2, Tier n suppliers). In this concept, each basic supply chain is a chain of sourcing, production, and delivery processes with the respective process interfaces within and between companies.12 Analysing the digital integration of supply chains in various industries has been an important theme in most sector studies by the SeBW.

ICT, e-business and RFID

9 Working Party on Indicators for the Information Society. 10 Porter, Michael E. (1985). Competitive Advantage. New York: Free Press. Page references in

quotations refer to the Free Press Export Edition 2004. 11 ibid., p. 48. 12 cf. SCOR Supply-Chain Council: Supply-Chain Operations Reference-model. SCOR Version

7.0. Available at www.supply-chain.org (accessed in March 2006).

http://www.supply-chain.org


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Companies use ICT and RFID mainly for three purposes: to reduce cost, to better serve customers, and to support business growth through for example increasing market share and reach. In essence, the majority of RFID projects in organisations explicitly or implicitly address one or several of these objectives. In almost every case, RFID introduction can be regarded as an ICT-enabled process innovation. Understanding one's business processes, and having a clear vision how they could be improved (be it to save costs or to improve service quality), are therefore critical requirements for firms to effectively use RFID.

The increasing competitive pressure on companies, many of them operating in a global economy, has been a strong driver for ICT adoption in general and RFID in particular. Firms are in constant search for opportunities to cut costs, and this has exactly been a major promise of ICT: enabling firms to cut costs by increasing the efficiency of their business processes, internally and between trading partners in the value chain.

While cutting costs is still a valid motive for e-business activity, innovative firms have discovered and begun to exploit the potential of ICT for delivering key business objectives. These firms have, for example, integrated ICT and RFID into their production processes and quality management, and in more recent times in marketing with the aim to improving customer service. The latter objectives are widely considered key to improving competitiveness in the current phase of development of European economies. Competing in mature markets requires not only optimised cost structures, maximal efficiency, and products or services of excellent quality, but also the ability to communicate effectively and indeed cooperate with business partners and potential customers. Chapter 2 provides background information about RFID and the relevance of this technology to enterprises.

1.4 Study objectives and methodology

Progress towards analysing impacts of ICT and e-business

The methodological framework of the SeBW builds upon the methodology established for the previous implementation of the e-Business W@tch. However, the methodology has been adapted to the new focus of activity, supporting the progress to the evidence-based analysis of RFID adoption trends and impact of this technology for enterprises, in terms of productivity, innovation, competitiveness and workforce.

Data analysis and information sources

The Sectoral e-Business Watch approach is based on a well-tuned composition of data collection instruments, including the use of existing sources (e.g. the Eurostat Community Survey on ICT usage in enterprises) as well as primary research (notably the SeBW Survey and case studies). The main sources of information used for this study are:

SeBW CATI Survey (2007): The SeBW conducted in 2007 a decision-maker survey about RFID activity in the sectors covered in this study. 434 interviews were conducted in seven countries. This survey was the main source for analysing the state of play in RFID adoption, process integration, and impact on the workforce


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and return on investment expectations. The survey approach is described in detail in the methodology annex.

Case studies: Ten case studies on RFID adoption in companies from the sectors covered have been conducted specifically for this study. The selection was made with a view to achieve a balanced mix of cases in terms of countries, business activities (sub-sectors), and company size-bands. Cases include best practices, innovative RFID approaches, as well as typical examples of RFID activity (state-of-the-art) in the sectors.

In-depth interviews: In addition to the interviews conducted with firm representatives as part of the case study work, in-depth interviews with company representatives, industry and e-business experts have been conducted.

Literature analysis: SeBW evaluates literature from various sources, including scientific books, journal articles and conference presentations, websites, and newspaper articles.

For data analysis, descriptive and analytical statistical methods have been used.

Validation of results by an advisory board

The study was conducted in consultation with an Advisory Board that was specifically implemented to critically accompany the study from the start. Members of the Advisory Board for this study were (by order of membership approval):

Antonio Lasi, General Manager, Lombardia Informatica.

Andy Lee, RFID program manager, Cisco Systems.

Jean Francois Remy, Business Development Director, manufacturing and retail distribution, HP.

For each Advisory Board, in addition to informal exchanges with the respective study teams during the research phase (e.g. via telephone, e-mail and in bilateral meetings), three meetings were foreseen. The first meeting took place on 29/30 May 2007 in Brussels, during the inception phase. At this meeting, the study exposé and research plan was discussed. A second meeting was held on 5 February in Milano with the objective to discuss and validate the key findings of the interim report. A third meeting, on 20 May 2008 in Brussels was held to discuss the final findings of this report.

The authors of the study wish to thank the advisory board members and the Commission for the constructive feedback and the valuable support given to the study. Any mistake remains of course full responsibility of the authors.


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2 Context and background

2.1 Topic definition — main goals and scope of the study

2.1.1 Main goals

This study analyses the use of RFID (Radio Frequency Identification) by companies active in the Retail Distribution, Transportation, Discrete and Process Manufacturing sectors, as well as by organisations active in the human health services (see Exhibit 2.1-1). The study provides a top-down view of RFID adoption roadmap and challenges, starting from the overall picture at European level. It also illustrates adoption patterns and drivers across the various sectors addressed, with a focus on benefits and opportunities for SMEs. In addition, overviews of specific industry segments are provided, leveraging from case studies across covered sectors.

The topic is utterly relevant, as RFID technology is a major driver for the improvement of efficiency and effectiveness of business processes; being essentially a new data acquisition platform for enterprises -possibly integrating diverse platforms of value chain partners- RFID technology is a key enabler of supply chain productivity enhancements and end-to-end visibility, thus also allowing for product tracking and tracing applications. Beyond supply chain efficiencies, innovative applications are also emerging in the areas of mobile payments and ticketing, location based and context-sensitive mobile services, by providing access to digital content in the physical world.

The report is structured as follows. This chapter describes the context and background of the study. The third chapter analyses the diffusion and usage of RFID, based mainly on field research results. Chapter 4 looks at the main benefits and business impacts of RFID in the analysed sectors. Chapter 5 presents in detail the 10 case studies carried out for the study. Chapter 6 presents the final conclusions and policy implications.

2.1.2 Scope

The sectors covered by this study are defined as follows, according to the General Industrial Classification of Economic Activities within the European Union Divisions, i.e., NACE Rev. 1:

Retail Distribution — Retail trade, except of motor vehicles and motorcycles; repair of personal and household goods (NACE 52)

Transportation, including: Railways (NACE 60.1), other land transport (e.g., urban transport and land transport including freight transport by road – NACE 60.2), and Air transport (NACE 62.1 and 62.2).

Discrete and Process Manufacturing — DG 24.5 - Manufacture of soap and detergents cleaning and polishing preparations, perfumes and toilet preparations; 15.1-15.8 - Manufacture of Food products; 15.9 - Manufacture of beverages; 18 Manufacture of wearing apparel; 19 Manufacture of leather and leather products (e.g. footwear); 24.4 Manufacture of pharmaceuticals; 34 Manufacture of computer, electronic and optical products.


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Human health services – Hospital activities, medical practice activities, dental practice activities, and other human health activities (NACE Rev 1.1, 85.1).

These sectors cover quite diverse business activities. The respective NACE Rev. 2 groups and their correspondence in NACE Rev. 1 are shown in Exhibit 1.1-1. The names of business activities refer to NACE Rev. 1.

Exhibit 2.1-1: Business activities covered by the RFID topic study

NACE Rev. 2

NACE Rev. 1 Business activity:

10 15 Manufacture of food and beverages 14 15

18 19

Manufacture of wearing apparel Manufacture of leather and leather products (e.g. footwear)

21.1-21.2 24.4 Manufacture of pharmaceuticals 26-27 30/31/32/33

Manufacture of computer, electronic and optical products 29 (excluding 29.31)

34 Manufacture of motor vehicles, trailers and semi-trailers

47 (excluding 47.3)

52 Retail trade, except of motor vehicles and motorcycles

49.10-49.20 60.1 Passenger and Freight Rail transport 49.3-49.4 60.2 Other land transport 51.10-51.21 62.1-62.2 Air transport 86.1-86.2 85.1 Human health services

Within this chapter in section 2.1, a definition of RFID along with background information has been included. Section 2.2 illustrates the main technological features and trends of RFID and briefly discusses industry challenges and RFID application patterns. Section 2.3 illustrates benefits and impacts associated to RFID. Section 2.4 analyses key trends and challenges for the implementation of RFID to enable responsive supply chains, successful Return on Investment (ROI) and advanced value chain collaboration frameworks. Finally, Section 2.5 presents RFID applications in the retail, manufacturing, transportation and healthcare industries.

2.2 RFID technology

2.2.1 A basic description of RFID

RFID stands for Radio Frequency Identification and it is mostly used for identifying people, objects, transactions or events through a wireless communication connection. RFID is an automatic identification and data capture method (AIDC), which not only helps to identify, but also to collect data attributes about a certain object or person, including localisation and environmental measurements when integrated with sensor networks. All automatically captured data can then be entered directly into a computer system, avoiding less efficient and more error prone human intervention required to execute operational tasks and business intelligence analysis. The temporarily stored information is then processed to feed other internal IT systems (for example store or factory systems)


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and external systems alike (for example suppliers portals, business partners and clients information services). Essentially, an RFID system comprises 3 components (Exhibit 2.2-1):

Multiple RFID tags, also called transponders, a term that comes from the short form of transmitter-responder

A number of readers or interrogators, also called transceivers,

The supporting ICT infrastructure (including data communication networks, other hardware such as servers and storage, as well as software components including RFID middleware and information server, front-end RFID-capable applications and back-end systems)

A tag embodies a microchip containing limited processing power, memory storage, a built-in antenna and an encapsulating material that allows the tag to:

Carry on a unique identifier to associate the tag with the "tagged" object, thus allowing for unique object identification

Receive, amplify and retransmit signals on a set of pre-determined frequencies

Transmit a predetermined message in response to a predefined received signal

Generate a reply signal upon proper electronic interrogation

Exhibit 2.2-1: RFID system, automated data collection, information flow

Source: Global Retail Insights, an IDC Company, 2007

RFID tags can be read-only or read-write. A read-only tag includes a programmed identification code, recorded at the time of manufacture or when the tag is allocated to an object. Once programmed, the data on the tag cannot be modified or appended but it


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may be read multiple times. Read-Write tags can have their memory changed, or written to, many times. Because their identification codes can be changed, they offer greater functionality albeit at higher price.

Electronic Product Code

In consumer products and retail distribution applications, the Electronic Product Code (EPC), is the coding scheme used to identify an individual object along the supply chain. EPC includes a general identifier (GID), serialized global trade identification number (SGTIN), the serialized shipper container code (SSCC), global location number (GLN), global returnable asset identifier (GRAI) and global individual asset identifier (GIAI). SGTIN is the standard identifier for cases of products and allows each case to be uniquely identified with a serial number. In contrast, the typical Universal Product Code (UPC) or European Article Number (EAN) used in barcodes only provides information about the product but does not uniquely identify each case. The EPC was created by the MIT Auto-ID Center, a consortium of over 120 global corporations and university labs. The EPC system is currently managed by EPCglobal, a subsidiary of GS1, creators of the UPC barcode.

RFID middleware

An important component of RFID infrastructures is the RFID-specific software – named RFID middleware - that translates the raw data from the tag into useful enterprise information. This information can then be fed into other databases and applications (for example inventory management) for further processing. In the case of read-write tags, software is also required to control whether data can be written to the tag, which tag should contain the data and to initiate the process of adding data to, or changing data in the tag.

The RFID middleware in EPC-compliant application conforms to the EPCIS (Electronic Product Code Information Services) standard, designed to enable EPC-related data sharing within and across enterprises. In addition, the Object Naming Service (ONS) standard specifies how the Domain Name System (DNS) is used to locate authoritative metadata and services associated with the SGTIN portion of a given electronic product code. EPCIS provides authorised users access to unique product information, such as type of merchandise, shipping date, manufacturer, price, weight, best-before date, and retail unit (pallet, carton, package, article). These product attributes are then entered into a merchandise management system (MMS), which no longer require manual intervention, as operations are automated. Provided that at the foundation is a solid master data management infrastructure, greater accuracy into products' life-time management will result.

One of the attributes that makes RFID such an innovative feature is that tags can be fit or embedded into almost anything, products, animals or even people, widening possibilities for RFID applications. Companies currently have several options when implementing RFID. They can use static RFID portals, which create a set read field at discrete choke points such as a dock door or sales floor door. Companies may also use mobile devices


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such as forklift readers or handheld readers. The type of data one wants to capture dictates the choice of technology.

2.2.2 Types of RFID tags

Tags can be categorised according to key attributes including power, communication frequency, and attachment.

In terms of power & communication, tags communicate with readers by generating radio signals. Whether they are power assisted or not, RFID tags fall into three general varieties: passive, semi-passive and active tags. Exhibit 2.1.2 summarizes the key characteristics and typical applications of the different types of RFID tags.

Exhibit 2.2-2: A general view of RFID tags and their application characteristics

Passive Semi-passive Active

Power Supply

External (reader activated)

Internal battery powering only processing units and sensors

Internal battery also powering radio chip

Typical Read Range Requirement

1-3 meters Up to 30 meters Up to 120-150 meters

Typical Type of Memory

Read-only mostly Read-write Read-write

Application

Consumer Product goods value chain Identification (people, animal feeds)

Harsh environments Mobile Applications with sensors

Longer range and larger memory requiring applications, for example Tourism


Passive RFID tags

This type of RFID tag does not contain an internal power supply; they receive just enough power for the tag to power up13 and transmit a response when the incoming radio frequency signal transmitted by a reader induces an electrical current in the antenna.

Passive tags do not require being self-powered, making them less expensive than active tags, and they tend to be smaller thus facilitating usage in high volume applications requiring short range and low power-levels. Besides, this type of tag usually operates under low power levels when activated by an adjacent reader. Up to 2005, passive RFID tags had reading accuracy problems when operating in harsh environmental conditions. Generation 2 version (usually referred to as Gen2) of passive tags have overcome this problem and related cost lowered.

13 ‘Backscattering’ is the most common technique used to power up tags


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Semi-passive RFID tags

Semi-passive tags have their own power source, although the battery included only powers the embedded microchip and attached sensors. For a semi-passive tag to transmit information, the radio frequency (RF) energy is reflected back to the reader as is the case with a passive tag. These tags also employ manipulating techniques permitting the device to store energy from the reader so that it is possible to emit a response in the future.

Among the positive features, semi-passive tags have greater sensitivity compared to passive ones. Next to active tags, semi-passive tags can operate whether the reader is present or not, proving a longer battery life-span particularly when used in mobile applications.

Active RFID tags

These RFID tags have their own internal power source to power up the integrated circuits and transmit the signal to the reader. Active tags tend to be more reliable than passive tags due to their ability to transmit at higher power levels with a reader, particularly relevant under challenging environmental conditions like water, metal or under long distances. However, real-life examples demonstrate that reading accuracy targets can be achieved also in harsh situations with passive tags. Compared to passive tags, active tags in general generate stronger responses from weak requests and have a much longer range as well as a larger memory. Nevertheless, active tags have a shorter life span and are more expensive to manufacture.

Attachment characteristics

In terms of attachment characteristics, RFID tags are attachable, implantable or insert-able according to the object and purpose. Tags can also be reusable or disposable according to the nature of use.

Attachable tags: These tags have a broad and diverse application range due to their flexibility and attachment properties. Smart label, a pressure sensitive label, is one of the most common types of attachable tags, which can be also permanent, semi-permanent or temporary.

Implantable tags: Also called embedded, are usually considered for permanent or long-term implantations. They are most common in animal traceability and machine-readable travel documents (MRTD) types of applications.

Inserted tags: This type of tag has little, if no contact at all with the identified object. Without a specific attachment process or tampering the identified object, these tags run the identification process while leaving objects at their original state. Physically, inserted tags are non-adhesive labels, normally used in printed materials.


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Tag frequency and antenna types

RFID systems are based on radio frequency communications. Since radio waves work differently at different frequencies, RFID systems can use a variety of frequencies to communicate depending on the application requirements. Thus, the particular antenna used in an RFID tag is designed for the intended application and operating frequency. Exhibit 2.2-3 summarises the key characteristics of RFID tags operating in the different frequency bandwidths.

Exhibit 2.2-3: Frequencies used in RFID systems

LF Low Frequency

HF High Frequency

UHF Ultra High Frequency

Band 125 – 134 KHZ 13.56 MHz 860 - 960 MHz

Range 30 to 40 cm 20cm to 2 Meters or longer range Greater accuracy

1 to 4 meters Sensitive to environment

Applications Antitheft Animal Identification Automobile key-and-lock systems

Item-level reading Supply chain applications Consumers/passengers-facing applications


In conclusion, the combination of key parameters - power, communication, attachment, antenna type and operating frequency - fully characterises RFID tags and their associated functional attributes.

Further developments of RFID technologies are already taking place. For example, plastic electronics RFID chips directly shaped and printed on a plastic layer with an assembled antenna, different from traditional silicon-made RFID tags. One of the main advantages of plastic made tags regards packaging and distribution due to their low production cost. Production costs stay low essentially because the printing of the tag on plastic is performed in a one-step production stage.

2.2.3 RFID standards

RFID standards comprise frequency standards, data coding standards, applications and implementation standards, security and privacy standards. In addition, RFID devices must comply with applicable regulations that preserve environmental and health issues.

Policy framework

In a communication issued in March 2007 by the EU Commission - COM (2007) 96, Radio Frequency Identification (RFID) in Europe: steps towards a policy framework – it is stated that 'the European Commission calls upon the European standardisation bodies, in co-operation with relevant industry forums and consortia, to ensure that international and


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European standards meet European requirements (in particular as regards privacy, security, IPR, and licensing issues), to identify standardisation gaps and to provide the appropriate framework for the development of future RFID standards. The activities on standardisation will be complemented with an international dialogue between the Commission and counterparts in the US, China, Korea and Japan, with a view to ascertain the need for, and desirability of, co-operation on standards for certain application sectors (e.g., security of containers, counterfeiting, air transport, pharmaceutical goods).

In Europe, the Data Protection Directive - Directive 95/46/EC - covers the protection of personal data regardless of the means and procedures used for data processing. Regarding the environment, RFID hardware components meet the definition of electrical and electronic equipment provided in Directives 2002/96/EC on waste electrical and electronic equipment (WEEE) and 2002/95/EC on the restriction of the use of certain hazardous substances in electrical and electronic equipment (RoHS). As stated in COM (2007) 96 'under normal operating conditions, exposure of the general public and workers to RFID-related EMF – electromagnetic fields - is expected to be well below the current standard limits.' EMF standards limits are imposed in Directive 2004/40/EC for workers and in Council Recommendation 1999/519/EC, currently under revision, for the general public.

Main bodies

The main bodies governing frequency allocation for RFID are the Federal Communications Commission (FCC) in the US, and, at European level, The European Telecommunications Standards Institute (ETSI) has developed specific standards for RFID operating at UHF frequencies as well as generic short range devices (SRD) standards for LF, HF and microwave equipment which can be used for RFID. National administrations must ratify the usage of a specific frequency before it can be used in that country.

The European Committee for Standardisation (CEN) supports the development of international standards for automatic identification and data capture technologies. CEN has been a key player in the work of the relevant working group of ISO, the International Standards Organization, which is the de-facto global technology standards organization across industries. ISO and IEC (International Electrotechnical Commission) formed the Joint Technical Committee (JTC 1) with responsibility for the standardisation of AIDC (Automatic Identification and Data Capture) technologies, including RFID. JTC1/SC31 is the sub-group in charge at ISO IEC for RFID.

EPCGlobal, a division of GS1, is facilitating standards development for commercial supply chains in consumer product goods manufacturing, retail, automotive and transportation. ISO has adopted the UHF Gen2 standard developed by EPCGlobal. The goal is for the two organizations to do complementary work on global RFID data standards.

A detailed overview of currently adopted standards and regulatory bodies is provided in Annex II and Annex III.


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2.3 RFID benefit and impacts

Overview of benefits and impacts of RFID

The development of RFID technology emerges to be one of the most interesting innovations for the improvement of business process efficiency across the manufacturing, transportation & logistics, wholesale distribution and retail trade sectors. This is due to the fact that RFID systems offer enterprises an advanced way of gathering and processing business data. RFID is becoming a real opportunity to drive business process re-engineering and business models re-thinking through a systematic usage of RFID-collected data in specific-use case scenarios. From commercial and public sectors to medicine and education, enterprises can process, collect and analyse information faster and more efficiently compared to traditional data collection methods, including barcode scanning. For example:

RFID can reduce the amount of time to receive products at a warehouse. Instead of scanning each case of product individually with a barcode scanner, RFID tagged product can be read automatically at a dock door portal. Gillette reported a reduction from 20 seconds to 5 seconds in pallet receiving at their distribution center due to RFID. The process of receiving was not drastically changed (i.e., forklifts unloaded the product as before). The only change was eliminating the need to manually scan the product. Thus, the process became more efficient.

Proof of delivery is an additional benefit in logistics and distributive trades. RFID can reduce the errors in receiving (in addition to increasing the speed of receiving as previously discussed) via the RFID-enabled process referred to as electronic proof-of-delivery (Mason et al., 2006). With barcode, misidentifying the quantity and type of product results in mistakes. For example, a pallet of 48 cases of shampoo consisting of 24 regular and 24 scented may be received at the distribution center. The receiving clerk mistakenly identifies the pallet as 48 cases of scented shampoo. Thus, the inaccurate receiving creates an inventory inaccuracy for the receiving company and a perceived overage/underage situation for the supplier.

Enterprise assets management - With RFID, enterprises have the ability to better manage their movable assets, such as forklifts, equipments, and valuable tools. For example, the University Medical Center in Tucson, Arizona has implemented an RFID asset tracking system for all 2,300 pieces of mobile medical equipment. The location of each piece of equipment within the 8-story hospital is transmitted wirelessly and can be displayed on a virtual map. As a result, equipment can be found anytime anywhere; thus, for example, avoiding time loss in locating equipment in emergency situations.

Product Life Cycle Tracking - An example of product life cycle tracking is the use by Michelin to keep track of large industrial tires to know when they need to be retreated (Murphy, 2005). RFID can be used to monitor the life cycle of the product, thus improving safety for the truck drivers and enhancing the relationship with the customer.

Product recall management and consumers safety – With barcode, retailers have no idea where (i.e., which stores) the recalled product is located. Thus, they are forced to look at each store and perhaps pull the product from the shelves at


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each store. With RFID, cases and items could be tracked to particular stores. Similar to retail stores, distribution centers and manufacturers would be able to track product at the case or even item level with RFID.

A more comprehensive analysis of RFID application trends, business drivers and benefits in the sectors under consideration in this study, is provided in Section 2.4, 2.5, 3.2, and 4.1.

Key differences between RFID and barcode technology

RFID has been initially implemented in some industries merely as a barcode with an antenna. This proved not to be the right approach to use this technology, even in the early stages of deployment, as demonstrated by pioneering implementations done in the US. Many US-based companies adopted initially the so-called "slap & ship" implementation approach following the RFID mandate issued by WalMart. In other words, some suppliers of WalMart simply attached RFID tags to pallets in order to comply with their customer mandate, without actively using the new capability within their own business processes. This essentially resulted in limited benefits for enterprises and consequently challenging business case formulations with, overall, poor ROI opportunities.

RFID will run in parallel to barcode for many years. However, it is worth noticing that RFID-based systems enable concrete operational advantages compared to barcode. These can be summarised as follows:

Higher process efficiency and reduced costs

RFID scanning is fully automatic, while barcode scanning is a manually assisted process.

More than one RFID tag can be read at a time without requiring a direct line of sight for reading. Even more, tags can be read from far greater distances than barcodes.

RFID tags can store information regarding the individual item. In contrast, the typical Universal Product Code (UPC) or European Article Number (EAN) used in barcodes only provides information about the product but does not uniquely identify each case (Section 2.1).

Barcode labels may easily become un-readable over time and cannot be used in certain harsh environmental conditions (for example in water), thus further penalising the scanning procedure effectiveness. RFID tags have a longer lifetime (at least 7 to 15 years) and may work better in a rough environment.

Read-write RFID tags (Section 2.1) can potentially be written multiple times, making them reusable data containers, while barcodes are static labels.

Improved automation level of tracking and tracing processes due to improved data integration offered by RFID compared to barcode.

Greater visibility of distribution processes, both at micro and macro level.


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New applications

RFID chipsets are now smaller which can widen the range of applications that can possibly benefit from this technology.

Technological advancements and tag-attachments fine-tuning is making accurate identification possible even under stressed environmental conditions (for example in the presence of metals or liquids that attenuate radio signals). Accurate monitoring is currently possible due to real-time reactions and end-to-end visibility, regardless of environmental conditions or the object’s nature.

Accuracy, responsiveness and loss prevention capabilities can be improved because of automation and error prone features enabled by RFID compared to manual or manually assisted processes such as barcodes.

Security and safety related applications are an excellent candidate for using RFID.

The decision on whether to use RFID or barcode depends on the type of solution needed and the application. Turning a reactive object into one capable of exchanging advanced communications autonomously is one of the most striking advantages in automatic identification and data collection technologies such as RFID.

Approach to RFID

As the technology improves and the spectrum of proven applications rises across vertical markets, RFID potential to improve enterprise productivity require:

Assessment of operational inefficiencies

Execution of business process re-engineering programs

Implementation of field trials in the specific use case scenario to evaluate results in real-life situations and fine-tune the optimization of business processes to take advantage of the new data collection capability

Tight integration of RFID with enterprise IT systems

Whilst RFID is not a plug-and-play solution, thus requiring painstaking assessments, enterprises no longer focus primarily on the technology in itself, for example aiming to assess if RFID can match specific requirements for read-rate accuracy in rough environmental conditions. Robust business case formulations and long-term sustainability of RFID programs are the two most critical factors to enable the implementation of the technology. Return on Investment (ROI) is the single most important decision criteria to justify financial investments on RFID (Sections 2.4.3, 3.4, and 4.5). In parallel enterprises are concerned about standardization issues, security, privacy, and other factors when evaluating their RFID investment decision (Sections 2.2.2, 2.4.2, 2.4 and 3.4).


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2.4 Key trends and challenges for RFID applications

This section analyses trends and challenges in various situations impacted by RFID implementations: responsive supply chains (Section 2.4.1), interoperability and standardisation (Section 2.4.2), RFID ROI (Section 2.4.3), value chain collaboration and RFID (Section 2.4.4) security, privacy and health risks concerns (Section 2.3.5).

2.4.1 Responsive supply chains

RFID in complex supply chains

In order to be competitive in the global marketplace, firms of all sorts are required to be extremely responsive, especially taking into consideration the growing demands of clients, from shoppers to second-tier manufacturers. This ability is extremely difficult to materialise into today's complex supply chains, and even more across many manufacturing sub-sectors, such as food and beverage, high tech and automotive, which involve millions of components that are shipped by many different providers from all over the globe. Food and beverage manufacturers – both branded and private labels – as well as grocery retailers are also very susceptible to long supply chains, especially when dealing with the sale of perishable goods. For example, if a shipment is shipped late or to the wrong location or stored and transported under incorrect environmental conditions, then the chances of the contained material spoiling is very high. This generates losses for both the retailer and the supplier, while diminishing quality and availability of fresh goods to consumers. In turn, RFID along with environmental sensors can automate the control of perishable goods' conditions in real-time and with great accuracy. For example, Nestlé Italy launched an RFID pilot in 2007 to monitor the conditions under which ice creams are stored and transported. This provided the company with a very cost-efficient way of enabling accurate monitoring of products, which also goes at the benefit of its brand reputation due to increased consumers safety. Nestlé also reported that spoilage can be reduced, thus the company could possibly save money by potentially lowering the cost of insurance that partners carry to cover themselves if goods are damaged during delivery (Nestle pays the costs of insurance indirectly through the higher prices the distributor has to charge). In addition, the exact temperature readings of shop freezers taken during the pilot revealed that some freezers were set too cold and were, thus, wasting energy. In 2008, Nestlé Italy intends to expand the pilot to cover all production plants and the three primary distribution centres directly managed by Nestlé, as well as 150 primary large trucks and 150 freezers.

Global traceability safety regulation drives the adoption of RFID

Regulatory compliance is also impacting supply chain operations with fundamental requirements such as the EU Commission "Track and Trace" Directive (EU food regulation No. 178/2002). This initiative came into effect in June 2005, with consumer safety as its first priority. The directive relates to all stages of food production, processing, and distribution. Directive 178/2002 forces any firm involved with food and beverages to


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have a complete catalogue of anything that has been in contact with the final product, hence, ensuring its quality and safety. The law essentially aims to prevent fraudulent or deceptive practices in the food trade that result in misleading information to the final consumer. This Directive is only made possible through strict collaboration along the supply chain and its ability to respond rapidly. The Directive not only aims to secure consumer safety, but also aims to guarantee proper conduct in regards to environmental issues and data and payment transactions. The European regulation not only impacts retail trade, wholesale and food manufacturing, but also the HoReCa sector, which includes hotels, restaurants, bars and catering service providers.

On a global level, governments and regulatory bodies have focused on providing all necessary information to consumers related to the products that are available on the market. Previous legislations that continue to apply in Europe, but have been facilitated by the newer EU food regulation No. 178/2002, include for example the labelling of foodstuff (Directive 2003/89/EC), which states that labelling must include the name under which the product is sold, list of ingredients, quantity of ingredients or categories of ingredients expressed as a percentage, including information related to allergens.

With RFID, a responsive supply chain can be established where this kind of information would be automatically available in near real-time. Considering the evolution of traditional, sequential supply chains towards global meshed supply networks, enterprises now need to synchronise real-time flows of information in a more efficient and flexible manner to maintain solid competitive positioning.

Item-level tagging is occurring most frequently on items that are high priced, high shrink, or counterfeit targets. Most food, with the exception of meat, seafood, or expensive specialty items, will continue to be bar coded at the item level for the foreseeable future. However, traceability requirements may drive tagging of food cases, potentially combined with temperature sensors or freshness indicators. METRO Group is taking product freshness and food safety seriously with a test of a customer-facing Smart Freezer. All products are tagged and monitored for "best before" date, and alerts notify staff to remove product as necessary. Case tagging would definitely help when recalls are necessary (the impact on suppliers in the wake of tainted beef and spinach attests to the need to quickly find effected products). A recent tomato e-coli scare had retailers and restaurants removing all fresh tomatoes from stock. With sensor-based freshness indicators, retailers and potentially consumers will have access to dynamic, real-time information about the shelf life of products. Recent examples of the impact of food recalls are:

Had Topp's Meat been equipped with automated traceability, it might have avoided shutting its doors in September 2007 after 67 years in business without a single recall. But it was a massive recall of 21.7 million pounds of beef and a poor response that led to numerous lawsuits and their insolvency. In November 2007, General Mills recalled 5 million frozen pizzas with E. coli-contaminated pepperoni after reports of nine illnesses. The company was forced to publicly declare a $19 million write off and incur increased logistic expenses. Food retailers report that spinach sales still have not completely rebounded from the E. coli outbreak of 2006. Recent "tomato" salmonella cases sickened over 800 people before the CDC decided that perhaps salsa, cilantro, or peppers were at fault. Meanwhile, Florida


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tomato industry losses are estimated at $40 million this season, and California and Mexico's industry losses could exceed $100 million.

The financial and health impact of the punishing three-month long investigation of the tomato industry could have been reduced to a three-day open-and-shut case if traceability had been in place. Standard operating procedures need to be executed properly to improve on the staggeringly slow three weeks it took to report the initial case to the FDA — there's no doubt that this contributed to the inability to track the product's source. But identifying all of the potential sources of salmonella contamination and tracing them back to the common originating farm or processing facility can only be accomplished efficiently with traceability. To support traceability, all cases of products would have been labelled with a serialized identifier, unique to the product instance, in the field or processing facility. As the product moves through the supply chain, even as it is repackaged, it's identity moves electronically with it, so that even the fresh ingredients in a container of salsa have a traceable heritage. By electronically comparing the trace history of the fresh foods consumed by multiple patients, the CDC and FDA could have answers almost as fast as they can record the patient history. Litigation and settlement costs for each of these outbreaks are often in the hundreds of thousands of dollars, if not millions, depending on the number of affected customers. Although the net financial impact is a little less defined, it is potentially more significant, given the potential harm to the brand.

In the United States, the Food and Drug Administration (FDA) and state legislatures are recommending ― and in more than a dozen states mandating ― the use of RFID with pharmaceutical item and/or case serialization. California, for example, expects that all pharmaceuticals will be serialized and tracked via a "pedigree" system by 2011. A pedigree is a chain of custody document that describes all of the supply chain partners that have bought or sold and shipped or received the item/case as it traversed the extended supply chain. Each product has a unique serial number and can have only one pedigree. California stands committed to an interoperable track-and-trace (pedigree) system to protect consumers by providing a certifiably safe and secure pharmaceutical supply chain. Pharmaceutical distributors have been preparing diligently to meet the requirement, while retailers and manufacturers are still far from ready. The hope is that if retailers, distributors, and suppliers work together to define an interoperable standard, then they will in effect define the industry standard and avoid being subjected to 50 different state-based statutes.

If pedigree is the regulatory "must do" in retail RFID projects, it's the combination of traceability and serialization that are the real RFID "must have" features. Serialization provides unique identification at the tagged unit level, but it is traceability that provides visibility to past, future, and current location for each serialized entity in the retailer's supply chain.

Food traceability continues to require adherence to solid operating procedure (i.e., reporting issues in a timely fashion), but will also require the insertion of new perishable food procedures that enable labelling and traceability. Investments in technology will be necessary to support the capture, storage, analysis, and sharing of serialized traceability data. The number of cases are growing, the severity of outbreaks intensifying, and the losses are staggering. The great distances food travels and the number of times it


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changes hands before arriving in retail stores contribute to the difficulty in tracing product to the source without traceability.

Overall, the biggest benefits of food traceability may be measured in the indirect terms of risk avoidance and brand protection. However, this does not preclude the direct operational benefits associated with the recall process itself. In pharmaceutical returns, purchase information needs to be identified when processing a recall and can be very laborious without a means of automatically tying back a specific prescription transaction to a serialized ID.

Consumer awareness is growing about pharmaceutical and food safety issues, as is their awareness of potential traceability measures that are being pushed through legislatures. Industry (retailers, distributors, and manufacturers of pharmaceuticals, food, and branded products) can treat this as an opportunity to improve brand image and engender consumer trust or they can wait until government forces their hand or until consumers are in an uproar about what should have protected them.

The common denominator of RFID technology applied to global traceability will require retail IT, supply chain, and product manufacturing executives to collaborate so that future investments will be planned to handle both short and long-term infrastructure requirements.

Benefits from visibility across the supply chain

Companies of all sizes are striving to attain complete supply chain visibility and, hence, enable faster responsiveness abilities in all supply chain sub-processes, from planning to execution. From manufacturers to logistics service providers (LSPs) to retailers to healthcare providers, in principle all can benefit from an RFID implementation. If any of these companies were to successfully implement RFID along all the stages of its supply chain then any kind of error would be revealed immediately and, hence, corrected on the spot rather than at the end of the supply chain, when it is often too late. RFID could also allow companies to have greater insight into various inefficiencies, for example by revealing sub-optimally utilised assets, for example misplaced crates that were then left un-used for even months.

This improved visibility would also increase predictability and, hence, bring overall supply chain efficiencies to a completely new level. In comparison to a barcode system, the tracking and tracing process is completely automated providing higher data integrity, real-time reactions and end-to-end visibility of the underlying processes. Exhibit 2.4-1 depicts the ultimate goal and associated benefits for an RFID implementation looking at six key areas that are impacted by supply chain practices.


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Exhibit 2.4-1: Supply chain visibility and RFID – goals & business impact

Low

High

Commoditized Supply Chain

Inefficient Supply Chain Sub-Optimal Supply Chain

Lean Supply ChainHighLow

Supply Chain Efficiency (order fulfillment responsiveness, flexibility, delivery performance,

inventory days)

Warehouse Management

SupplyChain Costs

($)

Inventory Management

Collaborative Forecasts

New Product Introduction

Warranty Management

Optimized Risk

Management

Automation, Predictability,Collaborative

Excellence

Objective


Several benefits in the supply chain can arise after the implementation of an RFID system:

Improved cost control

Increased inbound logistics efficiencies

Improved inventory management accuracy and responsiveness

Optimised distribution centre efficiency

Improved risk management abilities

Reduced supply chain wastage, due to the execution of lean and loss prevention practices

There is clear indication on the benefits obtained from RFID from a supply chain perspective (Source: IDC European Vertical Markets 2007 Survey). When considering the manufacturing, retail and transport industries 34.4% of respondents believe inventory management and merchandise management would greatly benefit from an RFID implementation, followed by 25.1% indicating inbound logistics control and efficiency, 24% indicating both time to market and distribution centre efficiencies and 14% indicating loss prevention.

2.4.2 Interoperability and standardisation: the importance of a global standard for RFID

Before 2005, there was great uncertainty on the direction of standardisations involving RFID, contrastingly today; while the situation still remains complex it has seen great


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strides forward. Until a single European frequency allocation becomes a reality, technical solutions are already allowing a single UHF tag to operate globally under slightly different local frequencies, but this may limit tag costs reductions opportunities.

The importance of a single frequency band allocation for RFID applications by type and geography is a fundamental milestone in order to enable widespread usage of this technology. As a matter of fact, if the market scope of a company and the RFID usage scenario are extended, for example outside the execution of internal processes to allow improved value chain collaboration efficiencies, a single frequency allocation results in easier interoperability of RFID solutions among different companies that are using RFID products sourced from different technology vendors. This ultimately means that RFID implementation costs can be reduced compared to the current situation. In addition, due to the long-term nature of RFID projects (e.g. RFID deployments can typically operate for more than 10 years), the availability of a global frequency standard helps organizations in minimising investment risks, taking into consideration the actual limitation of radio communication bandwidths and the emergence of new wireless technologies and mobile application scenarios.

Hence, it is important that companies planning to implement RFID make sure their respective RFID tags are compliant with current legislative measures, and that their hardware partners are knowledgeable in these measures so as not to make an investment that will not be able to be operative and safeguarded over time.

2.4.3 Return on investment (ROI) for RFID – The challenge of creating the business case

Financial justification for new ICT investments in general and for the implementation of RFID in particular, always faces the uncertainties in the project's success. No universal ROI calculator is available for companies exploring RFID projects, because ROI is directly related to the industry, type of business, organizational pain points and strategic objectives. Consequently, understanding end-users expectations, analysing successful vs. unsuccessful experiences and applying relevant sector variations best estimate ROI is the process to apply. General capital investment models like Net Present Value (NPV) can be used to evaluate RFID ROI on a financial degree and qualitative methods based on intangible KPIs (Key Performance Indicators) and tangible KPIs may also be applied.

Overall, the design of RFID projects requires the assessment of specific use case scenarios, including product or application categories, financial costs/benefits analysis, business processes challenges and opportunities (both internal and with external value chain partners), IT challenges and opportunities (for example data sync, integration, middleware strategies, analytics), RFID and sensor technologies scenarios.

RFID-enabled companies can achieve on average a 12 to 18 months competitive advantage depending on the implementation scale, as demonstrated, for example, with the RFID projects conducted by the METRO Group (Section 5.1), Royal Ahold and NYK Logistics.

Enterprises shall not place too much emphasis on the upfront costs when evaluating the business case for RFID. Especially in hardware, this may lead to erroneous conclusions


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when evaluating the overall returns of RFID investments in the short, medium and long-term. In addition, hardware costs for RFID implementations are set to decrease due to technological advancements and volume productions scales effects.

Real life examples

Companies, which have implemented or are implementing RFID programs after field trials, can testify that payback can be achieved in a relatively short period of time, e.g. less than 36 months. This was the case for Futura Systems, a small Spanish manufacturer of polyethylene tubes and accessories, which implemented RFID at its main plant in Spain (Section 5.8). After implementation was complete and covered all its production lines, Futura Systems experienced:

A reduction in shipping errors, usually cause by errors in the workforce, from 3% to 0.5%. This lead to cost savings and customer service improvements.

Reductions in inventory tracking times, which once took 6 people 8 hours to do every month, and now take 2 people for 2 hours once a month. In essence, a 90% reduction in inventory tracking FTE (Full Time Equivalent).

For Futura Systems, ROI has been positive since the initial implementation. Futura Systems reports that it expects RFID-ROI in less than 12 months.

Another solid example is NYK Logistics in the US, which achieved ROI in less than one year for an RFID investment close to $1 million. NYK implemented a real time locating system (RTLS) based on RFID and GPS technologies.

As highlighted in the Schuitema case study (Section 5.9), it is hard to evaluate an RFID implementation project on the basis of ROI without conducting a field trial program. After the completion of its pilot phase, Schuitema was able to have a clear vision as to the ROI on a complete RFID implementation across the entire supply chain. In the case of Schuitema, pilot project payback was estimated in 1.3 and full ROI case 2.7 years after a complete RFID implementation involving all its suppliers and customers.

More evidence for a successful RFID implementation which did not utilise ROI or NPV calculations as a justification for the deployment, is Hewlett Packard’s RFID implementation at its Brazil printing facilities (Section 5.2). The project was done on a large-scale with over 5 million tags commissioned during the first half of 2007, 19 million cases forecasted to be tagged in 2007, and over 270 readers and more than 200 RFID label printers installed. The financial investment was profound, but the results include HP being able to log more than 40,000 EPC-based RFID reads with a read/write yield of more than 99.5%. The RFID readings created benefits in all aspects, such as greater visibility allowing 20% improvement in cycle time; faster updates in the warehouse management system allowing 17% reduction in WIP ((Work-In-Progress) and inventory; and improved visibility into the movement and receipt of goods allowing for faster invoice processing.

In the healthcare sector, the Istituto Nazionale dei Tumori decided to deploy RFID at its facility without setting real ROI targets. However, the collaboration with Fondazione Politecnico di Milano was able to establish a model for KPI qualitative measurement as illustrated in Section 5.6.


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As revealed in the Istituto Nazionale dei Tumori case, intangible benefits, despite being hard to quantify, are most relevant, and include:

Total traceability of the transfusion process.

Improved safety of patients and medical staff involved in the transfusion process.

Non-invasive technology for patients, with increased and improved capacity for intervention where patients are unable to interact with the medical staff.

Enhanced process awareness by staff.

Enhanced capability of process monitoring and controlling, through establishing a continuous flow of information between the departments involved.

Increased "brand" recognition for the ward and the Istituto as a whole, due to the degree of innovation that the RFID solution introduced.

Even though these benefits are not quantitative like in an ROI calculation, they were more than enough to convince the 'Istituto Nazionale dei Tumori' that the implementation was beneficial. This approach is also instructive for companies thinking about the implementation of RFID, for example modifying the KPI Map to the relevant industry application.

2.4.4 Value chain collaboration and RFID: opportunities to drive profitable growth strategies

Importance of value chain collaboration

Excellence in value chain collaboration is found to be a recurring theme in the consumer products manufacturing and distributive trade industries. Collaborative excellence is a crucial factor for extending supply chain efficiencies as well as for making sure the highest possible returns on the RFID investment are made. In other words, enterprises can expect different results if an RFID implementation is restricted to the "4-walls" of an enterprise rather than being automated and all encompassing of the value chain, the latter bringing more favourable results as risks can be shared and process efficiencies optimized in the end-to-end value chain process.

The consumer industry is in the midst of a shift in the collaborative paradigm that incorporates product innovation and customer understanding. It is strategically vital for companies to collaborate on creating new product and services that rejuvenate their brand equity aiming to improve market positioning (Source: "Achieving Collaborative Excellence in the Consumer Products Value Chain", IDC, 2006).

It is important for companies wishing to establish collaborative partnerships to understand that value must be created for all the parties involved, may they be manufacturers, retailers or consumers. Hence, the focus should be on cross-partner solutions and product definitions that go beyond the capabilities of any single company operating alone. These types of transformational collaborative relationships are based on:

Collaborative decision-making and new idea generation

Bi-directional exchange of data, knowledge and experience


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A commitment to share knowledge capital and extend thinking outside corporate boundaries

The creation of long-term strategic game plans

Benefits of value chain collaboration

Collaborations must be founded on performance targets, joint value creation, joint accountability, and joint steering teams so as to focus on dedicated campaigns. It is certain that these new kinds of relationships will drive profitable growth by allowing organisations to:

Transcend contractual relationships to focus on business aligned objectives

Reach new customers

Extend brand equity

Create true customer intimacy while increasing captive market share for products

Create real competitive advantage – implying that if companies can evolve into becoming collaborative businesses that exploit transformational collaboration, the increase in profitability and value creation will be over and above increases achieved in the past.

Key technologies

In the Global Commerce Initiative 2007 report, collaborating parties along the consumer products supply chain indicated the following technologies and business strategy initiatives as the most valuable to improve value creation:

Implementation of advance shipping notices (ASNs) for instant reconciliation;

Demand Driven Supply Network models;

Collaborative ordering, for example Vendor Managed Inventory (VMI)

Global Data Synchronization (GDS) and EDI (Electronic Data Interchange)

Pursuing these initiatives has the potential to improve the business case for EPC/RFID or making adoption worth the effort.

However, it is important to remark that many suppliers believe that various EPC/RFID use cases and benefit projections that have been presented for the retail and consumer goods industries do not readily apply to direct store delivery (DSD) because of the fundamental differences in how DSD products are ordered, tracked, delivered, replenished and invoiced compared to products that are delivered through a retailer’s own warehouses. Because DSD supplier representatives frequently work inside retail stores for delivery, replenishment and merchandising, they already have a base level of inventory visibility that is higher than that of warehoused products; therefore, there is less potential for EPC/RFID traceability to make a meaningful improvement (Source: Global Commerce Initiative, Suppliers and Retailers Views on EPC/RFID Technology for Direct Store Delivery (DSD), April 2008).


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Initiating and maintaining a dialogue with trading partners about potential process improvements represents the fundamental layer upon which companies can jointly evaluate RFID implementations for collaborative excellence.

2.4.5 RFID concerns: security, privacy and health risks

RFID devices, like wireless networks, cell phones, and electric shavers, are deemed safe under recommended implementation approaches, but buyers should take appropriate precautions. For example, while in the testing phase, Futura Systems addressed any concerns held by its employees, and asked its insurance provider to evaluate the risks involved. No risks were found allowing the pilot and subsequent implementations to take place.

Health

With the current information and scientific understanding on potential health risks associated with the usage of RFID, it appears exposure below recommended levels pose no health risks. The best advice is to use only enough power as needed to ensure reading accuracy, thus either using as low power as possible without affecting the implementation efficacy or shut down antennas when not in use and activating with motion sensors. It is also important to work around dead spots rather than simply increasing the density of the readers.

Security

Due to the sharing and exchange of information generated by RFID, many companies are fearful that their privacy and security will be breached, and consequently hurt their business.

Security, which involves data protection is another concern held by companies looking at investing in RFID. Security mechanisms exist to maintain the desired level of security, but the right security measure should be evaluated against RFID project cost target and specific performance requirements. Security mechanisms include the encryption of data and wireless transmissions, strong authentication, and access policies. Often firms opt to centrally manage systems, providing stronger barriers against unwanted usage. Futura Systems is one of those companies that decided to take extra measures to ensure its business data was kept internal. Since the databases and servers, which hold the RFID data, are controlled from an external company, Futura Systems decided to invest in a second server that would store the collected RFID data. This allows Futura Systems to keep their business data safe not having to share it with the outside world.

Privacy

Privacy is a main concern among clients of RFID enabled companies, like for that matter with any other wireless technology. However, the extremely short communication range that is available with passive UHF RFID tags limits privacy concerns by-design. To counteract this concern it is possible to disable tags permanently to safeguard


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consumers' privacy. But it is fundamental to ensure consistent, open and repeated communications on privacy policies to end-users. A remedy to counteract consumers feeling threatened by potential use and sharing of personal information is by adding extra rewards to loyal customers.

Despite all these concerns, enterprises are coming to realise that implementing RFID will optimise and innovate their company performances and allow them to address and solve process inefficiencies and business issues they were eventually even not aware of.

2.5 RFID applications in the retail, manufacturing, transportation and healthcare industries

Overview

Intense supply chain and merchandise planning dynamics, fluctuating consumer demand, increasing transportation costs, and massive consolidation trends in a highly fragmented industry characterise the retail sector. The most worrying element for the industry remains net profit margins, which have been fluctuating significantly since 2002. In effect, net profit margins dropped 12.1% overall during the first half of 2007 compared with the same period last year, despite growing revenues and sales volumes in Europe. Major ongoing trends between the largest European and US retailers are expected to significantly impact retailers' performances and actions going forward into 2008 and beyond:

International expansion: Aiming to capitalise on business opportunities in emerging regions, such as Eastern Europe, Russia, India, Middle East and Asia.

Competition: Growth of online sales, market differentiation strategies, the growth of discounters and a segment blurring effect are putting pressure on retail companies in enhancing productivity efficiencies while offering consumers a more consistent and appealing shopping experience across multiple channels.

Consolidation of sales and store operations, management functions, and processes aiming to increase efficiencies.

Service delivery optimisation: Optimising product assortments, supply chain, and store management capabilities, ultimately performing more effectively in service delivery. Achieving advanced retail demand intelligence is a major cornerstone for retailers and supply-chain partners alike, and larger companies will need to become increasingly flexible to capitalize on new business opportunities.

In this industry context, RFID implementation has begun in the retail, transportation, manufacturing and healthcare sectors with the applications scenario summarised in Exhibit 2.5-1.


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Exhibit 2.5-1 RFID applications trends by industry

Industry RFID Application References

Retail

• Cold/Perishable goods chain management • Supply chain pallet/case tracking • Warehouse workflow (goods receiving,

allocation, picking, store deliveries) • Product recall management • Item tracking (clothing, books, high-value

items) • Reducing out-of-stocks/improving

replenishment efficiencies

METRO Group Tesco M&S BGN WalMart Auchan

Logistics • Returnable assets tracking • Freight tracking

DHL Europool Systems NYK Logistics

Manufacturing

• Production process efficiency and quality management

• Product authenticity • Distribution Centre: order picking • Inventory reduction • Cold/Perishable goods chain management • Product lifecycle management

Nestlè Procter & Gamble Kraft Foods

Aviation

• Mobile assets tracking (trolleys, in-flight and airport assets)

• Cargo tracking • Baggage tracking • Maintenance (aircraft parts identification &

location tracking)

Amsterdam Schipol Honk Kong Airport Airbus Boeing

Pharma & Hospitals

• Drugs authenticity • Medical equipment tracking • Patient identification • Medical samples tracking (for example blood

transfusion safety)

Istituto dei Tumori Purdue Pharma

Automotive

• Yard management/cars real-time location • Manufacturing quality control • Work In Process / Just-in-time vehicle

assembly • Supply chain/logistics optimization • Spare parts management

Honda Land Rover

Postal

• Process monitoring (quality of service, envelopes tracking)

• Sorting • Roll-cages asset management • Parcel tracking (long-term)

DHL UPS Correos Royal Mail

Railways/Public Transportation

• Returnable assets tracking • Maintenance • Mobile payment (multi-mode transportation

and other passenger services)

Other/Cross-Industry

• Animal feeds tracking • Defence (logistics, high-value item tracking • Document tracking • IT assets tracking • Person identification

US DoD Motol Hospital



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Retail

According to WalMart, the largest retailer in the world and a pioneer in RFID adoption within the retail sector, around 2% of lost sales are due to the simple fact a store has run out of an item, and up to 40% of lost sales are due to inventory problems. With all these competing trends in mind, it is important to identify the key shift occurring within the retail industry. In essence, a change in consumer psychology is putting the traditional merchant culture to the test, requiring the development of a new balance and alignment between the two. Exhibit 2.5-2 depicts this forward-looking dynamic.

Exhibit 2.5-2: Looking ahead – critical IT requirements for retailers

End-to-end business insights

..Deliver on the Next-Generation Shopping Experience

Lacklustre Lacklustre ProfitProfit GrowthGrowth

• Loss prevention• Larger transactions• Brand

differentiation

• Advanced inventory mgmt• Faster replenishments• Reduced out-of-stocks

situations

Supply chain visibility, Supply chain visibility, productivityproductivity

Labor OptimizationLoyalty & CRM

Promotion innovation

Compliance Pressure (PCI, track&trace,..)

Collaborate for profitable growth

Mega merchant effect Mega merchant effect & segment blurring& segment blurring

MultiMulti--channel retailing channel retailing expectationsexpectations

Lacklustre Lacklustre ProfitProfit GrowthGrowth

Supply chain visibility, Supply chain visibility, productivityproductivity

Changing consumers psychology vs.

traditional merchant culture


Transport

Transport organisations’ profits continue to be challenged by the persistent uncertainty about oil price short-term developments. After registering record-high prices in October 2007 (over $90 a barrel) oil prices increased to over $120 by March 2008. Competitive dynamics are also changing, due to market liberalisation and aggressive price positioning of different transportation modes. The business environment is pushing new requirements for real-time tracking of assets in logistics and freight transportation, optimization of maintenance procedures to reduce costs and enhance the service reliability, and the introduction of multi-mode fare schemes in passenger transportations.

Manufacturing

The European manufacturing sector has undergone a thorough transformation in the past 10 years. A reduction in the percentage of employees in the sector in Western Europe has been counteracted by a shift of the production towards low-cost countries. The European manufacturing industry is also mostly made up of small and medium businesses, in effect, of the 1.1 million organisations in the European manufacturing


45

industry, 71% can be classified as small businesses with 1-9 employees. Health and safety compliance, increased competition and energy cost constraints have pushed manufacturing organisations towards introducing innovative products with a strong technological content and high added value in amore efficient and timely manner compared to the past.

Healthcare

There are many facets of the healthcare industry, which include pharmaceutical product distributors, hospitals, and other healthcare facilities. Large hospitals have started to apply RFID in asset tracking, such as for surgical instruments, medical equipment, syringes, and other items that must be properly cleaned and packaged between uses, or disposed when it is proper to do so, and must be rapidly located to prevent losses, theft and made them available in the right place at the right time to assist patients in emergency situations. Tags on instruments, and readers on for example, portable carts, doorways, and storage cabinets can validate proper cleaning, disposal, and help locate the required instruments. Much deeper impact of RFID on the clinical processes will derive from identification of patients, medications, blood, and laboratory samples. The five rights of patient care are: right patient, right medication, right dose, right method and right time. RFID offers a way to maintain those five rights, precisely by identifying the patient and its therapies and tests, and matching them unambiguously, thus having a remarkable impact on the reduction of drug and patient identification errors. The NPSA estimates that many treatment errors are caused by incorrect patient identification. RFID eventually enables to trace and audit assets, drugs, lab samples, and blood, thus conduct analysis on usage, or discover the reasons of mistakes when they occur. Furthermore, active tags can even automatically trigger alerts, for instance indicating when a drug must be given to a patient (Source: Government Insights and Health Industry Insights, IDC).


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3 Deployment of RFID solutions

This chapter aims at providing insights into current trends of RFID usage in the sectors analysed by the SeBW RFID survey9. The survey was conducted in seven European countries: France, Germany, Ireland, Italy, Poland, Spain and the UK over 434 companies, with more than 50 employees, from transportation, retail distribution, manufacturing and hospital activities. The survey methodology is described in Annex I. In order to assess adoption dynamics, IDC survey data on RFID adoption in 2006 are also provided.14

3.1 RFID adoption trends

Introduction

Today, RFID is no longer an over hyped technology as many organisations -especially in manufacturing and transportation- have already implemented it while some others have started piloting it. Expectations have shifted towards an optimised-driven perspective in process execution. As spending continues to move upwards, RFID penetration spreads as companies’ approach is more as a business journey instead of a complex technology project, aiming to sprint business performance improvements.

3.1.1 RFID adoption: international comparison

An increasing number of companies are either piloting or implementing RFID projects in Europe nowadays. This strong rise in adoption is owed to the fact that current industry and technological advancements have enabled greater confidence in RFID as this technology has proved to be a strategic enabler of productivity gains and business process efficiency improvements.

As of 2006, IDC's European vertical Markets survey results suggest an average enterprise rate of 18% adopting RFID across sectors (including transport and logistics, discrete and process manufacturing, and retail).

On a worldwide level, major differences in business drivers to RFID implementations were (Source: IDC Worldwide RFID Survey, December 2006):

In Asia, companies have ranked mandates almost last giving importance to asset management and productivity improvements in supply chain visibility.

14 The figures on RFID adoption presented in this study cannot be directly compared to those

presented in the sector studies of 2008, because they are based on different surveys. The surveys differed in how they defined the population, notably in terms of firm size. The sector surveys covered small enterprises (with fewer than 50 employees), while the RFID only considered medium-sized and large firms, and introduced different strata of large companies.


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In the US customer mandates and federal regulatory requirements are the primary objective next to track and trace improvements.

In Europe, the primary goal was on optimising supply chain efficiencies to deal with the tight logistics and smaller retail stores within the EU, which require more precise systems and processes.

Shifts in operational strategies and performance led to believe in 2006 that carton-level tagging was going to be the next thing in 2007. As pallets tagging continue to be on demand, just as they did in the early beginnings of RFID adoption, reusable assets tagging emerges as a key trend during 2007. Management of reusable assets, such as plastic crates, have proven to be more effective with automatic real-time enabled by RFID tagging. In fact, the IDC European Vertical Markets Survey results indicated that the key areas of RFID focus include: pallet-level tagging as reported by 50% of respondents; embedded or reusable asset by 26%; case by 18% and item-level tagging by 10% of respondents.

3.1.2 RFID adoption in the EU

As of 2006, 17.7% of companies in the top-5 European countries (Germany, France, Italy, Spain and U.K.), across the manufacturing, transportation and retail sectors, have already implemented or piloted RFID (Source: IDC European Vertical Market Survey, 2007). Manufacturing and logistics were the two sectors with the highest adoption levels, at about 20%. In turn, RFID adoption was lagging behind in the retail sector, with 13% of organisations that have already implemented or piloted RFID (Exhibit 3.1-1).

Exhibit 3.1-1: Top five European countries, penetration of RFID (% of companies)

Q. Is your organization currently piloting or implementing RFID solutions or have short-term plans to pilot/implement RFID?

Base: All samplesNumber of valid respondents: 819Data weighted by enterprise size classSource: IDC European Vertica l Market Survey, September 2007

0 5 10 15 20 25

Retail/wholesale

Transport

Logistics

Process manufacturing

Discrete manufacturing

Total

(%)

Source: IDC European Vertical Market Survey, December 2006


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RFID strategy

Exhibit 3.1-2 presents findings from the SeBW survey as for the strategies that are currently adopted by the surveyed European firms. Among all respondents, only about 3% of respondents reported that their companies have concrete plans to implement or pilot RFID in 2008, about 19% of respondents are in a waiting position towards adoption of RFID, and about 9% of respondents reported that they will not use RFID in the next 3-4 years. No plan towards RFID is answered by most of respondents with percentage of responses of about 69%.

Exhibit 3.1-2: Current strategy on RFID (in % of respondents)

Q. Which of the following statements best describes your company's strategy towards RFID?

19

9

3

69

Have concrete plans toimplement or pilot RFIDIn a waiting position

We will probably not useRFID in the next 3-4 years.No plans

The survey was conducted in 7 EU Member States (DE, FR, IE, IT, ES, PL, UK) Base (100%) = all companies. N (Retail, Transportation, Discrete/Process Manufacturing, Hospital Activities, EU-7) = 434 Weights = Figures for sector totals and countries are weighted by employment ("firms representing x% of employment in the sector / country"), figures for size-bands in % of firms Questionnaire references = A4

Source: e-Business Survey 2007 by the SeBW

Adoption by industry

Exhibit 3.1-3 presents findings on the current status of RFID usage by industry sector, among all respondents of the SeBW RFID 2007 survey. Compared to the estimated adoption rate in 2006 (17.7%), we find in 2007 that 24% of enterprises are using, piloting or implementing RFID, with the percentage of pilots being much smaller than implementation or regular business usage. Albeit the eBW RFID 2007 survey data also includes hospital activities, while the 2006 IDC survey data do not, during 2007 it emerges a significant adoption uptake in retail and transportation & logistics, with smaller growth in the manufacturing sectors.


49

Exhibit 3.1-3: Current status of RFID usage by sector (in % of respondents)

Q. Which of the following best describes the current status of your firm's RFID usage?

20

24

14

10

4

2

5

5

3

6

3

1

0 5 10 15 20 25 30

Transportation

Retail Distribution

Discrete / ProcessManufacturing

Hospital Activities

Regular Business Implementation Phase Pilot Project

The survey was conducted in 7 EU Member States (DE, FR, IE, IT, ES, PL, UK) Base (100%) = all companies N (Retail, Transportation, Discrete/Process Manufacturing, Hospital Activities, EU-7) = 434 Weights = Figures for sector totals and countries are weighted by employment ("firms representing x% of employment in the sector / country"), figures for size-bands in % of firms Questionnaire references = A2


Among all respondents, the transportation sector is the leading sector on the using of RFID in their businesses (27% of respondents) with 20% firms use RFID for their regular business, 3% firms are piloting their RFID usage, and 4% firms are currently in the implementation phase. This finding resonates well with RFID usage in logistics and freight transportation – from vehicle tracking to warehouse processes optimisation and reusable assets tracking – but also in passenger transportation, due to the increasing deployment of RFID in contact less smart cards for payments (for example Oyster card in London, Rhein-Main Verkehrsverbund in Frankfurt and OV card in the Netherlands).

The most interesting data point refers to the retail sector, where 26% of respondents indicated that they have adopted RFID with 24% of firms already using RFID in their regular business. This indicates that despite an initial resistance towards RFID, demonstrated by the low adoption level reported in 2006, retail companies have identified key advantages for using RFID.

On the other hand, the highest percentage of pilots and ongoing implementations was reported in the manufacturing sectors. The reason behind these results is that process manufacturers are facing increased pressure from their retail customers, for example the METRO group (Section 5.1), in tagging pallets or cases with RFID in order to improve supply chain processes. In addition, as exemplified in Section 2.4.1, food manufacturers and producers of perishable goods are testing RFID to reduce spoilage and improve consumer safety. In discrete manufacturing, which is probably one of the early-adopting sectors, the range of potentially beneficial applications is broad (Section 2.5,) thus companies are testing RFID in different context and operative areas (production, quality


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control, warehouse and logistics, distribution, warranty and recall management, product authenticity).

Hospital activities lag behind as only 18% of respondents indicated that they have adopted RFID with 10% that are already using RFID in their regular business.

Adoption by size of company

Adoption of RFID is driven by large companies, as indicated by 32% of respondents with more than one thousand employees across the covered sectors (Exhibit 3.1-4).

Exhibit 3.1-4: Current status of RFID usage by firm size (in % of respondents)


22

7

6

9

5

2

4

2

4

3

5

2

0 5 10 15 20 25 30 35

1000+ employees

500-999 employees

250-499 employees

50-249 employees

Regular Business Implementation Phase Pilot Project



However, RFID is applicable also by SMB with more than 50 employees and less than 1000 employees - due to the reasons described in more detail in Section 3.3 - and no significant difference in the current RFID adoption emerges among smaller and medium-sized organisations. However, a slightly higher percentage of firms in the 250-499 employee size-classes are piloting or implementing RFID, because these types of companies, in many cases focused on niche market segments, require the optimization of just a few core business processes, can afford technology investments and are much stimulated by global competitive dynamics to modernise their market positioning and business performance.


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Adoption by country

On a country-level (Exhibit 3.1-5) – although the sample size is limited - respondents from Italy show the highest percentage of companies adopting RFID (56% of respondents), due to the fact that the majority of Italian respondents were large enterprises, e.g. companies with more than 1,000 employees. In turn, enterprises in the UK and Poland are lagging behind in RFID adoption, while the highest percentage of pilots is found in France.

Exhibit 3.1-5: Current status of RFID usage by country (in % of respondents)


Country Regular Business Implementation Phase Pilot Project Total

(% of respondents) (% of respondents) (% of respondents) (% of respondents)

Italy 45 7 4 56 France 17 6 10 33 Spain 27 5 1 32 Ireland 22 - 2 24 Germany 6 6 4 16 UK 6 1 1 8 Poland 1 - 1 2



Applications of RFID

Exhibit 3.1-6 presents survey results on the business process areas where RFID technology is currently used or under investigation with pilots. The majority of respondents indicated that RFID is used for inventory management (70% of respondents) while nearly half of the respondents showed usage or intended use of RFID for labelling single product items (47% of respondents). Other key application areas include person identification, production tracking and container or pallet tracking. These findings are in line with the assumptions regarding opportunities for benefits exemplified in Section 2 and the case studies presented in Section 5. As a result, it emerges that enterprises are mostly seeing the benefit of using RFID to improve supply chain execution effectiveness, with the objective of increasing supply chain productivity, reducing logistics costs and, based on improved execution abilities, gain the ability to optimize supply chain planning at a later stage.


52

Exhibit 3.1-6: RFID implementation by current adopter (in % of respondents)

Q. For which of the following purposes does your company use or pilot RFID?

70

47

42

41

41

39

0 10 20 30 40 50 60 70 80

Inventory management

Labelling of single product items

Person identification

Other functions

Production tracking

Container and pallet tracking

The survey was conducted in 7 EU Member States (DE, FR, IE, IT, ES, PL, UK) Base (100%) = All companies using RFID N (Retail, Transportation, Discrete/Process Manufacturing, Hospital Activities, EU-7) = 75 Weights = Figures for sector totals and countries are weighted by employment ("firms representing x% of employment in the sector / country"), figures for size-bands in % of firms Questionnaire references = B1


3.2 Key business objectives driving RFID adoption

As illustrated in Section 2 and in the case studies provided in Section 5, applications of RFID vary by industry and can also differ on a sub-industry level. In recent years, key drivers for RFID adoption were mostly focused around cost reductions and productivity improvement opportunities along the supply chain, potential to increase quality of service, achieving regulatory compliance, and decrease time to market as well as downtime. In transport, procurement and logistic efficiencies –in terms of time and cost- ushered RFID adoption, followed by asset optimisation and security. For retail enterprises, one crucial driver is to improve merchandise availability with the help of optimised warehousing and efficiencies across the distributive network. Manufacturers look towards improving in-bound and outbound logistics control, reducing inventory levels and optimising manufacturing execution efficiencies. Altogether, these drivers are accompanied by a subsequent need of preventing losses and wastage, which is going hand by hand with work-in-progress and manufacturing quality improvements.

Albeit these differences, there exists a common thread of motivations driving small, medium and large companies to evaluate RFID deployments. This common ground of motivations resides in the automated identification mechanism provided by RFID; what really makes RFID different compared to barcode scanning is the improved automation level of tracking and tracing processes based on much higher data integrity and accuracy, real-time reaction capabilities and end-to-end visibility of the underlying


53

operative processes (Section 2.3). The fundamental business motivations driving RFID adoption include improving supply chain visibility and efficiency, enabling faster operational turnarounds, augmenting asset management capabilities, achieving regulatory and market-driven compliance, reducing out-of-stocks situations and enabling optimized value chain collaboration.

Business objectives by users and planners

The following Exhibit 3.2-1 presents survey results on the key business objectives that are driving RFID adoption for all respondents who have implemented RFID in their businesses.

Exhibit 3.2-1: Key business objectives driving RFID adoption (current RFID users) (in % of respondents)

Q. What are the key business objectives that will determine RFID adoption decisions and investments in your company?

84

79

75

69

69

67

62

61

61

53

0 10 20 30 40 50 60 70 80 90

Improving the efficiency of production processes

Improving product and service safety or authenticity

Improving product track-and-trace capabilities

Complying with regulation

Improving asset management

Increasing supply chain efficiencies

Complying with customer mandates

Supporting new customer-facing strategies

Improve supply chain visibility

Facilitating collaboration with business partners



The top motivations to implement RFID (considering both, very important and rather important business objectives) as indicated by over or about 70% of respondents, are improving the efficiency of production processes, improving product and service safety or authenticity, improving product track-and-trace capabilities, complying with regulations, and improving asset management efficiencies.

Other key reasons indicated by interviewed enterprises that have implemented RFID are increasing supply chain efficiencies (67%), complying with customer mandates (62%), supporting new customer-facing strategies, and improve supply chain visibility (61%). At


54

the bottom of the ranking, we find the ability facilitate collaboration with business partners as key objectives driving the implementation of RFID, because these represents medium to long term strategic goals for enterprises as opposed to short-term tactical execution improvement objectives.

Exhibit 3.2-2 presents survey results on the key business reasons that are driving RFID adoption for all respondents who plan to use RFID in their businesses. Considering very important and rather important business objectives combined, the top motivations to implement RFID – as indicated by over or about 70% of respondents – are improving product and service safety or authenticity, improving product track-and-trace capabilities, increasing supply chain efficiencies, complying with regulations, improving the efficiency of production processes, and complying with customer mandates.

Exhibit 3.2-2 Key business objectives driving RFID adoption (RFID Planners) (in % of respondents)


77

75

74

73

70

69

60

52

50

47

0 10 20 30 40 50 60 70 80











The survey was conducted in 7 EU Member States (DE, FR, IE, IT, ES, PL, UK) Base (100%) = All companies planning to use RFID. N (Retail, Transportation, Discrete/Process Manufacturing, Hospital Activities, EU-7) = 81 Weights = Figures for sector totals and countries are weighted by employment ("firms representing x% of employment in the sector / country"), figures for size-bands in % of firms Questionnaire references = B3


Another key reason indicated by interviewed enterprises that plan to use RFID is to improve supply chain visibility (60%). At the bottom of the ranking, we find the ability to facilitate collaboration with business partners, improve asset management efficiencies, and support new customer facing strategies as key objectives driving the implementation of RFID.


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Business objectives by industry

Exhibit 3.2-3 presents the key business objectives for RFID adoption as they are perceived by the various industry sectors analysed.

Exhibit 3.2-3 Key business objectives driving RFID adoption by sector (current RFID users) (in % of respondents)


Business Reason Discrete / process manufacturing

Retail distribution Transportation Hospital

activities (% of respondents) (% of respondents) (% of respondents) (% of respondents)

Improving product and service safety or authenticity 73 65 90 97

Improving the efficiency of production processes 77 99 93 68

Improving product track-and-trace capabilities 64 81 83 80

Complying with regulation 70 67 74 65

Increasing supply chain efficiencies 73 100 38 42

Complying with customer mandates 60 49 74 68

Improving supply chain visibility 62 99 33 42

Improving asset management 64 81 63 70

Supporting new customer-facing strategies 68 65 74 24

Facilitating collaboration with business partners 68 46 40 45

Number of valid respondents 25 19 17 14 The survey was conducted in 7 EU Member States (DE, FR, IE, IT, ES, PL, UK) Base (100%) = All companies using RFID. N (Retail, Transportation, Discrete/Process Manufacturing, Hospital Activities, EU-7) = 75 Weights = Figures for sector totals and countries are weighted by employment ("firms representing x% of employment in the sector / country"), figures for size-bands in % of firms Questionnaire references = B3


Although the sample size is limited, survey results resonate well with both the hypotheses discussed in Section 2 and the analysis of real cases provided in Section 3.2.1 through 3.2.6 and Section 5:

Improving product and service safety or authenticity and improving the efficiency of production processes – to be intended as operational transportation processes - are considered as two most important key business objectives for RFID users in transportation sector.


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Respondents from the retail sector that use RFID in their business indicated increasing supply chain, improving supply chain visibility, and improving product and service safety or authenticity as three most important key business reasons when adopting RFID.

Improving product and service safety or authenticity is the key reason for hospitals to implement RFID in their businesses.

Discrete / process manufacturing sector with RFID equipped in their business highly considers improving the efficiency of production processes, increasing supply chain efficiency, and improving product and service safety or authenticity as the key reasons driving RFID adoption.

Exhibit 3.2-4 presents the key business objectives of RFID adoption by industry, as far as planners are concerned. Although the sample size is limited, survey results resonate well with both the hypotheses discussed in Section 2 and the analysis of real cases provided in Section 3.2.1 through 3.2.6 and Section 5:

Improving the efficiency of production processes and improving supply chain visibility are considered as two most important key business objectives that determine RFID adoption planning decisions in transportation sector.

Respondents from the retail sector with plan to adopt RFID indicated regulatory compliance and supply chain visibility improvements as the most important drivers to RFID. Notably, over two-third of retail respondents rated all the reasons listed as important business objectives, as a further demonstration of the recognized importance of RFID in this industry, which also explains the large uptake in RFID adoption during 2007 (Section 3.1.2).

Improving product and service safety or authenticity is the key reason for hospitals to implement RFID in their businesses.

Discrete / process manufacturing sector highly considers increasing supply chain efficiency, improving the efficiency of product processes, and complying with both regulations and customer mandates as the key reasons driving RFID adoption planning.


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Exhibit 3.2-4 Key business reasons driving RFID adoption by sector (RFID Planners) (in % of respondents)

Business Reason Discrete / process

manufacturing Retail

distribution Transportation Hospital activities


Improving product and service safety or authenticity 77 84 58 83

Improving the efficiency of production processes 86 76 100 18

Improving product track-and-trace capabilities 77 89 96 58

Complying with regulation 82 94 54 53

Increasing supply chain efficiencies 88 87 54 42

Complying with customer mandates 86 84 16 46

Improving supply chain visibility 77 92 49 12

Improving asset management 45 84 46 54

Supporting new customer-facing strategies 51 82 16 40

Facilitating collaboration with business partners 70 87 16 14

Number of valid respondents 41 11 7 22 The survey was conducted in 7 EU Member States (DE, FR, IE, IT, ES, PL, UK) Base (100%) = All companies planning to use RFID. N (Retail, Transportation, Discrete/Process Manufacturing, Hospital Activities, EU-7) = 81 Weights = Figures for sector totals and countries are weighted by employment ("firms representing x% of employment in the sector / country"), figures for size-bands in % of firms Questionnaire references = B3


3.2.1 Improving supply chain efficiency, visibility, and predictability

RFID automates the ability to track and trace each step of the supply chain, and consequently enables end-to-end supply chain visibility (Section 2.4.1). Automation and problem identification features allow improvements in inbound logistics efficiencies, inventory management accuracy and responsiveness, distribution centre efficiency and loss prevention capabilities. The availability of more precise information allows companies to react in real-time time to changing operational and market dynamics as well as to fix problems in order to limit potential financial damage. From RFID case studies the following examples can be traced to prove the benefits of RFID in the supply chain:

HP's RFID implementation in Brazilian facilities (Section 5.2) included the end-to-end supply chain. This provided the company with insight into status of printer production lines and WIP (Work In Process) scheduling; detailed information on


58

outbound shipments, including transfers between facilities. Further benefits include faster, more accurate tracking of movement of goods within warehouse; reduction in packaging errors caused by incorrect or incomplete product bundles; more efficient packing in pallets, resulting in more densely packed pallets.

Schuitema obtained real-time visibility on its crates whereabouts with its RFID implementation (Section 5.9). The RFID system works in combination with temperature sensors, thus if a crate carrying fresh produce is stored over a certain temperature threshold for longer than 5 minutes, an automatic alert would be sent out. This resulted in a major achievement for Schuitema, reduction of the amount of spoiled products, which is directly impacting the company bottom-line performance.

As demonstrated by the METRO Group (Section 5.1), advanced shipping and receiving notes can be sent more efficiently, more timely and accurately than with barcode label scanning, as directly triggered by RFID-enabled events such as, for example, real-time automatic tracking of outgoing and incoming pallets. With barcode or manual processing compared to RFID, error rates tend to be much higher, responsiveness is limited and warehouse workforce productivity is generally lower than with business process optimised RFID integration.

Improved logistics and inventory management. For example, Dow Chemical Company recently reported a 90% improvement in reliability of delivery time windows with the integration of RFID in its operations. HP reported a 28% reduction of its printer inventory levels in a six-month period with RFID implemented in its Brazilian factories (Section 5.2).

Automatic and dynamic inventory tracking also allows for the execution of faster shelve replenishments at retail stores.

Reverse supply chain efficiencies can also be improved with RFID. In the US, Kraft Foods has signed up in February 2008 with a recycling program that uses RFID technology to track and reward consumers for recycling empty containers.

A field research commissioned by WalMart to the RFID Research Center in the US, determined that 'RFID reduced the degree of "inaccurate" (incorrect by an amount exceeding two cases of product) understated perpetual inventory (PI) by 13%.' PI is an inventory management system's continuously updated calculation of on-hand inventory, which is typically determined by manually counting the items.

3.2.2 Improving product or service safety and authenticity

Product authenticity optimisation can be a reality for manufacturers compared to the actual situation where counterfeiting and diversion continue to cause considerable loss and brand reputation damage. This applies especially to high-value items where the cost of RFID tags represents a negligible percentage of the total product cost. For example, Airbus and Boeing will attach RFID tags to over ten thousands of critical components in their A380 and 787 aircrafts with the objective, among the other, of avoiding the use of counterfeit and unapproved parts (the FAA issues over $100 million in fines annually to airlines that are found using unapproved parts).

In the pharmaceutical industry, growing attention is paid to e-pedigree solutions in the US, after regulatory mandates issued in California and other States, and following the


59

deadline – enforced by the FDA - of January 2010 to put in place a pedigree system that would protect the pharmaceutical supply chain "against counterfeit, diverted, subpotent, substandard, adulterated, misbranded or expired drugs." ePedigree is an electronic record for tracking the movement of prescription drugs through the supply chain to combat counterfeit or adulterated prescription drugs. The FDA has testified to the US Congress that RFID is the most promising technology for a drug-pedigree system, but Congress has also recommended considering holograms and microdots, similar to those found on U.S. currency, as well as bar codes. For example, Purdue Pharma tags every bottle of a product it ships – OxyContin - with an EPC Gen 2 RFID tag. Purdue Pharma opted for RFID instead of barcoding because "with bar coding, line of sight is a requirement and when a company is moving thousands of units, that is not efficient." (Source: Aron Graham, VP and chief security officer, Purdue Pharma).

RFID applications to improve service safety are promising also for hospitals. For example, blood bank supplies at Saarbruecken Clinic (Germany) are equipped with RFID chips. When the blood bags reach the hospital, they are each equipped with an RFID chip. The unique identifier corresponds to an entry in a protected database containing information on the origin, designated purpose, and recipient of the blood. When a nurse fetches a blood bag for a patient, an RFID equipped PDA reads both the chip on the packaging and the data on the patient's RFID bracelet. Only if the two data match, will the blood be used for the patient. The data involved is added to the clinic's process workflow and the patient's data records.

An interesting example of product safety comes from Taiwan. Tekho, a Taiwanese grower and supplier of grouper, is tagging its fish with RFID tags at its An Pin Live Fish Center in the city of Tainan, in southern Taiwan, to make each fish's life and health history available to consumers. Therefore, restaurants could scan data linked to an RFID tag attached to a fish's gill and mouth to inform customers of its age, where it was farmed and what it was fed, as well as the quality of water in which it swam.

3.2.3 Enabling faster operational turnarounds and improving production processes efficiencies

There are positive business case opportunities for RFID applied to any operationally complex sector, for example logistics, transportation, but also in manufacturing, retail and healthcare. From case studies the following examples can be traced to prove the benefits of RFID in the operational turnarounds:

Reductions in production cycle times and improvements of 20-25% in production lines efficiencies, as experienced by HP (Section 5.2), Honda in its Italian motorcycle factory and Futura Systems (5.8).

Advanced material tracking with RFID, which enabled Honda to reduce its production of scrap pieces.

Logistics service providers are finding positive returns from RFID due to productivity enhancements and improved reconciliation efficiencies with customers, which lead to both significant cost savings and improved customer services. Among the examples are NY Logistics, DHL and Europool Systems (Section 5.3).


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AirBus, among other projects, is deploying an RFID application to track the location of the large metal frames, known as jigs, that it uses to transport large aircraft sections between a total of 13 manufacturing and assembly facilities. Because each jig is designed to accommodate a specific airplane part, it needs be promptly unloaded and returned to the proper facility in order to avoid negative impacts on aircraft's production schedule. Airbus also recently launched another RFID-based technology pilot aimed at evaluating the use of RFID for tracking work orders, replacing a method that currently involves a combination of bar-code scanning and manual data entry. The company hopes using RFID can both help employees more quickly confirm each step in the process, and also make it easier to locate assembly parts and accompanying paperwork in storage in the event of production changes.

Continental, a German automotive supplier, has replaced its card-based kanban system with RFID. The company is using the RFID system to track components from the time they are removed from shelves in its warehouse until they are assembled in a clean room.

In the healthcare sector, as illustrated in the Istituto dei Tumori case study (Section 5.3), ensuring blood transfusion safety to patients is a major driver to RFID implementations. As an additional example, four Italian hospitals - Policlinico Universitario Tor Vergata, in Rome; Ospedale Casa Sollievo della Sofferenza, in San Giovanni Rotondo; Azienda Ospedialiera Policlinico Universitario di Bari; and Azienda USL 3 Pistoia. - began piloting in December 2007 an RFID-based system to track all steps of the transfusion process, starting with taking a sample of the patient's blood, and ending with the blood transfusion. The reported outcome of the pilot was a reduction of 100% in transfusion errors.

3.2.4 Augmenting asset management capabilities

Due to the faster operational turnarounds enabled by RFID, there is an opportunity to increase assets' utilisation rates. The term asset refers to enterprises' assets, including reusable mobile asset in logistics (for example plastic crates), aircraft and train components, baggage at airports, medical devices at hospitals, and IT assets alike. In essence, faster operational turnarounds capabilities, as previously highlighted, coupled with improved visibility of assets essentially enable enterprises to execute smoother, less-costly and more capital-efficient operations, due to increased assets utilisation rates. This finally goes also to the benefit of the final customer, due to improved service levels that will result. The following examples can be traced to prove the benefits of RFID in improving asset management capabilities:

The Wyane Memorial Hospital in North Carolina implemented an RFID-based-real-time locating system (RTLS) to track various equipment, including diagnostics machines, blood warmers, computer on wheels, wheelchairs, and infusion pumps, which had been proven to only be used in half. Wayne Memorial Hospital reported savings of approximately $303,000 due to the reduction in infusion pumps ordered.

Europool's RFID implementation (Section 5.3) also aimed at diminishing the waste in asset value, caused by crates being left around and not being utilised. Prior to its RFID implementation, Europool used to experience frequent delays in the return of crates from customers. Now with the RFID tracking system in place, Europool Systems achieved visibility into the crates distribution & logistics process, and


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hence, can timely react to maximize crates utilization or charge customers accordingly.

Fakultní nemocnice v Motole – a large hospital in Prague (Section 5.10) – achieved a return on its RFID investment in only six months due to cost savings resulting from the reduction of labour hours spent on tracking IT inventory.

RFID parts labelling is expected to enable Airbus and Boeing in cutting maintenance time (the location of the part by mechanics represents most of the time spent to complete a repair), and reducing procurement costs (according to Airbus, inaccuracy resulting from manual order processing costs approximately $400 million annually to the company).

3.2.5 Regulatory compliance

As discussed in section 2.3.1, supply chain compliance can also considerably benefit from RFID integration. RFID comes into the picture by essentially enabling regulatory compliance in a more effective (e.g. more timely and accurate) and less resource consuming way for all value chain partners. By achieving complete supply chain visibility with RFID, then compliance with some critical European regulations is greatly facilitated, for example the 'track & tracing' requirements. Product "track and trace" performances, both downwards tracing —verify what has been done — and upwards tracing applications — what is being done — can become far more accurate, less resource consuming and more real-time than batch-type processing. This is made possible when RFID is applied compared to barcode scanning of paper labels and paper-based manual processing. For example, in the food industry, manufacturers can achieve real-time visibility of shipment lots, allowing for more accurate and speedier recall procedures in case of emergencies. The following examples can be traced to prove the benefits of RFID in regulatory compliance:

With its RFID deployment project that spans across all its suppliers and all of its end-users, a company like Schuitema would be able to provide the relevant authorities with all the data required by law at any stage in the supply chain. This result would be achieved without having to do any extra work than is already being done.

In the pharmaceutical industry, drugs' expire dates on boxes may be hard to read due to the specific printing process. With RFID, safety requirements for consumer protection can be automatically allowed, controlled and flexibly enabled. Looking ahead, new scenarios will be possible for patient-assisted solutions to prevent drug-misuse.

Consumer electronics (CE) manufacturers could also cover compliance regimes like Restriction on Hazardous Substances/Waste Electrical and Electronic Equipment (RoHS/WEEE). These regulations, now enforced in Europe, will spur investments in RFID since the technology can ease if not fully automate this process for CE manufacturers in a cost-efficient way, by essentially enabling higher degrees of control and visibility into raw materials' tracking.


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3.2.6 Market-driven mandates

These kinds of incentives will become more and more common as companies, especially ones with intricate value chains, begin to derive more and more benefits from their implementations. From case studies the following examples can be traced to prove how market driven mandates will be driving RFID deployments:

METRO Group announced in August 2007 that suppliers not compliant with RFID would face some penalties compared to RFID-compliant suppliers, as defined in Metro's new supplier policies that will come into effect by 2008. METRO is already committed to achieving traceability and full supply chain visibility using RFID as its optimised data collection enabler. The ultimate goal for the large European retailer is to have all of its suppliers tagging RFID pallets before shipping goods to Metro's warehouses and stores.

Schuitema has been drawing up a business case for a full-scale implementation after a successful pilot project involving one retailer, C1000 supermarket, and one supplier, Heemskerk. In order to be able to completely track and trace the fresh produce along the distribution network, and thus allowing for the highest possible return from RFID investment, Schuitema is demonstrating a solid business case for all of its suppliers and 450 C1000 supermarkets to deploy RFID at their facilities. If a firm along its supply chain were to decide not to deploy the technology, then Schuitema would be forced to evaluate the situation and decide about the relationship with a certain supplier.

As of January 2008, Sam's Club, owned and operated by Wal-Mart, began requiring all of its suppliers to apply EPC Gen 2 RFID tags to every full single-item pallet of goods destined for its distribution center in DeSoto, Texas, or directly to one of its stores served by that DC. Any supplier failing to comply will be charged a service fee, the retailer announced, starting at $2 per untagged pallet during 2008, and capping at $3 per pallet by January 2009. The fee will cover Sam's Club's cost in having to tag the pallets itself. By January 2009, Sam's Club intends to have suppliers tag full single-item pallets destined for all 22 of its distribution centres. The suppliers must also tag at the item level for shipments to all 22 DCs by October 2010.

3.2.7 Reducing out-of-stock situations

The reduction of out-of-stock situations (OOS) represents one of the key areas of focus for both the retailer and its suppliers. OOS tend to be up to 10% worldwide in the fast moving consumer goods industry – on average 8% - and regularly over 10% for fast moving goods and promotional items (Source: Food Marketing Institute, FMI). Consumers facing OOS do not purchase the item or substitute the product with another brand or with another product from the same brand, buy the item at another store, or delay the purchase. Consequently, as found by FMI, a typical retailer loses up to 4% of sales due to OOS and suppliers' top-line results are also negatively impacted. The achievement of OOS reductions resulting from the implementation of RFID depends on the product category, RFID implementation type (for example at pallet, case and/or item level), and replenishment process efficiencies, both internally (for example from a retailer warehouse or back-room inventory to the store shelves) and externally (e.g. among value


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chain partners). From case studies the following examples can be traced to prove the benefits of an RFID deployment to prevent out-of-stock situations:

Metro Group achieved reductions of 10% to 20% in OOS with its RFID integration into the supply chain.

With its RFID pilot implementation, Schuitema and its supplier Heemskerk were offered insight into the factual stock per product per chain segment. This allowed the supplier to monitor the stock levels of products and be able to anticipate on the type of products it would have to supply in the short-term. On the end users side, the C1000 supermarket was able to visualize the stock situation at the Schuitema distribution centre and, hence, organise it stock management accordingly.

In a field research conducted by the University of Arkansas at WalMart, out of stocks dropped 26% over a 6-months period in RFID-enabled stores. The higher the sales velocity, the greater the reduction of OOS in RFID-enabled store (up to 60% for categories selling between 7 and 15 units per day). 'Ultimately, this translates into about a 1% sales lift for the retailer and 0.8% sales lift for the supplier.'

Full end-to-end value chain automation, as opposed to closed-loops RFID implementation scenarios within the "4-walls" of an enterprise, must be the end-goal of any RFID project impacting supply networks operations. The recurring theme in consumer products distributive trades, is that all companies involved in the supply chain must collaboratively deploy the technology, with each party able to materialize business benefits, under a sustainable value chain business case for RFID. The long-term success of RFID strategies for retailers and brand manufacturers are very dependant on the attainment of full consumer product value chain RFID enablement. This will not only allow retailers to achieve incremental benefits for quicker payback as well as much clearer ROI opportunities in the medium to long term, but will also spur RFID implementations for suppliers due to more understandable and less-risky business case opportunities resulting from larger transactions and improved replenishment efficiencies.

3.3 Benefits and opportunities for SMEs

The optimisation of core business processes plays a fundamental role for SMB to take advantage of RFID. Examples include improved overall asset management capabilities; running less costly and more effective regulatory and market driven compliance programs; safeguarding and strengthening brand reputation as well as materialising customer service abilities.

Costs of new investments always represent a major challenge for smaller companies, although their ability to drive focused innovation and comply with market mandates represents key elements of their competitive positioning. Managed RFID services may represent an interesting opportunity for SMEs to implement RFID without incurring in prohibitive start-up costs and high project risks, limiting financial exposure to variable monthly costs and safeguarding implementation decisions against future developments of the technology. For example, GS1 UK may consider providing a free, permanent Internet-based EPCIS repository service to smaller companies unable to afford their individual sites. The companies could then update data within their EPCIS repository online, run


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reports from the repository data and allow business partners to access selected information.

SMEs’ usage of RFID

The following Exhibits present survey finding on RFID usage by SMEs. The sample size is limited, given the low adoption between 6% to 8% of the total number of SMEs (Exhibit 3.1-3).

Among adopters (38 respondents) person identification, other usage and inventory management were indicated as the most important application areas. This finding not only is in line with the overall RFID usage indicated in Exhibit 3.1-5, but also appears reasonable because of the proven benefits of RFID on improving inventory management (Section 3.2.1). On the contrary, labeling single items rank nearly at the bottom of the scale, because of limited investment resources and small project scale hampering SMEs purchasing power with RFID suppliers. Container and pallet tracking applications seem slightly more beneficial for medium organizations (e.g. enterprises having 250-499 employees) compared to smaller companies (e.g. enterprises having 50-299 employees).

Exhibit 3.3-1 RFID usage in SMEs (Current RFID Users) (in % of respondents)


70

46

36

25

34

65

56

60

40

22

31

42

0 10 20 30 40 50 60 70 80



Tracking products



other functions

250-499 employees 50-249 employees

The survey was conducted in 7 EU Member States (DE, FR, IE, IT, ES, PL, UK) Base (100%) = All SME companies using RFID. N (Retail, Transportation, Discrete/Process Manufacturing, Hospital Activities, EU-7) = 38 Weights = Figures for sector totals and countries are weighted by employment ("firms representing x% of employment in the sector / country"), figures for size-bands in % of firms Questionnaire references = B2


Among companied planning to use RFID, (36 respondents, Exhibit 3.1-2) inventory management is the most important application, especially for medium companies. Person identification is fairly important for smaller-sized firms while it is far less important for medium companies planning RFID investments, this being probably related to differences in the organisation structure. Container and pallet tracking as well as labeling of single


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product items applications seem to be more beneficial for medium organizations with 250-499 employees, in line with the indications provided by current RFID users (Exhibit 3.1-1).

Exhibit 3.3-2 RFID usage in SMEs (RFID planners) (in % of respondents)


18

90

49

65

56

13

68

68

54

41

45

36

0 10 20 30 40 50 60 70 80 90 100



Tracking products



other functions


The survey was conducted in 7 EU Member States (DE, FR, IE, IT, ES, PL, UK) Base (100%) = All SME companies planning to use RFID. N (Retail, Transportation, Discrete/Process Manufacturing, Hospital Activities, EU-7) = 36 Weights = Figures for sector totals and countries are weighted by employment ("firms representing x% of employment in the sector / country"), figures for size-bands in % of firms Questionnaire references = B2


Business drivers for SMEs

Considering business drivers for RFID adoption by SMEs (Exhibit 3.3-3 and Exhibit 3.3-4), survey results indicate the following:

Improving product and service safety or authenticity, improving asset management, and improving the efficiency of production processes are the most important business reasons for small and medium enterprises that are already using RFID.

Small organizations with 50-249 employees that are planning to use RFID indicated regulatory compliance among the key business drivers to RFID adoption.

Complying with customer mandates, improving supply chain efficiencies and complying with regulation are the top business reasons driving RFID adoption for medium enterprises (250-499 employees) that are planning RFID implementations.

Cost of regulatory compliance represents a complex issue for SMEs and the potentially disruptive risks resulting from non-compliance are driving medium organisations in facilitating the process with the integration of RFID (Section 3.2.5). In addition, complying with customer mandates is a must to maintain market positioning, thus medium enterprises facing this situation have no choice other than to fulfil new requirements demanded by key large customers (Section 3.2.6). Considering the limited turnover of


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SMEs and high dependence on a particular product or service, counterfeiting and diversion may represent even most worrying risks for SMEs compared to large enterprisers that tend to execute broad market differentiation strategies. SMEs simply do not have the scale, resources and capacity to differentiate the product portfolio and as such RFID is perceived as a valuable choice in this area (Section 3.2.2). In turn, smaller companies are focusing RFID implementations on achieving productivity enhancements in core processes, because of improved profits and potentially enhanced customer service abilities (for example reliability of deliveries in logistics and faster production efficiencies in manufacturing). Consequently, small and medium organisations indicated improving asset management (Section 3.2.4) and production efficiencies (Section 3.2.3) as key drivers to RFID implementations.

Exhibit 3.3-3 Key business objectives for RFID adoption in SMEs (Current RFID Users) (in % of respondents)


81

81

66

69

43

69

31

70

62

62

75

87

64

65

66

69

56

85

49

46

0 10 20 30 40 50 60 70 80 90















67

Exhibit 3.3-4 Key business objectives for RFID adoption in SME (RFID Planners) (in % of respondents)

62

58

66

72

78

81

68

25

54

68

86

71

53

57

51

44

36

47

49

33

0 10 20 30 40 50 60 70 80 90












The survey was conducted in 7 EU Member States (DE, FR, IE, IT, ES, PL, UK) Base (100%) = All SME companies planning to use RFID. N (Retail, Transportation, Discrete/Process Manufacturing, Hospital Activities, EU-7) = 36 Weights = Figures for sector totals and countries are weighted by employment ("firms representing x% of employment in the sector / country"), figures for size-bands in % of firms Questionnaire references = B3


Expected benefits

The major benefits resulting from the implementation of RFID, as reported by SMEs, are:

Among adopters: efficiency of inbound logistics operations, optimised merchandise management (Section 3.2.7) and reduced out-of-stocks, improved inventory management. Smaller companies are more confident about the likely effects, a larger share of them envisage major effects in comparison to medium-sized firms.

Among planners: improved inventory management, efficiency of inbound logistics operations and optimised merchandise management (for larger companies only) and reduced out-of-stocks. Other important benefits of RFID indicated by SMEs are loss prevention and reduced recalls and warranty costs.

Notable differences are that reduced labour cost is mostly indicated by small enterprises as an area where RFID have a major effect, while medium organisations recognized in improved customer service key benefits of the technology. The latter finding is representative of the different priorities and company's culture among these enterprise segments, whereas small organisations always strive to contain labour costs as it represent a large part of their cost structure, while medium organisations are typically more innovative and more inclined to improve the customer service as a strategic business priority.


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Exhibit 3.3-5 Key benefit of RFID adoption for SME (current RFID users) (in % of respondents)

Field of business Response 50-249 employees 250-499 employees (% of respondents) (% of respondents)

Major effect 51 32

Some effect 31 32

No effect - 30

We don't have such an area within our company 18 -


Don't know - 6

Major effect 53 36

Some effect 9 34

No effect 10 19

We don't have such an area within our company 18 6

Merchandise management and reduced out-of-stocks

Don't know 10 6

Major effect 63 38

Some effect 7 30

No effect 19 14


The control and efficiency of inbound logistics

Don't know - 6

Major effect 35 32

Some effect 21 23

No effect 34 33


Distribution centre efficiency

Don't know - 6

Major effect 49 28

Some effect 19 24

No effect 25 32

We don't have such an area within our company - 6

Loss prevention

Don't know 6 10

Major effect 38 20

Some effect 15 17

No effect 48 51

We don't have such an area within our company - 12

Time to market

Don't know - -


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Major effect 36 17

Some effect 34 22

No effect 25 51


Reduced labour costs

Don't know - 4

Major effect 46 19

Some effect 6 30

No effect 37 45


Improved efficiency of production

Don't know

Major effect 27 20

Some effect 15 10

No effect 44 58


Reduced recalls and warranty costs

Don't know 10 -

Major effect 35 28

Some effect 25 36

No effect 18 37


Improved customer service

Don't know 6 -

Major effect 36 43

Some effect 10 13

No effect 43 44


Improved product and service quality

Don't know 7 -

Number of valid respondents 20 18




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Exhibit 3.3-6 Key benefit of RFID adoption for SME (RFID planners) (in % of respondents)

Field of business Response 50-249 employees 250-499 employees (% of respondents) (% of respondents)

Major effect 43 63

Some effect 16 27

No effect 35 10



Don't know - -

Major effect 27 47

Some effect - 41

No effect 57 12



Don't know - -

Major effect 18 60

Some effect 26 28

No effect 40 12


The control and efficiency of inbound logistics

Don't know - -

Major effect 14 45

Some effect 33 37

No effect 47 18



Don't know - -

Major effect 23 36

Some effect 49 41

No effect 22 24


Loss prevention

Don't know - -

Major effect 5 12

Some effect 28 30

No effect 51 48


Time to market

Don't know - 5

Reduced labour costs Major effect 23 5


71

Some effect 19 50

No effect 51 45


Don't know - -

Major effect 14 35

Some effect 32 21

No effect 48 38 Improved efficiency of production


Don't know

Major effect 28 51

Some effect 65 23

No effect 7 7

We don't have such an area within our company - -


Don't know - 19

Major effect - 30

Some effect 25 29

No effect 69 35



Don't know - -

Major effect 17 26

Some effect 27 57

No effect 49 17



Don't know - -

Number of valid respondents 13 23

Base: All respondents with SME firms planning to use RFID The survey was conducted in 7 EU Member States (DE, FR, IE, IT, ES, PL, UK) Base (100%) = All SME companies planning to use RFID. N (Retail, Transportation, Discrete/Process Manufacturing, Hospital Activities, EU-7) = 36 Weights = Figures for sector totals and countries are weighted by employment ("firms representing x% of employment in the sector / country"), figures for size-bands in % of firms Questionnaire references = B4



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3.4 Key barriers to RFID adoption and lessons learned from case studies

In addition to the challenges discussed in Chapter 2.3, including RFID standardisation issues, seeking financial justification for RFID investments, risks related to security or privacy breaches, and health risks concerns, enterprises are also identifying the following additional barriers to RFID adoption:

Implementation Costs — The cost of RFID tags and readers still has a major impact on the total implementation cost of large RFID projects. However, too much emphasis on the upfront investment in hardware may lead to erroneous conclusions. While tag costs are expected to decline further to allow for ubiquitous RFID use — the current average market price of a standard UHF RFID tag falls in the €0.10-€0.15 range in volume purchase — it is fundamental to evaluate the total cost of ownership of a full RFID solution. This includes software, IT services and in-house efforts to manage RFID programmes over time. Interestingly, we find that the share of hardware spending on the total RFID investment is declining, while the share of IT services and software spending combined is rapidly increasing. This signifies that enterprises that have or are implementing RFID already recognise that key factors to successful deployments also include:

o Business process reengineering efforts

o Business case assessments and ROI estimates

o Implementation of new software components. This is not only limited to RFID middleware and in EPC-based applications to the EPCIS (electronic product code information services) server (Section 2.1). What drives companies' performance after the implementation of RFID data collection is the use of the accurate real-time available information, not the availability of the data in itself. As a consequence, relevant front-end applications must be RFID-enabled, but also highly integrated with RFID-middleware, back-end systems and more in general with existing IT infrastructures in order to maximize RFID ROI.

Lack of a global standard making interoperability difficult has proven to be another barrier when private firms started to look at RFID a few years back. As discussed in Section 2.2.2 and 2.4.2, RFID standards are available and the resolution of standardization issues is progressing, however a standard for a single global frequency exists only for LF and HF RFID applications. The efforts put forth by the EU Commission regarding a global standard for RFID matter (Section 1.1 – Policy context – and Section 2.2.2), and the European Union’s decision mandating to all member states the harmonisation of the radio spectrum for RFID devices operating in the UHF band will certainly help overcome this concern.

In the RFID survey, respondents were questioned around the following key barriers: technical expertise and skilled skills; project funding/high perceived cost; return on investment (ROI); project scale for financial justification; executive management support or organization buy-in; market acceptance; security concerns; privacy concerns; interoperability concerns; global RFID standards; implementation and IT integration complexity; health risks concerns. Exhibit 3.4-1 presents findings on the key barriers to RFID adoption, as indicated by firms that do not use or do not plan to use RFID.


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Return on investment (ROI) is one of the most important things for every business when considering new investments. ROI becomes the major concern for RFID implementations, as indicated by 58% of respondents that have indicated in the lack of evidence of a strong return on investment for an RFID project the principal barrier to RFID adoption.

With slightly over one-half of responses, high costs or the lack of a project budget (52% of respondents) and interoperability concerns are considered among the most relevant key barriers for an RFID implementation project.

Complexity of implementation and IT integration also emerge as a relevant barrier to RFID adoption.

Exhibit 3.4-1 Key barriers to RFID adoption (in % of respondents)

Q. Please tell me for each of the following items whether or not this is a relevant barrier for an RFID project

58

52

51

43

42

42

34

32

30

30

26

- 10 20 30 40 50 60

There is not enough evidence of a strong return oninvestment (ROI)

High costs or the lack of a project budgetInteroperability concerns regarding compatibility with

existing systemsThe lack of a global RFID standard

The complexity of implementation and IT integration

There is not enough scale It is hard to gain executive management support or

organisation buy-in for a projectPrivacy concerns

Insufficient market acceptance

Security concernsLack of technical expertise and skilled personnel in

house

The survey was conducted in 7 EU Member States (DE, FR, IE, IT, ES, PL, UK) Base (100%) = All not using or planning to use RFID. N (Retail, Transportation, Discrete/Process Manufacturing, Hospital Activities, EU-7) = 353 Weights = Figures for sector totals and countries are weighted by employment ("firms representing x% of employment in the sector / country"), figures for size-bands in % of firms Questionnaire references = C1


It is also interesting to note that privacy and security concerns are perceived as key barriers to RFID only by 1 out of 3 organizations, despite the strong debate around these issues. In addition, lack of technical expertise and skilled workforce in house does not represent a key barrier to RFID, mostly because enterprises can acquire the needed competences from external service providers, execute training programs and hire new personnel with specific knowledge on RFID, including technical skills and business process expertise (see section 4.2 and 4.3.2).


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The analysis of key barriers to RFID adoption by industry (Exhibit 3.4-2) confirms that ROI issues, RFID costs and interoperability concerns are the most relevant barriers. However, the following differences emerge from the survey results:

Privacy concerns are mostly reported by hospitals, due to the fact that patients' privacy is a major issue.

Perception of high project costs arises mostly for hospitals and transportation activities, because these industries are asset-intensive and implementations of RFID require complex integration scenarios and eventually large volumes of tags (for example millions of smart-cards for payments in transportation, or several tags attached to hospitals assets and available for patient identification).

The majority of transportation companies also reported a limited scale to justify implementation of RFID as a key concern. In fact, excluding railways, large airlines, logistics service providers and public transportation providers in large cities, urban transportation companies and freight transport providers tend to be small to medium-sized organisations.

Security concerns are mostly indicated by hospital and transportation companies. Transport organisations are also considering RFID to enable contact-less payments, thus strong security requirements emerge as a result. For hospitals, applications of RFID in critical areas such as controlling blood transfusion process or ensuring the correct identification of patients to avoid treatment errors require strong security of each step in the process.

Gaining management sponsorship of RFID projects emerge as a key concern for retailers. This may indicate that retail management approach towards RFID investments in particular and new ICT investments more in general may be rather conservative. Retailers are always focusing much of their efforts on achieving immediate cost reductions to improve their limited profit margins, therefore the execution of medium to long-term strategic directions enabled by RFID may be considered with lower priority.

Interestingly, insufficient market acceptance does not appear as a key reason to stop RFID implementations in the retail sector. This may signify that retailers recognize the benefits of RFID and ROI opportunities for their own internal operations even though suppliers are not involved and even if an insufficient market acceptance hampers reductions in the technology costs. In turn, it may also unveil retailers' confidence in their ability to drive market acceptance among value chain partners, in recognition of their powerful position to drive new requirements for suppliers.


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Exhibit 3.4-2 Key barriers to RFID adoption by sector (in % of respondents)


Key Barrier Discrete / process

manufacturing Retail

distribution Transportation Hospital activities


There is not enough evidence of a strong return on investment (ROI)

61 59 58 55

High costs or the lack of a project budget 51 41 55 62

Interoperability concerns regarding compatibility with existing systems

53 44 56 49

The lack of a global RFID standard 44 38 49 40


44 40 37 45

There is not enough scale to justify the implementation 41 33 59 37

It is hard to gain executive management support or organisation buy-in for a project

27 42 37 33

Privacy concerns 27 29 30 45

Insufficient market acceptance 36 21 31 30

Security concerns 28 15 39 38

Lack of technical expertise and skilled personnel in house

26 18 32 28

Number of valid respondents 135 74 65 79 The survey was conducted in 7 EU Member States (DE, FR, IE, IT, ES, PL, UK) Base (100%) = All not using or planning to use RFID. N (Retail, Transportation, Discrete/Process Manufacturing, Hospital Activities, EU-7) = 353 Weights = Figures for sector totals and countries are weighted by employment ("firms representing x% of employment in the sector / country"), figures for size-bands in % of firms Questionnaire references = C1



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Exhibit 3.4-3 Key barriers to RFID adoption by firm size (in % of respondents)


Number of Employees Key Barrier

50-249 250-499 500-999 > 1000


There is not enough evidence of a strong return on investment (ROI)

67 54 57 56

High costs or the lack of a project budget 52 62 57 50

Interoperability concerns regarding compatibility with existing systems

45 52 41 55

The lack of a global RFID standard 41 50 55 39


47 57 43 37

There is not enough scale to justify the implementation 61 51 52 29

It is hard to gain executive management support or organisation buy-in for a project

31 27 29 37

Privacy concerns 37 31 44 27

Insufficient market acceptance 32 38 36 27

Security concerns 37 28 37 25

Lack of technical expertise and skilled personnel in house 39 26 29 19

Number of valid respondents 130 92 82 49 The survey was conducted in 7 EU Member States (DE, FR, IE, IT, ES, PL, UK) Base (100%) = All not using or planning to use RFID. N (Retail, Transportation, Discrete/Process Manufacturing, Hospital Activities, EU-7) = 353 Weights = Figures for sector totals and countries are weighted by employment ("firms representing x% of employment in the sector / country"), figures for size-bands in % of firms Questionnaire references = C1


The analysis of the key barriers to RFID adoption by enterprise size-class confirms the previous findings and indicates the following (Exhibit 3.4-3):

Lack of a strong ROI is a critical issue for companies of all sizes, but mostly for small companies. The reasons behind this indication are multiple. First of all, the limited operational scale and typically confined geographical presence of small enterprises may result in narrow opportunities for benefits. In addition, the restricted availability of financial resources is a limitation to small companies approach towards capital investments in general and technology and business process


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innovation in particular. In other words, the short-term and tactical orientation of small companies - as opposed to the execution of medium to long-term strategies - act as a key barrier to RFID adoption. Limitations in internal skills and human resources represent an additional disadvantage for small companies.

Interoperability is a key concern especially for large enterprises, due to their extended value chain operations and, in most cases, global market presence.

RFID implementation and IT integration complexity hampers RFID adoption by medium companies with up to 499 employees. This may indicate a disconnect between business and IT functions, the latter being most resistant to changes and innovation, probably due to limited IT resources that are making it difficult to prioritize new IT projects. In addition, a possible widespread usage of legacy and obsolete IT systems within this enterprise size-class may be another reason behind the identified IT integration complexity required by RFID implementations.

3.5 RFID investment plans and adoption roadmap

Results from a worldwide survey conducted by IDC with over 100 enterprises with short-term plans to invest on RFID, asserted that RFID spending projections are on the rise in 2008 compared to 2006 and 2007. Exhibit 3.5-1 depicts investments plans in the near future for RFID and Sensor Networks spending. Over 30% of respondents indicated plans to invest between $250,000 and $500,000 during 2008 (this figure nearly doubled when compared to 2006), 13% of respondents reported plans to invest over $5 million in 2008 (up from 1.1% in 2006), and no respondent indicated zero spending on RFID by 2008 (down from 32% of companies spending nothing on RFID in 2006).

Exhibit 3.5-1 RFID and sensor network spending share five European countries 2006-2008 (IDC's Manufacturing Insights Worldwide RFID Survey, December 2007)

010203040506070

2006 2007 2008

$0$1-249K$250K-499K$500K-999K$1M-4.99M$5M+%

of r

espo

nden

ts

Source: Manufacturing Insights, an IDC Company, 2007

The eBW 2007 RFID survey results confirm the anticipated growth trend for RFID adoption in the short to medium term, but also provide useful information to analyze RFID adoption growth in the long run. Key results are:


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3% of enterprises reported concrete plans to implement or pilot RFID in 2008

19% of enterprises are in a waiting position.

9% of companies will probably not use RFID in the next 3 to 4 years (e.g. until 2011).

Considering companies that are in a waiting position, over 44% of respondents unveiled plans to implement RFID before the end of 2009, and among those, approximately 20% of respondents believe the implementation of RFID will become necessary before the end of 2008 (Exhibit 3.5-2). In addition, nearly 44% of organisations that are in a waiting position, reported that RFID implementations will most likely occur during the period 2010-2011.

Exhibit 3.5-2 RFID implementations uptake, companies in a waiting position (in % of respondents)

Q. When do you think RFID implementation is likely to become necessary for your company?

21

24

44

12

- 10 20 30 40 50

end of 2008

end of 2009

later

Don't know

The survey was conducted in 7 EU Member States (DE, FR, IE, IT, ES, PL, UK) Base (100%) = All companies in waiting to use RFID. N (Retail, Transportation, Discrete/Process Manufacturing, Hospital Activities, EU-7) = 75 Weights = Figures for sector totals and countries are weighted by employment ("firms representing x% of employment in the sector / country"), figures for size-bands in % of firms Questionnaire references = A5


Although the sample size is limited to 434 enterprises in the EU-7, and therefore industry-level and country-level analysis are not statistically relevant to estimate RFID implementation plans in the future, the survey results indicate the following key findings:

Significant growth in RFID implementations will occur by 2009 among EU-7 enterprises in manufacturing, retail, transportation and hospitals activities. According to survey results, by 2008 a total of 29% enterprises may adopt RFID, while by 2009 a total of 36% enterprises may implement the technology.

By 2011, survey results indicate that approximately 44%of enterprises will have implemented RFID. Taking into account the 9% of enterprises that will not probably start RFID implementations before 2011, potentially by 2012 half of EU-7 enterprises may implement RFID. Eventually, depending on the outcome of RFID


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implementations over the next 3 to 4 years, more companies may decide to start RFID implementations earlier than currently expected, but some companies may eventually delay RFID projects.

According to the 'European passive RFID Market Sizing 2007-2022' report published in 2007 by BRIDGE (Building Radio Frequency IDentification for the Global Environment), a European Union funded 3-year integrated project, retail and consumer goods manufacturing will remain the largest market in Europe, especially in passive RFID tag volumes. For example, BRIDGE expects that 0.5% of all food items in Europe to be tagged by 2012. This 0.5% of food items alone results in 500 Million tags in 2012. This number is equal to the total number of all baggage items in aviation in Europe per year.' After retail, the postal & express market provides the most potential. In the short term this market will focus on areas such as returnable transport items, but longer term it is likely to adopt RFID in its core processes on parcels and mail.

BRIDGE estimates that by 2012 a total of 3.2 billion RFID tags will be deployed in the European retail, consumer products, aviation, pharmaceutical & healthcare, automotive, postal & express, and other sectors. In the same forecast, over 30.000 locations are expected to be equipped with RFID, while the number of RFID readers deployed in Europe by 2012 is estimated in 176.280.

Economies of scale will be the main reason for RFID costs reductions. As RFID volumes will increase in the future, the price per tag and reader can be reduced. The same conclusion can be assumed for RFID services costs, and, to a partial extent, for RFID software costs. BRIDGE also point-out that 'real breakthroughs in price levels will also be driven by technical innovations. On the tag side, the most promising development will be in chipless tags. Both start-ups and established market players are currently investing millions of euros in the development of printed Thin Film Transistor Circuits.'

According to RFID research firm IDTechEX, 'these chipless tags may have a price of less than 1 cent in 2017, especially when they are integrated into packaging. If this will happen, it will result in significant growth for RFID volumes in a range of markets.'

BRIDGE estimates that by 2017 a total of 22.4 billion RFID tags and 1.1 million RFID readers will be deployed in Europe across 144.000 locations.


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3.6 Summary and conclusions of RFID deployment

Outlook

Compared to the estimated RFID adoption rate of 18% of enterprises in 2006 and 24% in 2007 – resulting from a significant adoption uptake in retail, transportation and logistics - adoption of RFID is expected to grow in the EU-7 at a fast pace over the next 5 years:

On average, an annual growth of approximately 27% in the number of enterprises adopting RFID is estimated during the period 2007-2009.

By 2011, approximately 44% of enterprises are estimated to have implemented RFID.

Potentially, by 2012 half of EU-7 enterprises may have implemented RFID.

In conclusion, a careful assumption is that RFID may become mainstream over the next 5 to 10 years, but research evidence suggests that within the next 5 years RFID adoption will grow significantly.

The worldwide investment community dynamism represents an additional facet of the projected growth in RFID adoption. In 2007, 57 investment transactions valued at $0.7 billion funding RFID-based companies were tracked (Source: RFID Tribe). Among the largest transactions: Vector Capital acquired printer provider Printronix, Zebra Technologies acquired RFID/RTLS systems provider WhereNet and also acquired software provider Navis, Avery Dennison acquired printing solutions provider Paxar.

Key applications and objectives

On an industry level, RFID adoption was mainly driven by the transportation, retail and manufacturing, while hospital activities are lagging behind. Supply chain is the premiere area of focus for RFID applications, because automation and real-time detection allow improvements in inbound logistics efficiencies, inventory management accuracy and responsiveness, distribution centre efficiency and loss prevention capabilities. In fact, the main applications of RFID are inventory management (70% of respondents), labelling single product items (47% of respondents), container or pallet tracking, but also person identification and production tracking. As a result, the principal motivations to implement RFID are:

Improving product and service safety or authenticity – mainly relevant for manufacturers to overcome counterfeiting and diversion that continue to cause considerable loss and brand reputation damage, but also to improve consumers safety, for example with the introduction of e-pedigree solutions based on RFID in the pharmaceutical industry

Improving the efficiency of production processes.

Improving product track-and-trace capabilities, complying with regulations (for example European regulations on consumer products tracking & tracing, Restriction on Hazardous Substances (RoHS) and Waste Electrical and Electronic Equipment (WEEE), increasing supply chain efficiencies and visibility.


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Warehouse and logistics productivity improvements emerge as the major supply chain goal in the short-term.

Improving asset management efficiencies - Due to the faster operational turnarounds and higher process visibility enabled by RFID, there is an opportunity to increase assets' utilisation rates, especially for mobile assets and returnable assets given the current uncertainty over their locations.

Market-driven mandates issued by large retail companies (for example WalMart and the METRO Group) are expected to further stimulate RFID adoption among consumer product goods manufacturers. The ultimate objective being the reduction of out-of-stock situations, and, as a consequence, achieving sales increases by both retailers and suppliers.

RFID and SMEs

Large companies drive adoption of RFID. However, RFID seems relevant also for SMEs with more than 50 employees, with currently a slightly higher percentage of firms in the 250-499 employee size-class (15%) that are using, piloting or implementing RFID. The main findings related to SMEs are:

Person identification and inventory management were indicated as the most important application areas.

Limited financial resources and small project scale largely hamper SMEs capability to labeling single items with RFID.

Container and pallet tracking applications seem more beneficial for medium organizations.

Improving product and service safety or authenticity, improving asset management, and improving the efficiency of production processes are the most important business reasons for small enterprises (50-249 employees).

Complying with customer mandates, complying with regulation, and improving product and service safety or authenticity are the top business reasons for medium enterprises (250-499 employees).

Expected benefits

The major benefits resulting from the implementation of RFID, as reported by SMEs, are:

Improved inventory management efficiencies and improved control and efficiency of inbound logistics operations (Exhibit 3.3-5 and 3.3-6).

Optimized merchandise management and reduced out-of-stocks (Section 3.2.7) is also indicated as a key area where RFID have a major effect.

Other important benefits of RFID indicated by SMEs were loss prevention, improved efficiency of production, distribution centre efficiency (mostly by medium enterprises due to larger operational scale compared to small organizations), and improved product and service quality.


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Barriers

Among the key barriers to RFID adoption, EU-7 enterprises are mostly concerned about the following:

ROI is the major barrier to RFID implementation, for companies of all sizes, but mostly for small companies. ROI concerns are also the result of high technology costs that are indicated by the majority of survey respondents.

Interoperability concerns represent a key barrier to RFID adoption. Interoperability is a key concern especially for large enterprises.

Complexity of implementation and IT integration also emerge as a relevant barrier to RFID adoption. In more detail, RFID implementation and IT integration complexity is hampering RFID adoption especially for medium companies with 250-499 employees.

Privacy – mostly for hospitals - and security concerns – mostly for transportation companies and hospitals - are perceived as key barriers to RFID only by 1 out of 3 organizations.

Lack of technical expertise and skilled workforce in house does not represent a key barrier to RFID.

Insufficient market acceptance does not appear as a key reason to stop RFID implementations in the retail sector.


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4 RFID benefits and business impact

For the retail, manufacturing and transportation SeBW 2007 reports, an econometric analysis15 was conducted, based on the SeBW 2007 survey. It proposes a conceptual framework for the analysis of factors that determine the diffusion of ICT in businesses ("drivers"), of ICT-enabled innovation processes and, ultimately, the impact of ICT on companies' performance at sector level.

The starting point of the analysis rests on the premise that ICT has strategic relevance for firms i.e. in facilitating innovation. It has several drivers as well as impacts industry and market structure and firm performance respectively. In order to create a conceptual framework for the analysis of the interplay between the drivers of ICT adoption, impacts of ICT diffusion and innovation, reference to the Structure-Conduct-Performance (SCP) paradigm is made. This conceptualisation allows for an economic approach that studies the drivers and impacts of ICT at the firm and sector level for the following industry dimensions: work force composition, value chain characteristics, and market structure as structure elements, innovation dynamics as conduct parameter, and employment and productivity as performance indicator. For the purpose of this analysis, market structure workforce composition and value chain characteristics were considered as drivers of ICT adoption. The impact of ICT adoption and ICT enabled innovation was studied through productivity and employment as proxies for firm performance. This construct has enabled the understanding of not only uni-directional causal relationships but recognises the presence of firm performance impacting upon the drivers of ICT adoption.

Being RFID a horizontal topic and not a sector per se, it was not possible to apply the econometric approach described above. The empirical evidence from the available information, however, makes it possible to draw some conclusions about the impacts of RFID on enterprise productivity, innovation, employment and workforce composition, based on:

Assumptions related to opportunities for business benefits discussed in Sections 2 and 3,

Analysis of case studies presented in Section 5 and additional references available in literature,

SeBW RFID 2007 survey results,

A comparison with the hypotheses that DIW tested in the retail, manufacturing and transportation SeBW 2007 reports.

4.1 Impact on productivity and innovation

In the SeBW 2007 retail, manufacturing and transportation reports, the following hypothesis relevant for the scope of this study and related to ICT impact on productivity and innovation have been tested:

15 More information at http://www.ebusiness-watch.org/studies/special_topics.htm.

http://www.ebusiness-watch.org/studies/special_topics.htm


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Hypothesis P.2: TFP16 growth has accelerated together with increased investment in ICT-capital.

Hypothesis I.1: Firms that use ICT applications to exchange information or collaborate with business partners are more likely to introduce ICT enabled innovations, compared with their peer-group in the same sector.

Hypothesis I.2: ICT-enabled innovations are correlated with a firm’s turnover.

As explained above, and differently from the SeBW 2007 sector reports, for RFID it was not possible to make specific elaboration for measuring the correlation between these variables in such a way to test the hypotheses through an econometric approach. The validation of these hypotheses is, instead, based on the self-assessment from the survey –as for the perceived benefits arising from the adoption of RFID- and on a few quantitative measures as arising from the case studies.

The perceived benefits

Exhibit 4.1-1 presents survey results on the benefits of RFID, reported by companies that are using RFID.

Exhibit 4.1-1 RFID benefits for enterprises (current RFID users) (in % of respondents)

82

79

78

76

75

74

70

67

63

62

48

0 10 20 30 40 50 60 70 80 90





Control and efficiency of inbound logistics




Loss prevention

Time to market


The survey was conducted in 7 EU Member States (DE, FR, IE, IT, ES, PL, UK) Base (100%) = All companies using RFID. N (Retail, Transportation, Discrete/Process Manufacturing, Hospital Activities, EU-7) = 75 Weights = Figures for sector totals and countries are weighted by employment ("firms representing x% of employment in the sector / country"), figures for size-bands in % of firms Questionnaire references = B4


16 TFP is a measure for disembodied technical change in a production process. Since no

particular factor could be assigned as its sole origin, it has been labelled by some economists as a measure of ignorance. It is a residual between growth of an output indicator like gross value added or gross production value minus an aggregate index of factor inputs weighted by their respective factor shares. TFP is also named Solow-residual, because Robert Solow (1957) was one of the first economists who pointed out the significance of disembodied technical change for economic growth opposite to the classical view that in particular capital accumulation, i.e. embodied technical change is the key driver of growth.


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Over or about 80% of respondents indicated improved product and service quality and inventory management enhancements as the key benefits of RFID. Survey results also confirm that improved efficiency of production, reduced labor costs and optimized control and efficiency of inbound logistics can result from the integration of RFID, as discussed in Chapter 2 and 3.

Exhibit 4.1-2 presents survey results on the expected benefits of RFID, reported by companies that are planning to use RFID. Over or about 80% of respondents expect RFID can improve their product and service quality, control and efficiency of inbound logistics, reduce recalls and warranty costs. The latter finding may suggest a different application pattern of RFID by companies that are planning RFID investments compared to current users of the technology.

Exhibit 4.1-2 RFID benefits for enterprises (RFID Planners) (in % of respondents)

88

85

78

76

71

68

66

65

63

63

37

0 10 20 30 40 50 60 70 80 90


Control and efficiency of inbound logistics




Loss prevention



Time to market



The survey was conducted in 7 EU Member States (DE, FR, IE, IT, ES, PL, UK) Base (100%) = All companies using RFID. N (Retail, Transportation, Discrete/Process Manufacturing, Hospital Activities, EU-7) = 81 Weights = Figures for sector totals and countries are weighted by employment ("firms representing x% of employment in the sector / country"), figures for size-bands in % of firms Questionnaire references = B4


RFID impact on productivity

In line with the analysis provided in the previous chapters, and as demonstrated by the case studies illustrated in Section 5 and by several examples available in literature, productivity improvements typically result from the implementation of RFID. It is important to remark that actual productivity improvements that are obtainable by enterprises depend upon a number of variables, including status of ICT adoption (legacy and obsolete ICT architecture are more difficult to integrate with RFID, thus resulting in higher project costs); current level of business process automation and efficiencies, their performance measurements and optimizations resulting from process re-engineering programs; value chain collaboration practices and the type of use case scenario where


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the technology is applied. Each industry has different primary targets, but positive and quantitative results are evident across all industries included in the scope of this study.

RFID integration enables labour and total factor productivity gains due to increase in business process efficiency. As found in the SeBW 2007 retail report, there is not an instantaneous impact of ICT-capital investments on productivity growth, due to the fact that delays are associated with the introduction of new technologies and organisational changes. However, because RFID is new in many processes it is easier to achieve efficiency improvements in a relatively short time compared to other ICT investment, for example the implementation of a new ERP system. RFID investments enable labour productivity improvements by eliminating manually assisted processes. In addition, because more accurate information is available, higher process transparency and improved business decisions can be made. As a result the total factor productivity can be increased as well thorough improved enterprise assets utilization, improved process efficiencies and reductions of fixed capital. As demonstrated by the following collection of quantitative measures of productivity improvements resulting from RFID implementations, hypothesis P.2 on the positive impact of ICT investments on total factor productivity – a measure of the efficiency of input utilization - hold true in the particular case of RFID investments.

RFID impacts in the retail sector

In the retail sector, the business process applications that allow the most relevant improvements are: cold/perishable goods chain management, supply chain pallet/case tracking, warehouse workflow (goods receiving, allocation, picking, store deliveries), product recall management, item tracking (clothing, books, high-value items), reducing out-of-stocks, returnable assets tracking, and freight tracking. The implementation of such applications allows companies to achieve benefits. As illustrated in the case studies in Section 5, the proven benefits are:

12% to 17% overall improvements in supply chain process efficiencies (METRO Group, Section 5.1)

Loss/theft shrinkage between 11% to 18% (METRO group, Section 5.1)

Reduced spoilage of perishable goods (Schuitema, Section 5.9)

Electronic dispatch note: savings of up to €2.84 per note (METRO Group, Section 5.1)

13% reductions of inaccurate understated perpetual inventory (WalMart, Section 2.5)

10% to 60% reductions in out-of-stock situations (METRO Group, WalMart)

Real-time supply chain visibility (Schuitema, Section 5.9; HP, Section 5.2).

RFID impacts in healthcare

The business process applications that allow the most relevant improvements in healthcare are: drugs authenticity, medical equipment tracking, patient identification, medical samples tracking (for example blood transfusion safety).


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The proven benefits, as illustrated in the case studies and business examples, are the following:

Up to 100% reductions in transfusion errors (Istituto dei Tumori, Section 5.6 and pilot result in 4 Italian hospitals, Section 3.2.3)

Up to 90% reductions of FTEs assigned to inventory tracking activities (Motol Hospital, Section 5.10 and University Medical Center Tucson, Arizona )

Wyane Memorial Hospital saved over $300k by reducing infusion pumps orders.

RFID impacts in manufacturing

The business process application that may allow the most relevant improvements in manufacturing are: production process efficiency and quality management, product authenticity, distribution centre and order picking, inventory reduction, cold/perishable goods chain management and product lifecycle management.

The proven benefits, as illustrated in the case studies and business examples available in literature, are the following:

15 to 20 seconds per pallet saved in order picking & pallet receiving (Gilette)

Up to 20% improvement in WIP (HP, section 5.2)

20%-25% improvement in production cycle times (HP, Section 5.2, and Honda)

28% reductions in inventory levels (HP, Section 5.2)

90% reductions of inventory tracking Full Time Equivalents (FTE) (Futura Systems, Section 5.8)

83% reductions in shipping errors (Futura Systems, Section 5.8)

Faster invoice matching procedures when fully integrated with ERP and EDI systems.

RFID impacts in transportation & logistics

The main business process applications are: mobile assets tracking (trolleys, in-flight and airport assets), cargo tracking, baggage tracking, maintenance management, returnable assets tracking, and mobile payment in the context of multi-mode transportation and passenger services.

Proven benefits are:

17% productivity increase in airline baggage handling (Hong Kong Airport, Section 5.4)

Improved mobile assets visibility & utilization rates (EuroPool systems, Section 5.3)

90% improvement in reliability of delivery time windows (Dow Chemical Company, NYK Logistics).


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The RFID impact on innovation

The analysis of data about RFID usage provides interesting insight on the attitude of RFID users and planners towards innovation.

RFID-enabled innovations are correlated with company size – the larger the RFID project scale – also including collaborative applications along the value chain – the higher the opportunities for benefits resulting from RFID. RFID applications by SMEs tend to focus on enabling productivity improvements that have a positive business impact in the short-term. As found in section 3.3, improving product authenticity, asset management capabilities, production process efficiencies and achieving regulatory and market-driven compliance are the most important business reasons for SMEs to implement RFID. Typically, SMEs' limited financial resources, market presence, and internal skills hamper the execution of innovative RFID-enabled strategies.

RFID enables innovation in collaborative value networks efficiencies for large enterprises – RFID automates the process of exchanging information between enterprises and optimizes its accuracy. In other words, RFID can improve collaboration efficiencies among value chain partners at a reduced cost. In the consumer products value chain, the ultimate target is to enable automated and optimized replenishments along with full supply chain visibility. Although it requires a higher degree of knowledge in consumers patterns or, in other words, improved retail demand intelligence abilities, this can translate into larger transactions. For example in the consumer product vale chain about a 1% sales lift for the retailer and 0.8% sales lift for the supplier can be achieved. As found in the SeBW 2007 retail report ICT impact analysis, 'a large scale of operations might create an advantage that allows a firm to overcome the cost barrier associated with innovative activity'. In the particular case of RFID investments, hypothesis I.2 on the positive impact of ICT investments - aimed at improving value chain collaboration - on the ability to innovate hold true in the particular case of RFID investments.

RFID enables product and service innovation – One of the most promising innovations resulting from the integration of RFID is the opportunity to improve product and service quality. Among the key consequences that enterprises may expect are increasing top-line performance, improved brand recognition and customer loyalty, improved consumers, passengers and patients safety. As a result it may be inferred that hypothesis I.3 hold true in the case of RFID investments, as RFID-enabled innovative activity positively affects the likelihood of a firm reporting a turnover increase. Quantitative measures of product and service improvements following RFID implementations include:

In Retail, 10% to 60% reductions in out-of-stock situations (METRO Section 5.1; WalMart, Section 2.5)

In hospitals activities, up to 100% reductions in transfusion errors (Istituto dei Tumori and pilot result in 4 Italian hospitals), Section 5.6

In logistics, 90% improvement in reliability of delivery time windows (NYK Logistics and Dow Chemical Company).

RFID can drive new value creation through the enablement of innovative business models. The opportunity to decrease time to market, when introducing new products or


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services and the ability to improve customer service, are important competitive advantages. This may result from RFID implementations, as indicated by over 50% of survey respondents (Exhibit 4.1-1 and Exhibit 4.1-2). Item-level RFID applications seem mostly relevant and doable for medium and large organisations (Exhibit 3.3.1, which has its roots into the cost structure of RFID. Item tagging may also enable new customer-facing strategies and the development of innovative value added services (for example smart-dressing room in fashion retailing and drugs misuse prevention in healthcare) that may result in sales growth. In addition, the increased granularity and real-time business process visibility resulting from RFID will fundamentally improve business intelligence capabilities and support to decision-makers, due to earlier sensing of business issues and potentially more timely and accurate reactions to changing market dynamics. This further confirms the validity of hypothesis I.3 in the case of RFID investments, as RFID-enabled innovative activity positively affects the likelihood of a firm reporting a turnover increase.

4.2 Impact on employment and workforce composition

In the SeBW 2007 retail, manufacturing and transportation reports, the following hypothesis related to ICT impact on employment and workforce composition have been tested:

Hypothesis 2.1: ICT has together with high- and medium-skilled labour positive impact on TFP growth.

Hypothesis 2.2: ICT has significant skill-bias towards high- and medium-skilled labour.

Among the key findings discussed in the SeBW 2007 retail report is that 'the econometric analysis for the selected retailing industries in the EU member states confirm that in particular medium-skilled labour benefit from the increased intensity of ICT-usage. Low-skilled labour, however, becomes more obsolescent by using ICT to substitute the need for such labour to increase labour productivity. High-skilled labour tends not to be significantly in increasing demand.'

As explained above, as far as RFID is concerned, the hypotheses about employment and workforce composition have not been validated through an econometric analysis. However, the SeBW 2007 survey has asked the interviewees companies if RFID has produced workforce reduction and which are their recruiting and training plans related to the implementation of RFID. The results of this assessment are provided hereby.

According to surveyed companies already using RFID in their regular operations, less than 1% of respondents have significantly reduced their workforce but 28% of respondents made some workforce reductions (Exhibit 4.2-1). Expectations of companies piloting or planning to use RFID in the near future are slightly higher in regards to workforce reductions, as indicated by 32% of companies that are expecting some workforce reductions and 4% of respondents expecting significant reductions of their workforce (Exhibit 4.2-2). Workforce reductions generally derive from the replacement of manual processes requiring human intervention with automated processes. For example, in warehouse operations fewer personnel may be required to operate stock-take procedures that are in turn performed automatically with RFID tracking of goods'


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availability. In turn, case studies suggest that workforce reductions in RFID-enabled departments are often compensated by a reallocation of the workforce to other functions, for example quality control of a certain process.

Exhibit 4.2-1 Effects of RFID implementation on workforce reduction (in % of respondents)

Q. Has RFID implementation enabled your company to reduce the workforce?

70

1 1

28Significant reductions

Some reductions

No reduction

Don't know

The survey was conducted in 7 EU Member States (DE, FR, IE, IT, ES, PL, UK) Base (100%) = All companies using RFID for regular business. N (Retail, Transportation, Discrete/Process Manufacturing, Hospital Activities, EU-7) = 44 Weights = Figures for sector totals and countries are weighted by employment ("firms representing x% of employment in the sector / country"), figures for size-bands in % of firms Questionnaire references = B14


Exhibit 4.2-2 Expected effects of RFID implementation on workforce reduction (in % of respondents)

Q. Do you think that there will be workforce reductions due to RFID in the future?

4

0

64

32

Significant reductions

Some reductions

No reduction

Don't know

The survey was conducted in 7 EU Member States (DE, FR, IE, IT, ES, PL, UK) Base (100%) = All companies using RFID for regular business. N (Retail, Transportation, Discrete/Process Manufacturing, Hospital Activities, EU-7) = 44 Weights = Figures for sector totals and countries are weighted by employment ("firms representing x% of employment in the sector / country"), figures for size-bands in % of firms Questionnaire references = B15



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On the other hand, enterprises will most likely need to hire new personnel with specific technical and business process RFID skills as a consequence of RFID adoption: 22% of respondents already using RFID have hired new personnel with RFID specific technical skills (Exhibit 4.2-3) and 15% of respondents are considering the recruitment of new personnel with such skills (Exhibit 4.2-4).

Exhibit 4.2-3 New personnel recruited with RFID specific technical skills (in % of respondents)

Q. Has your company hired new personnel with specific technical RFID skills?

22

77

1

YesNoDon't know

The survey was conducted in 7 EU Member States (DE, FR, IE, IT, ES, PL, UK) Base (100%) = All companies planning to use RFID N (Retail, Transportation, Discrete/Process Manufacturing, Hospital Activities, EU-7) = 81 Weights = Figures for sector totals and countries are weighted by employment ("firms representing x% of employment in the sector / country"), figures for size-bands in % of firms Questionnaire references = B8


Exhibit 4.2-4 New personnel recruitment plans with RFID specific technical skills (in % of respondents)

Q. Do you think you will have to hire new personnel with such skills?

84

15

0

YesNoDon't know



In addition, 18% of respondents have already hired new personnel with specific expertise in business processes in RFID-enabled environments (Exhibit 4.2-5) and 13% are considering hiring new personnel with such skills (Exhibit 4.2-6).


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Exhibit 4.2-5 New personnel recruited with expertise in business processes in RFID-enabled environments (in % of respondents).

Q. Has your company hired new personnel with specific expertise in business processes in RFID-enabled environments?

18

81

1

YesNoDon't know



Exhibit 4.2-6 New personnel recruitment plans with expertise in business processes in RFID-enabled environments (in % of respondents)

Q. Do you think you will have to hire new personnel with such skills?

87

13

YesNo



Although it is not possible to assess whether an increasing use of RFID creates or destroys jobs, it may be deduced from survey results that high and medium-skilled labour is required to maximize the impact of RFID implementations on productivity. This, coupled with the conclusions reached in Section 4.1, signifies that hypothesis 2.1 is valid for RFID investments.

The greatest majority of surveyed companies using RFID expect that the greatest organisational impact will be on logistics units, as indicated by 78% of respondents


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(Exhibit 4.2-7). Distribution, production and IT department workforce are also indicated by 43% to 50% of respondents as areas that are impacted by RFID.

Exhibit 4.2-7 Expected RFID impact on work organisation (current RFID user, in % of respondents)

78

50

46

43

43

0 10 20 30 40 50 60 70 80 90

Logistics

Distribution

Production

IT department workforce

other functional units



Similarly, companies with plan to adopt RFID highly expect to have work organisational impact in the logistic area, as indicated by 68% of respondents (Exhibit 4.2-8). Work organisational impact in the distribution, production and IT department workforce area are also indicated by 31% to 39% of respondents.

Exhibit 4.2-8 RFID impact on work organisation (current RFID planners) (in % of respondents)

68

39

38

33

31

0 10 20 30 40 50 60 70

Logistics

Distribution

other functional units

IT departmentworkforce

Production




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The impact of RFID on work organisations is also witnessed by the fact that the majority of respondents developed training programs to re-qualify in-house personnel (Exhibit 4.2-9), while some 23% of respondents are considering the development of such a training programme in the future (Exhibit 4.2-10).

Exhibit 4.2-9 RFID training program for in-house personnel (in % of respondents)

Q. Has your company developed a training program to re-qualify in-house personnel with regard to RFID?

47

53

0

YesNoDon't know

The survey was conducted in 7 EU Member States (DE, FR, IE, IT, ES, PL, UK) Base (100%) = All companies planning to use RFID N (Retail, Transportation, Discrete/Process Manufacturing, Hospital Activities, EU-7) = 81 Weights = Figures for sector totals and countries are weighted by employment ("firms representing x% of employment in the sector / country"), figures for size-bands in % of firms. Questionnaire references = B12


Exhibit 4.2-10 RFID training program plans for in-house personnel (in % of respondents)

Q. Do you think you will have to develop such a training program?

23

76

1

YesNoDon't know



Similarly, and in parallel to the RFID adoption growth, RFID hardware and software technology vendors as well as IT service providers may also hire new personnel and develop training programs to acquire technical and business-related RFID skills (output effect). Interestingly, whilst pure technical skills are important for developers, programmers, systems administrators, test engineers and IT personnel, strong


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requirements to develop RFID trainings that combine technological, business and managerial aspects are also emerging, including, but not limited to, business problem solving, business case assessment, process re-engineering, and RFID program management.

In conclusion, it emerges that RFID has some skill-bias towards high- and medium-skilled labour, thus partially validating hypothesis 2.2. The partial validation results from the previous analysis that suggests a significant skill bias of RFID, versus the analysis of case studies that suggest that in specific RFID applications the implementation of the technology does not change the labour process significantly (for example the execution of order picking using forklifts in an RFID-enabled warehouse does not require particular skills, rather just an updated knowledge on the process operational workflow).

4.3 RFID ROI

Return on Investment (ROI) is the single most important decision criteria to justify financial investments on RFID, and RFID ROI concerns represent the most important barrier to RFID adoption (Section 3.4).

4.3.1 RFID costs

Before analysing RFID ROI opportunities, it is important to understand how RFID costs are made-up.

RFID costs, as every ICT solution costs, are divided into one-time start-up and variable expenses. Start-up costs comprise expenses for:

Consulting and planning – including internal efforts measured in FTE (Full Time Equivalents) and the cost of external workforce when the company lacks know-how or resources on the use of RFID in operational improvements.

Hardware, including RFID tags, readers, servers, RFID printers, and eventually new storage capacity and network infrastructure. These costs may be estimated using a bottom-up cost calculation using example prices of off-the-shelf hardware.

Software, including all software licenses that are needed on servers, RFID-middleware, and other industry or process-specific applications, for the depreciable lifetime of the investment, which varies depending on the application type. When using standard packaged software instead of custom software developed in-house, license fees usually include new releases that are typically counted as part of the annual maintenance fee for the system. If legacy enterprise systems do not support RFID-data acquisition or certain features deemed important for the project success, enterprises may incur in additional expenses for updating other software systems, for example the ERP.

System integration, including hardware and software installation and configuration, as well as integration with existing enterprise IT systems such as, for example, ERP (enterprise resource planning), manufacturing execution system, merchandise management systems or inventory management applications. An external system integrator in collaboration with the company's internal IT department typically


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conducts system integration. Decreasing integration costs are expected over time due to learning effects and economies of scale.

Process functional changes (for example production line or distribution center workflow) might be necessary to enable product tagging in the manufacturing or warehousing site. These changes may include modifications in processes and equipment aiming to optimize process efficiency.

Internal RFID program team, including company’s employees from the IT department and employees who have knowledge or an active role of the planned process changes. An internal process team is necessary to plan and manage the process transformation that introduction of RFID represents. These expenditures are mostly opportunity costs.

EPC-global one-off subscription fee in the case of EPC-compliant RFID implementations. The amount depends on the company’s turnover and country where the company is headquartered. The one-off joining fee paid in the first year only of €360 to €108,000 respectively.

User training.

System documentation.

Variable expenses come from the cost of RFID tags and their attachments – including variable material costs and labour costs - annual system maintenance – typically falling in the range of 10% to 15% of the initial capital investment - and expenses related to the usage of RFID-collected data and reaction processes. The latter are difficult to estimate, for example the improved detection of counterfeit articles may result in reaction measures that can constitute an important cost factor to the brand owner, which in turn represent an opportunity costs. Annual variable system costs may also include EPCglobal annual subscription fee, ranging for end users from €90 per annum for organisations with a turnover of less than €150,000, to a maximum of €27,000 per annum for organisations with a turnover in excess of €30 billion.

4.3.2 Business case assessment

RFID will produce a long term ROI, as based on the analysis of case studies illustrated in Section 5 and on advisory board discussions, an average lifetime of at least 10 years emerges for RFID implementations. Thus, companies must evaluate their investments using a phased implementation approach to enable quicker ROI opportunities (e.g. between 12 to 36 months) while ensuring the big picture. In the medium to long-term scenario, extending supply chain visibility and performance objectives to the edges will be instrumental to maximising RFID ROI.

A practical and essential guideline to drive successful RFID programmes is the following:

Creating the business case — Optimisation of identification-alone should yield break-even within 24 to 36 months, but with low overall ROI on its own.

Focusing Business Process Optimisation Efforts — Companies can identify the 5 to 10 most beneficial processes or product applications where RFID can make a significant impact on productivity and business performance. This phase typically require the measurement of current efficiencies in 20 to 30 business processes, the


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assessment of their operational and business impact, and the evaluation of process efficiency improvements that may result after the integration of RFID.

Estimating the financial impact and payback period — Cost-benefit analysis can be applied to evaluate RFID ROI potential. However, given the long-term nature of RFID implementations, capital budgeting methods such as Net Present Value (NPV) can provide more accurate estimates of the profitability of RFID investments. The up-front investment for setting-up the RFID system needs to be depreciated over the complete investment’s life span. To calculate the present value of the investment, companies need to estimate the discount rate for future cash flows (the discount rate represents a company’s cost of capital and is highest for small companies). To calculate the future value of the investment and thus estimate the payback period, companies can determine the point in time, with 80% confidence, when the expected benefits resulting from RFID-based business process optimisation will result in a measurable bottom-line impact.

Comparing Results — After the calculation of NPV over the identified time-period is done, it is important to compare the calculation if done without the RFID investment.

Strategy check — If the NPV calculation indicates positive ROI opportunities for the RFID investment, it is important to ensure that the identified business process optimizations are aligned with overall business strategy.

Conservative Investment Assumption — After taking the decision to invest on RFID, enterprises can allocate approximately 15% of their total IT budget to the new investment in order to minimize risks.

Exhibit 4.3.2-1 presents survey results on the estimated payback period of RFID investment from all respondents with firms using RFID.

More than half of respondents (55%) expect that the payback period of RFID investment will be less than three years, and among those companies, 9% of respondents indicated expected payback period of less than one year, and 27% up to two years. However, about one quarter of respondents (25%) expected payback period of over 3 years.

Exhibit 4.3.2-1 Estimated payback period of RFID investment (current RFID users) (in % of respondents)

27

9

26

18

19

less than 1 yearup to 2 yearsup to 3 yearsmore than 3 yearsDon't know




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Exhibit 4.3.2-2 presents survey results on the estimated payback period of RFID investment from all respondents with firms planning to use RFID.

More than half of respondents (53%) expect that the payback period of RFID investment will be less than three years, among those companies, only 4% of respondents indicated expected payback period of less than one year, and 25% up to two years. However, about 23% of respondents indicated an expected payback period of over 3 years.

Research available in literature validates survey results, e.g. an average payback period for RFID investments between 2 to 3 years. For example:

In a BRIDGE research project in the textile industries it was concluded that under different supply chain implementations scenarios, a positive return on investment in 2 to 3 years could always be achieved.

The following payback period for RFID investments were reported in case studies illustrated in this report: Europool - around 1 year (Section 5.3.3), Hong Kong airport - less than 3 years (Section 5.4.3), Land Rover - less than 1 year (Section 5.5.3), Schuitema - 2.7 years (Section 5.9.2), Motol Hospital - 6 months (Section 5.10). New Look considers between 2 to 3 years as a good RFID ROI target (Section 5.7.4).

Exhibit 4.3.2-2 Estimated payback period of RFID investment (Current RFID Planners) (in % of respondents)

Q. What is the estimated payback period of your RFID investment?

25

4

23

24

24

less than 1 yearup to 2 yearsup to 3 yearsmore than 3 yearsDon't know



Analyzing major cost components of an RFID implementation, eBW 2007 RFID survey also finds that hardware cost for RFID tags and readers, and the cost for project implementation, system integration, and business process re-engineering are almost equally indicated by RFID users with percentage of response of about 35% (Exhibit 4.3.2-3). Software costs are also indicated as a major cost component as reported by 19% of


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respondents. In addition, about 4% of respondents indicated that the different cost components have the same impact.

Exhibit 4.3.2-3 Major cost components on introducing RFID (in % of respondents using RFID)

19

6

16

419 36

Hardware costs for RFID tags and readers

Software costs for RFID middleware or RFID-enabledapplication

The costs for business process re-engineering

The costs for project implementation and systemintegration

All the same influence

Don't Know



Slightly different than findings from RFID users, most of companies (43% of respondents) that plan to implement RFID indicated the costs for project implementation, system integration, and business re-engineering as the major costs components of an RFID implementation (Exhibit 4.3.2-4). Cost of RFID tags and readers as the major cost components is also highly indicated by 30% of respondents.

Exhibit 4.3.2-4 Major cost components on introducing RFID (in % of respondents planning to implement RFID)

11

1030

32

6

11

Hardware costs for RFID tags and readers

Software costs for RFID middleware or RFID-enabledapplicationThe costs for business process re-engineering

The costs for project implementation and systemintegrationAll the same influence

Don't Know




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The theory of real options: an alternative method to NPV

This section provides a brief overview and simple illustration of real option valuation (ROV), which takes into account the value resulting from the flexibility provided by investments in RFID. It can be regarded as an alternative to discounted cash flow analysis (DCF) for evaluating ROI.

ROV is originated from the option-pricing model, an important research model in the field of financial engineering, which brought Fischer Black, Myron Scholes, and Robert Merton to the Nobel prize in economics in 1997. The option pricing model presents a way of valuing option, a financial instrument that gives right, not obligation, to option holders to buy a security at the predetermined price within a certain period.

Considering an investment opportunity as a right, but not an obligation, for a company to acquire new productive assets, one can see this as a call option where strike price is the cost of investment and time to expiration of the option is the length of time for investment decision making. There are five variables in the option pricing formula; Exhibit 4.3.2-3 shows the mapping of variables from call option to corresponding variables for investment opportunity.

Exhibit 4.3.2-3: Call option and Investment opportunity

Variable in Option Pricing

Formula Call Option Investment Opportunity

X Exercise price Investment cost

T Time to expiration Length of time for decision making

S Stock price Present value of expected cash flows

rf Risk-free rate of return Risk-free rate of return

σ2 Variance of returns on stock Riskiness of the project assets

The profitability of an investment opportunity could then be identified by taking the difference between present value of the investment cost and present value of the expected profits. Profitable investments return positive value of this difference.

A simple illustration of ROV calculations with the binomial method is the following. A logistics company is considering an investment opportunity on using RFID for a period of two years for tracking deliveries, with the implementation separated in two phases. In the first phase, the company will pilot RFID only for pallet tracking, then, if the pilot will be successful, the company will continue to the second phase, implementing RFID to tracking all deliveries at product or item-level.

Let assume that the investment requires €100 for piloting, and €1,000 for continuing the investment in the second phase. Company's business analysts identify that the piloting will be successful with a 60% probability and the resulting revenue increase of €105 caused only from the RFID pilot. This eventual success will be followed by an additional investment of €1,000 in the second phase that is expected to result in a revenue excess of €1,200. If the pilot will not be successful, then the company will loose its pilot


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investment and will not continue to the second phase. For simplicity, let also assume that discount rate of investment and interest rate are zero.

With assumption of zero interest rate and discount rate, we can easily calculate the total profit in both phases of investment by taking the difference between increase in revenue and the cost of investment/piloting. If the pilot will be successful and followed by the implementation, total profit will be €205. If the pilot will not succeed, the company will suffer losses of €100. Real option, in this case with binomial model of two possible phases of investment, returns a value of investment of €83. Exhibit 4.3.2-4 presents the complete calculation of this simple illustration.

Exhibit 4.3.2-4: Simple illustration of ROV calculation

State of Investment

Success Fail First phase

Piloting cost € 100.00

Probability of success 60% 40%

Increase in revenue € 105

Profit in first phase € 5 € (100) Second phase

Investment cost € 1,000 -

Increase in revenue € 1,200 -

Profit in the second phase € 200 - First and second phase

Cost € 1,100 € 100

Probability of success 60% 40%

Increase in revenue € 1,305

Profit € 205 € (100)

Expected profit € 205 x 60% + (-€100) x 40% = € 83

Clearly, this simple illustration doesn't reflect ROV completely. Calculations based on the real option theory can make a significant difference due to the value resulting from the flexibility. This is the case, if the investment is uncertain and highly dependent on future strategic moves by the management (Sources: Original research paper of option pricing model - Black and Merton (1973); Academic - Hull (2007); ROV Applications, Luehrman (1998), Leslie and Michaels (2000), and Latimore (2002)).

4.4 Summary of impact analysis

The key finding of the impact analysis, based on empirical evidence, is that the integration of RFID can enable labour and total factor productivity growth as well as innovation in the way enterprises conduct business. Specifically, RFID-enabled innovative activity on products, services, and within collaborative value networks, positively affects the likelihood of a firm reporting a turnover increase. As a result, the average payback period for RFID investments is estimated between 2 to 3 years, based on an average lifetime of 10 years for RFID implementations.


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Moreover, the increased granularity and real-time business process visibility resulting from RFID will fundamentally improve business intelligence capabilities and support to decision-makers, due to earlier sensing of business issues and potentially more timely and performing reactions to changing market dynamics.

About 30% of companies already using RFID have experienced some workforce reductions. Companies piloting or planning to use RFID expect slightly higher reductions In turn, workforce reductions in RFID-enabled departments are often compensated by a reallocation of the workforce to other business functions, for example quality management. Although it is difficult to assess whether an increasing use of RFID creates or destroys jobs, it may be deduced from empirical evidence that high and medium-skilled labour is required to maximize the impact of RFID implementations on productivity, both demand-side (e.g. within end-user organisations) and output-side (e.g. within technology vendor organisations).

However, it is important to remark the following:

Actual productivity improvements that are obtainable by enterprises depend upon a number of variables that are specific to the actual use case scenario. A phased implementation approach seems the most viable solution to enable quick ROI opportunities (e.g. between 12 to 36 months) while ensuring the long-term strategic goals picture.

The major cost component of the total value of an RFID project seems to be the cost of project implementation, system integration and business process re-engineering (Exhibit 4.5-2). Cost of RFID tags and reader is the second major component of the total investment, and software costs come third.

Albeit the impact of RFID investments cannot be instantaneous, efficiency improvements are typically achievable in a relatively short time compared to other ICT investments.

RFID-enabled innovations are correlated with company size - As opposed to large-scale enterprise implementation scenarios, RFID applications by SMEs tend to focus on enabling productivity improvements that have a positive business impact in the short-term.

RFID has some skill-bias towards high- and medium-skilled labour. However, in some areas, the implementation of the technology does not change the labour process significantly (for example warehouse order picking).


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5 Case studies

Introduction

Case studies were selected in accordance with e-Business Watch 2007 overall country quotas for case studies. Case studies selected for this research complied with at least one of the following criteria. In most cases, more than one criterion applies:

Good e-business practice within the respective industry or topic. The assessment whether a case represents good practice was based on the citation of the case in media (for example in e-business magazines, or in references from technology providers), on the local expertise of the correspondent and on the actual measured results.

Innovative e-business approach, particularly if it can be argued that this practice might reveal some insight about developments to be expected in the sector in the future.

Lessons learned from the described activities. In this context, the case of New Look presents a case of "e-business failure” that describes the factors that caused the e-business activity of the company to be not successful.

Typical example in describing state-of-the-art e-business activity in a respective sector. It is informative for policy makers to learn about "standard practices" and not only about "best practices". Such case studies help to avoid creating a hype, which could occur if only outstanding cases are being presented in sector studies.

Different size classes: the SeBW collects information and case studies about e-business activity in companies of different size classes. Therefore, the selection of RFID cases considers also this requirement.

Case studies are based on primary sources and are also complemented by secondary data. To this end, one expert interview with a representative from the respective company was always carried-on. This interview was normally conducted face-to-face. In cases where a personal interview was not possible to be arranged or would require an un-proportional effort for travel, the interview was conducted via telephone

Secondary data sources such as brochures, annual reports, and information on company websites, was used when available.

Case study authors are IDC analysts that specialise in the respective industries, and, on the most, local analysts carried out the case studies interviews.


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Overview

Exhibit 5-1: Case studies and business examples presented in this report

Case Company name Country Study focus

5.1 Metro Group Germany Largest EU retail RFID implementation to date 5.2 Hewlett Packard Brazil ROI on RFID in manufacturing

5.3 Euro Pool System Benelux France Challenges experienced, benefits obtained,

reusable assets RFID implementation

5.4 Hong Kong Airport Hong Kong Baggage tracking implementation, plus new pilot in Kuala Lumpur, IATA- driven

5.5 Land Rover UK Vehicle Tracking with RFID at Land Rover's Production facilities in England

5.6

Istituto dei Tumori - Primary center of cancer research and care in Italy)

Italy The institution applied innovation to improve patient service, by implementing RFID technology in its blood bank.

5.7 New Look UK Reasons driving the decision not to implement RFID following a trial

5.8 Futura Systems Spain RFID in manufacturing

5.9 Schuitema Netherlands Fresh link project – improving quality and shelf availability of fresh food with the deployment of RFID solutions. Full scale roll-out done.

5.10 Fakultní nemocnice v Motole – Hospital in Prague

Check Republic

The RFID system was put in place to track the movement of employees and hospital machinery

Source: Sectoral e-Business Watch (2007)


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5.1 METRO Group (Germany)

Abstract

This case study is about METRO Group RFID implementation for supply chain operations and forward looking pilots of the technology that aim to drive retailing innovation. The implementation project started in 2004 and focused mostly on tagging pallets with passive RFID UHF transponders. Significant achievement resulted from the implementation across METRO Group's retail functions, including supply chain process efficiencies, and customer service enhancements.

Case study fact sheet

Full name of the company: METRO Group (METRO AG)

Location (headquarters / main branches): Dusseldorf, Germany

No. of employees: 281,455 worldwide

Main business activity: Retail, and cash & carry wholesale

Primary customers: Consumers and wholesalers

Year of foundation: 1996 (merger of three German retailer companies)

Turnover in last financial year (€): € 64.3 billion (total sales 2007)

Most significant market area: Europe, Asia

Main e-business applications studied: RFID in the retail industry and supply chain

5.1.1 Background and objectives

The METRO Group comprises more than 2,200 stores in 31 countries in Europe, Africa and Asia and it is organized in 4 sales divisions through 7 different retail brands:

Cash & Carry: METRO, Makro

Food retailing: Real, Extra

Non-food specialty stores: Media Markt, Saturn

Department stores: Galeria Kaufhof

METRO Group's cross-divisional service companies are providing shared services such as purchasing, logistics, IT, advertising, and asset management. Among the others, the following functions are provided by:

IT: MGI METRO Group Information Technology (MGI)

Logistics: MGL METRO Group Logistics (MGL)

Procurement: METRO Group Buying International (MGBI)

Competitive dynamics such as growth of on-line sales, market differentiation strategies and new market positioning of large European retailers, international expansion plans and growth of discount format outlets, are putting pressure on retail companies in enhancing productivity efficiencies, while offering consumers a more consistent and


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appealing shopping experience across multiple channels. Moreover, the current economy downturn is negatively impacting consumer confidence, thus customer service enhancements and effective loyalty management are imperative to survival.

This challenging market situation requires an increasing focus on centralizing key management functions, optimizing product assortments and replenishment efficiencies, supply chain and store management capabilities, ultimately providing a more effective service delivery and a better shopping experience. Achieving advanced retail demand intelligence capabilities is a major cornerstone for retailers and supply chain partners alike.

For the first time ever, during the second quarter of 2005, the foreign share of sales increased up to 52% of total sales in line with the groups international expansion strategy. Therefore, METRO Group ongoing consolidation and international expansion has urged the company in achieving key efficiency improvements and central management of critical business functions, for example supply chain operations.

The driving forces for METRO Group to roll-out RFID and conduct selected field trials of RFID were:

Achieve higher visibility, accuracy and productivity efficiency of logistics and supply chain operations.

Optimize inventory levels, minimize stock losses and improve working capital management.

Optimise promotion management efficiences.

Reduce out-of-stocks aiming to achieve top-line and bottom line gains, but also to improve customer service levels.

Enable fully automated replenishment efficiencies is the ultimate long-term goal for the METRO Group. This will require the RFID implementation to move beyond pallet-level.

Explore benefits of item-level tagging for the customer experience, store inventory management, and store workforce efficiencies.

5.1.2 e-Business activities

METRO Group began introducing RFID in its supply chain in November 2004 with a gradual and systematic approach. METRO Group extended the number of suppliers involved in the initiative to 50 CPG companies by mid 2006, and approximately 150 suppliers are now shipping pallets tagged with RFID labels. In all of its 9 food and non-food distribution centres in Germany, the METRO Group directly applies RFID tags on re-commissioned pallets and deployed RFID gates at outgoing and incoming goods locations. With the objective of achieving full supply chain automation and visibility in an effective manner, METRO Group decided in 2007 to consider three supplier categories when negotiating purchasing agreements. Starting from 2008, those suppliers that are not tagging pallets with RFID labels and that do not use EDI messages will be more penalized compared to suppliers that send shipping notices using EDI and/or apply RFID tags on pallets.


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METRO Group has focused mostly on tagging pallets with passive RFID UHF transponders, which are carrying on data such as the Serial Shipping Container Code that identifies logistics units, store number and refers to detailed information on the pallet contents. Every item to be tracked is uniquely identified by a single electronic product code (EPC) stored in the RFID tag.

The supply chain process is as follows:

RFID-compliant suppliers send to METRO Group a dispatch notice in advance to shipments. Suppliers ship the goods in pallets, which are read through an outgoing gate.

An incoming RFID gate tracks arrival of pallets at a METRO GROUP distribution centre. Pallets are stored in the warehouse and RFID-tags are read again through an outgoing gate when pallets are shipped to the stores.

Pallets arrive at the store back-room inventory, and RFID tags are read via a receiving goods gate.

POS (point of sales) data is then used to calculate stock levels and eventually send an alert for store replenishments or automated orders to suppliers.

METRO Group has deployed the following hardware and software to support RFID applications:

RFID readers in over 180 locations, including over 160 METRO Cash & Carry and Real stores (at goods receiving, some front and back store).

RFID applications and software components for enabling data gathering, EPC-filtering, data transmission, data analysis, advanced inventory management and event based alerting. A software integration project was required to enable RFID data loading from the store goods receiving areas to the merchandise management system (MMS) of METRO Group. In addition, the retailer’s warehouse management systems (WMS) also had to be updated to address RFID requirements..The latter project took approximately 5 months to complete from process re-design to application deployment. Two months later, in January 2005, the rollout was completed and the solution went live at all warehouses included in the RFID implementation.

In 2006 METRO Group adopted EPCglobal Gen2 tags and moved to the new ETSI frequency regulation, in parallel with the rollout of a new reader gate design. This will also enable carton-level RFID tagging rollout while item-tagging trials will continue and potentially expand especially for fashion items. METRO Group expects additional productivity enhancements using RFID at carton-level especially on incoming goods registration, inventory management and supply management between store warehouse and store.

METRO Group is mainly supported by IBM, Intermec, Impinj, Checkpoint and Reva for its RFID roll-out and pilots. MGI METRO Group Information Technology is responsible for developing the end-to-end RFID business solution including the backend integration of RFID data, the operational deployment of RFID as well as research & development of all pilot activities in Germany, including initiatives on case-level tagging, the Hong Kong ALA logistics project, RFID-tagged forklifts and item level trials.


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METRO Group started an item-level field trial at Galeria Kaufhof Essen in September 2007. UHF RFID tags are applied at Kaufhof apparel distribution centre, for over 30,000 articles in stock in the outlet. RFID gates, equipped with motion sensors capable of automatically activate readers when needed, are placed at the backroom goods receiving area and at all transition points from the warehouse to the front store as well as inside the dressing rooms. At the checkout desk EPC-compliant RFID tags are read without requiring physical or visual contact. Using mobile RFID readers the staff can check which articles are available in the front store and where they are located. Rags are also tagged to enable article localization. Store assistants can thus provide real-time information on articles' availability, thus supporting customer service enhancements and optimizing inventory management. Information is provided to consumers with clear signs at the shop, brochures and clear labelling of all readers with the EPCglobal logo.

The process definition and system design phase started at the beginning of 2007, followed by the pilot implementation and education of store managers and personnel involved in the process. Based on EPCglobal standards, MGI developed the EPCIS in-house for this particular project in order to speed-up support issues and new developments. IBM and MGI conducted software developments specific to this project, and an RFID-enabled business intelligence application from Microstrategy was used.

Up to 10% of the total inventory value of a retailer is hidden in "lost" products, in other words goods in stock that are not visible due to inaccuracies mostly deriving from errors in manual processes. As a result, the trial aimed at minimizing locked-up capital in backroom inventories and optimizing promotion management efficiencies. The 'Smart Shelves' have been installed as a special service for the customers. They identify clothes via RFID and supply useful information such as the price, size and material of the article via an integrated display. Detailed information on the respective garments can also be displayed on the 'Smart Mirror' and in 'Smart Dressing Rooms'. In the next project phase the customers will also be informed about the additional sizes and colours available together with suggestions about complementary products and combinations, aiming to drive cross/up-sells opportunities leveraging on targeted promotions. Integration with loyalty programs is reported as a key area of focus in the future.

Looking ahead in the next 10 to 15 years, METRO Group expects that mainstream adoption of RFID will lead to:

Positive effect on logistics efficiencies that can result from RFID adoption may also contribute to the achievement of environmental sustainability objectives, essentially by reducing pollution caused by commercial vehicles due to optimized asset management and dynamic transportation routing abilities.

Attainment of lean supply chain capabilities in distributive trades leveraging on the combined usage of RFID and smart sensors

Provision of a better consumer experience and to front-end retail innovation, for example with the introduction of personal shopping assistants, interactive digital advertising systems and intelligent shelves. These are shelves equipped with RFID readers that can automatically send information to the merchandise management system when goods are removed or incorrectly shelved, so that staff can restock the shelves or rearrange the products. An interesting application of intelligent shelves is also the possibility to enable new forms of communications and


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assistance to consumers via digital displays that can be triggered by goods' movements from the shelves.

5.1.3 Impact

METRO Group's ongoing RFID rollout and trials are demonstrating business case opportunities for RFID adoption in a large global retail environment, with several measurable benefits already reported.

Improvements resulted from RFID/EPC implementation can be estimated as follows:

Supply process efficiencies: significant overall improvements have been recorded based on full RFID-deployment scenarios. Compared to manual barcode processing, RFID is enabling accelerated goods receipt, reduced idle time via automatic monitoring, inventory management optimization, improved process flow and fewer shelving errors.

Loss/theft shrinkage: 11% to 18%, depending on product category and the utilization of RFID on the case level. RFID-based Electronic Article Surveillance (EAS)-systems promise to increase efficiency gains, by enabling source-tagging approaches.

Sales and customer service: 10% to 20% reduction of out-of-stock situations. Improved merchandize availability may greatly impact sales performance, which in the METRO Group experience can grow up to 15% to 20% (not attributable to RFID integration only).

Counting only the automated dock-door incoming goods processes (2 out of 11 major processes in retail logistics) METRO Group expects that the combined use of RFID and EDI would bring total savings of € 8.5 million per year in Germany considering Metro Cash & Carry, Real and the distribution warehouses.

CPG suppliers will also achieve significant cost reductions. As an example, order-picking efficiencies would improve as 16 seconds per pallet can be saved. In addition, as the goods receiving process is also faster at the retail distribution center, shortens waiting times can be expected for delivery trucks, thus further reducing logistics costs.

Electronic dispatch note can lead to cost savings of up to €2.84 for each dispatch note.

More effective promotions can be enabled via item-level RFID tagging and higher working capital efficiencies can be achieved by attaining full inventory visibility of items.

Space planning and store profit optimization – the item-level trial at Galeria Kaufhof is also enabling instant visibility into the profitability of the different store areas. By correlating this information with merchandise and promotions intelligence data, METRO Group's store or department managers may achieve substantial improvements in space planning and demand management abilities with a positive effect on profit margins.

Least but not last, it should not be underestimated that RFID can also enable compliance with 'track & trace' regulations while ensuring product authenticity. Event-driven


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notifications enabling real-time decisions on actual information will play a significant role in respect, for example, to food safety concerns.

RFID-enabled innovation at METRO Group

METRO Group RFID Innovation Center is a permanent establishment located in Neuss, Germany, that was formed in 2004 with the twofold objective of driving innovative developments of RFID and demonstrate new applications of the technology. The center also hosts the European EPC Competence Center (EECC) launched in partnership with Karstadt Quelle, DHL and GS1. Among the activities performed in the competence center, a lab is focused on assessing and optimizing RFID tags performance and certifying RFID readers. Workshops and consulting services for companies that are evaluating RFID implementations are also offered.

5.1.4 Lessons learned

MGI reported that retailers using RFID in supply chain operations could achieve a competitive advantage between at least 8 to 12 months. But stronger opportunities to improve retailers' competitiveness resulting from the implementation of RFID are to be found in process optimization efficiencies and in the enablement of next generation shopping scenario.

Early-stage involvement of CPG manufacturers in RFID trials has been a critical success factor for METRO Group and supply chain partners alike. The essential requirement for CPG companies in participating to the RFID rollout is the ability to exchange electronic delivery notes to METRO Group using the Despatch Advice message format (DESADV). DESADV messages are including information such as delivery date, consignment details, handling instructions, customs clearance procedures, and invoice/order references.

RFID is driving a business process re-thinking at the METRO Group, thus positively driving the retailer in optimizing its operational efficiencies, internal productivity, suppliers' workflows and overall business performance. Customer service enhancements and shopping experience innovation emerge as fundamental opportunity areas in the future.

The UHF band harmonization from the European Commission represented a critical milestone in order to bring tags and readers' costs down, but still more effort is required to the Commission and other regulatory bodies in preventing long-term risks for enterprises that are investing on RFID as a strategic business enabler.

Training represents a difficult task to accomplish, thus companies evaluating RFID implementations and pilots shall not underestimate the effort required to educate the workforce.

Theoretical business case evaluations shall be validated by real-life assessments and process performance measurements. This hold true fro the METRO Group and other companies may benefit in taking the same approach.

Regarding RFID item-level tagging, it emerges a win-win-win scenario for suppliers, retailers and consumers, with all parties benefiting from the adoption of this technology on single items. In contrast, tags deactivation due to privacy concerns may completely


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extinguish the business case for item level tagging, for example considering reverse logistics operations, which are of particular relevance to consumer products manufacturers.

5.1.5 References

Research for this case study was conducted by Ivano Ortis, Global Retail insights, an IDC Company, on behalf of the Sectoral e-Business Watch. Sources and references used:

• Interview with Dr. Gerd Wolfram, September 26th, Dusseldorf, 2007

• Visits to Metro Cash & Carry RFID Warehouse; Galeria Kaufhof Essen; METRO RFID Innovation Center laboratory and demo-rooms; September 26th, 2007

• METRO Group annual report

• METRO Group Communication Department publications

• METRO Group Future Store publications

• Websites:

• METRO Group, www.metrogroup.de

• METRO Group Future Store Initiative, www.future-store.org

A special thanks goes to Daniel Kitscha, METRO Group Corporate Communications, for supporting the study author and allowing open discussions with METRO Group representatives.

http://www.metrogroup.de

http://www.future-store.org


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5.2 Hewlett-Packard (Brazil)

Abstract

This case study is about HP's implementation of RFID in its printer operations in Sao Paulo, Brazil, including manufacturing and finished goods packaging, and managing the distribution and service centres. HP began exploring RFID as early as 2002, focusing on the use of RFID tags at the case and pallet level. In 2004 when the company wanted to expand RFID to the item level, HP chose its Sao Paulo Brazil facility, where HP could integrate RFID into an end-to-end supply chain spanning manufacturing, distribution, repair, reverse logistics, and recycling. Today, HP is using RFID for greater visibility and automation of manufacturing and supply chain processes, changing the way it operates internally, and how it collaborates with its partners.


Full name of the company: Hewlett-Packard Company

Location (HQ / main branches): Palo Alto, CA (USA)

Main business activity: Information technology products and services, including printing and personal computing.

Year of foundation: 1939

Number of employees: 156,000

Turnover in last financial year: 100.5 billion USD for the four quarters ending July 31, 2007 (Nasdaq: HPQ)

Primary customers: Consumers, businesses, and governments worldwide

Most significant geographic market: The company's largest segment (32% revenue in 2006 FY) is the personal systems group (desktops, notebook, work station, handhelds), and the largest segment by geography is the Americas (approx 40%) followed by EMEA, then Asia Pacific.

Main e-business applications studied: RFID in the manufacturing process


HP is a major worldwide player in the information technology (IT) market, with its products and services ranging from personal computers, servers, printers, digital photography, storage, managed services, and software. As a vendor in the global IT market, HP faces many challenges including:

Global competition across a number of markets from companies such as Apple, Canon, Dell, and IBM,

Cost pressures resulting from a dependence on a technology oriented value chain, where advancements occur quickly and result in rapidly dropping prices on older products and require relatively short product lifecycles,


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One of the world's largest and most complex non-military supply chains HP spends an estimated $50 (USD) billion annually to procure materials, components, manufacturing, and distribution services for its products.

Given the competitive nature of its industry, HP must continually seek ways to improve its own processes and how it collaborates with partners to eliminate inefficiencies and bring products and services to market more quickly, and RFID offered the potential to address those needs.

Exploring RFID for more than compliance

HP began exploring RFID as early as 2002, focusing first on the use of RFID tags at the case and pallet level. HP's early RFID use satisfied Wal-Mart’s compliance requirements and was focused on better tracking and movement of inventory in Wal-Mart's facilities, eliminating stock outs on the retail floor, and faster receiving and shipping.

Early on, HP recognized RFID technology deserved more attention for benefits it could bring internally and eventually evolve into products and services HP could market to other companies. With support coming from its most senior leadership, the company moved ahead at many levels with RFID research in its central research organization HP Labs, the creation of RFID Centers of Excellence, including a location in Brazil, testing RFID in its own supply chain, and participation in RFID global standards efforts through EPCglobal.

In 2004 when the company wanted to expand RFID to the item level, HP chose its Sao Paulo Brazil facility, where HP could integrate RFID into an end-to-end supply chain spanning manufacturing, distribution, repair, reverse logistics, and recycling. With item level tracking, HP expected to gain better visibility into its operations, improve the performance of its processes, and ultimately gain efficiencies through automation.


The Sao Paulo project began in June 2004 in HP's Image and Printing Group with a one-month pilot that expanded to six months. Because one of the pilot's primary objectives was information gathering to gain insight into work in process (WIP), HP placed RFID tags on every item in a printer package -- including the printer, inkjet cartridge, power cable, and manuals. The RFID tags were not intended to replace the use of bar codes, but to add a level of visibility not achieved through bar codes. Part of the pilot also involved attaching RFID readers to forklifts. When the reader scanned the tags of the items packaged in the pallet, the information was sent to the warehouse management system to indicate the pallet was ready to ship.

Implementation: installation details, costs, and technology

HP phased its RFID implementation over the following two years, and the system has been fully operational since the beginning of 2006. Today, tags are placed on the printer chassis, with tag data containing unique product information such as serial number, product testing results, firmware, assembly location, install by/expiration dates, and


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product destination. The facility uses RFID portals, with more than 65 readers located at central gateways within a facility to detect the movement of goods, rather than forklift readers. RFID data related to product and quantity may be sent to a warehouse management system for updating location records. The bulk of the RFID data is viewed within a data warehouse system for business intelligence and operational reports related to needs such as FIFO and aging adherence.

Although HP does not discuss specific costs of the project, the company did invest a significant amount of resources in RFID, given high expectations for RFID's role in first improving HP's processes and products and eventually as a component in new capabilities HP can deliver to its customers. Part of the challenge of measuring costs and calculating ROI is the uncertainty in what greater visibility will expose. Much of HP's cost calculations were more about cost avoidance, such as what costs can be reduced or eliminated by knowing more quickly when processes are not working.

HP relied on many of its own internal resources to support the project, including HP consulting services, research, software, and hardware. The company also went through a lengthy tag and reader evaluation with a number of partners including RFID specialty vendors. The implementation's technical challenges were primarily signs of the immaturity of the market, specifically in the quality and read rates of tags and readers, interoperability, understanding the most appropriate equipment for HP's environment, working around electromagnetic and other types of interference to the radio frequency signals, and more. HP's 2004 white paper "Radio frequency identification (RFID) at HP", provides additional detail on the more technical lessons learned from earlier pilots in US facilities -- from readers, tags, servers and infrastructure, and integration with execution and enterprise systems.

Change requirements and stakeholders

By far, the HP team pointed to change management and business process redesign as the most difficult element of the implementation. Because the RFID project collected information that had not been used before, they emphasized the importance of treating the information and sensitively. Stakeholders needed to be convinced that the information was correct and then be invited to take part in any changes that resulted from the data analysis. Stakeholders ranged from employees in the production lines and warehouses to customers, contract manufacturers, and third party logistics providers. Any changes needed to be managed closely with a high level of communication. The project required collaboration among all of the stakeholders and a willingness to recognize the long term aspects of their relationships, including collaboration as a way of doing business.

The outcome -- benefits from RFID

HP's benefits at a high level focus on visibility and automation within the manufacturing lines and in the supply chain but more granular benefits include:

Visibility into status of printer production lines and WIP

Faster, more accurate tracking of movement of goods within warehouse, including material stops


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Better information on what shipped, when, where, and more, including transfers between facilities

Reduced packaging errors caused by incorrect or incomplete product bundles

More efficient packing in pallets, resulting in more densely packed pallets

Support for first-in first-out (FIFO) policies and aging controls

Another key benefit comes from increasing maturity in RFID standards, namely with EPC Gen 2 and EPCIS. Because RFID data can now be standardized, it becomes an easier window to HP's and others processes. For example, instead of HP requiring access to its partners' shop control systems, HP employees can just input partners' RFID data into their own systems and examine the RFID data within HP's applications. Although HP has considered the use of RFID on inkjet cartridges to prevent counterfeiting and theft, these factors were not measured in the Brazil project.

HP's investment in RFID today

In 2007, HP applied RFID to operations across manufacturing, distribution, and returns in more than 30 internal sites to satisfy customer mandates and improve its own processes. Its implementations have reached significant penetration in its organization globally with numbers such as:

5M+ tags commissioned in the first half of 2007

A forecast of 19M+ cases tagged in 2007

270+ readers installed

200+ RFID label printers installed

In Brazil alone, HP's RFID implementation is across 11 manufacturing and four product completion lines for over 100 stock-keeping units (SKUs). Every day, HP Brazil logs more than 40,000 EPC-based RFID reads with a read/write yield of more than 99.5%. RFID is also used for inbound and outbound tracking at its distribution center and for reverse distribution (in-warranty and dead on arrival repair).

5.2.3 Impact

As it may be expected, the impact of HP's RFID project is intended to improve HP's ability to deliver quality products at lower supply chain and production costs. Therefore, many of the metrics are confidential. However, HP did share these performance improvements from the Brazil project:

20% improvement in cycle time in the Brazil manufacturing lines through greater visibility,

17% reduction in WIP and inventory from faster updates in the warehouse management system,

Faster invoice processing, because of improved visibility into the movement and receipt of goods, and


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Tighter integration between product location and aging information, working toward a goal of having no printers older than 15 days in inventory.

The RFID project also impacts the business on an ongoing basis related to:

Increased visibility driving process reviews: RFID tracking can potentially expose imperfections in processes, and be prepared to get a clear picture of inefficiencies; process reviews may occur more frequently and should take advantage of RFID technology.

An uptake in the volume of information: RFID increases the volume of data as well as the speed of data collection, adding new storage requirements and increased pressure on the data warehouse. HP recommends experts help early on in the project to translate data capture into useful information and then move onto preparing the resources needed to fix the inefficiencies the data reveals and drive automation.

Willingness to explore: Much of HP's comments centered on the fact that RFID may reveal inefficiencies companies have never seen before. The level of detail RFID data can provide is above and beyond bar codes and other means. And because using RFID is still relatively new, identifying how RFID can bring the most benefits to a specific company still requires internal evaluations. HP found benefit in ways it did not anticipate, effectively stating that RFID exposed process flaws the company had not acknowledged in the past.


HP's commitment to RFID and its success to date hinged upon a few core lessons learned:

Commitment must come from the top: An important factor in HP's success with RFID was the recognition from senior management, including HP's CEO, that RFID had significant potential in all aspects of HP's business.

RFID projects need very capable leadership: A big part of the challenge is building consensus, gaining cooperation from many different stakeholders, and potentially imposing change upon how processes may have been done for years. Frequent communication and sensitivity to employees' and partners' reluctance to change is a big part of the job.

Traditional ROI calculations don't work: Because the benefits can't be quantified until the visibility is achieved, it’s more important to build a strong business case and make use of pilot environments and proof of concepts.

HP also emphasized the importance of giving the RFID team the opportunity to "do what needed to be done", referring to the challenges of being involved in a project with many unknowns. In the long run, the greatest challenge will be taking RFID data and applying it to change processes and products.


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5.2.5 References

Research for this case study was conducted by Kimberly Knickle, IDC Manufacturing Insights, on behalf of the Sectoral e-Business Watch. Sources and references used:

Interview(s) with Greg Edds, Reinaldo Villar, and Marcelo Pandini, September 6, 2007

HP's Company annual and quarterly reports

HP White Paper: "Radio frequency identification (RFID) at HP", February 2004

HP's Website: http://www.hp.com.

http://www.hp.com


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5.3 Euro Pool System (Belgium)

Abstract

This case study analyses Euro Pool System's pilot implementation of RFID technology to better its logistics and inventory tracking. Euro Pool System is a European renter of transport packaging goods, such as containers and crates, for fresh products. The pilot implementation of RFID took place at its depot in Zellik, Belgium. The goals of the project included being able to track its crates' movements automatically so as to speed up the process and have a minute-to-minute update on inventory levels. HP was selected to be the overarching project partner, but many other IT vendors were involved such as Microsoft, Innotech and Tyco. Euro Pool will begin the real roll out of RFID during the second quarter of 2008 and is expecting implementation to eventually cover not only all of its depots, but also all the supply chain partners.


Full name of the company: Euro Pool System

Location (HQ / main branches): Leidschendam, Zuid-Holland, Netherlands

Main business activity: Rents out transport packaging for fresh products


Number of employees: 125

Turnover in last financial year: about €134 million

Primary customers: Fresh produce retailers and wholesalers

Most significant geographic market: Belgium, Germany, France, Italy, the Netherlands, the Czech Republic and Spain

Main e-business applications studied: RFID in logistics and inventory processes


Euro Pool System is a large European returnable packaging operator. It was founded in 1992 by three shareholders who were active in cooperative sale of fruit and vegetables in Belgium, Germany and the Netherlands, and who already had 20 years of experience. Since 1992, the company has opened local offices throughout Europe; branches can be found in Belgium, Germany, France, Italy, the Netherlands, the Czech Republic and Spain. For its operations, which include product rotations of more than 414 million times a year with more than 88 million containers, the company has a relatively small workforce, only 125 people. In 2006, however, Euro Pool Systems had a turnover of €134 million.

Euro Pool System estimates that its average crate has a 15 to 20-year lifespan. The crates face a long process each time they are shipped out on a new order. The process begins at a Euro Pool System depot where orders are placed. The crates are then sent to either a Euro Pool System's distribution center or to a secondary partner who operates on behalf of Euro Pool System. At the distribution centers the crates are filled with the fresh produce. From there, the crates reach the retailer's backroom inventory, where they are


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emptied and then shipped back home to their original depot. Once the crates are cleaned and accounted for, they are ready for their next trip.

Euro Pool System has undergone several restructuring programs to bring it to where it is today. Projects that affected Euro Pool System's MO include: Higher Hygiene Standards (HACCP/BRC), volume reduction, supply chain integration and Tracking and Tracing. The Tracking and Tracing evolution has made it possible for Euro Pool System to be ready for an RFID implementation. As part of the tracking and tracing project, Euro Pool created a new generation of green foldable crates equipped with white labels to enable identification throughout the entire supply chain. The white labels were human readable, had linear bar codes or 2D matrix bar codes and were ready to be enhanced with RFID technology. Euro Pool System believes RFID is a system that will prepare it for the future and allow it to retain its position on the forefront.

Consequently, the key reason for wanting to implement RFID was to eliminate the line-of-sight scanning, brought on by the linear and 2D bar codes Euro Pool System was using in the tracking and tracing system. Euro Pool System had specific objectives in mind for its RFID returnable assets tracking project. Project objectives included:

Crate identification for track and tracing efficiency

Speed up reconciliation process (deposit)

Read >300 tags per pallets in difficult environment (for example: water or dust)

Reduce stock levels

Extend supply chain, including Euro Pool's suppliers and customers, for RFID and 2D barcode technology

Benchmarking performance across EPC (Electronic Product Code) Generation 2 readers and tags

Reduce the number of claims with retailers

Exploring RFID

Back in 2003, the firm had already started investigating in RFID, acknowledging the benefits of its deployment, such as improving and streamlining its overall logistics operations.

In 2004, Euro Pool System began experimenting with RFID technology by testing EPC Generation 1 technology.

The following year, 2005, Euro Pool System launched the "green crate," which started off its efforts to track its containers with 2D barcodes. These "green crates" required the pallet of crates to stop at a portal for a second to have their 2D bar coding read. This is obviously more time consuming than an RFID automated system.

In order to start off the project, Euro Pool System had to find itself a trustworthy partner; in 2005 the firm selected HP's Business and IT Services Group. The IT Company had just opened a new RFID Solutions Center in Milan, Italy, in collaboration with Microsoft, Intel, the School of Management and the Department of Electronics and Information of the Polytechnic Institute of Milan. At the new center the HP consultants tested the various


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pieces of the puzzle, including tags, readers and middleware, to develop the best RFID system that would work with Euro Pool System's logistics and inventory operations.


Once HP was selected in 2005, the RFID project started to concretise. Due to the harsh conditions RFID tags must tolerate, Euro Pool System and HP had to design new unique RFID tags. With the help of Bekuplast, a German injection-moulding company, an RFID-tagged folding crate was created. Several different sized-crates were created, each containing an embedded tag in the crates lower side. The tag was designed to withstand high-pressure cleansing with soap and hot water, reaching up to 70o Celsius. Finding the right tag was the most significant challenge to overcome. Further testing was done to better understand the new lifespan of the crates containing the RFID tags. After 1 year of field testing it appeared that there was no deterioration in the tags, so crate lifespan remained between 15 and 20 years.

Implementation: installation details, costs and technology

Starting in January 2006, Euro Pool System started a 10-month pilot-testing phase for EPC Class 1 Generation 2 RFID tagged crates at its depot in Zellik, Belgium. The RFID tagged crates could be tracked within the Zellik depot. The system captured when the crates left the depot site and immediately when they returned.

At the beginning some problems were encountered, causing the success rate to be around 60%. However, once the tags were reprogrammed and software filters were added the success rate dramatically increased to a perfect success rate of 100%. The success rate was measured by how many readings could be made among all the 250 crates held in one pallet. By November 2006, the RFID system was reading all the crates in each pallet.

While HP was the overall project overseer, and handled infrastructure implementation, many other IT vendors were involved in Euro Pool System's RFID deployment. Microsoft supplied the middleware; Tyco supplied the RFID readers; RFIDUA supplied the portals; Innotech supplied the crate labels; and, as mentioned above, Bekuplast created the RFID tagged crates.

The tags melded into the crates had a cost of €0.4 each. The cost of the middleware was higher than expected.

Current situation

On going expectations are for an actual rollout to take place beginning in the second quarter of 2008 since Euro Pool System is currently preparing for this implementation. After completing the RFID pilot project deployment at its Zellik, Belgium depot, Euro Pool System is planning a full-scale implementation to cover all of its depots.

After achieving complete RFID coverage internally at all its depot sites, Euro Pool System would like to expand the project to include all its supply chain partners. This would provide visibility into the crates whereabouts at any point of the process and give


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information to all the partners involved. This added visibility contributes significantly to the value of the project, because it allows everyone to know the status of the crates and be able to act accordingly.

Future re-engineering possibilities

Euro Pool System is expecting great changes to take place once RFID technology is 100% implemented internally and along its supply chain. Currently, when a client places an order it puts down a deposit with Euro Pool System. Problems arise when the crates are not returned or they are returned, but somehow at the depots they are not accounted for upon their return. This causes a loss in the asset's value, because they are sitting somewhere not being utilized. Furthermore, almost 100% of the time, Euro Pool System, who does not want to place the blame on their clients, sustains the additional financial costs.

With a full-scale implementation of RFID tracking systems, these problems would be eliminated because immediate knowledge of the whereabouts of the crates is available and consequently the appropriate party would be held accountable.

Future re-engineering would include a Time Rental System and a Reconciliation Penalty based on verifiable data. Euro Pool System believes this is a fairer method of paying for the service. The firm would also be able to reduce their season-dependant stocks. Obviously, some overstock will remain in order to support last minute client requests. Older crates that are not RFID tagged will end their lifecycle and then be replaced by new RFID tagged crates. The full value chain will derive the highest benefits, as the RFID system will cut out-of-date deliveries, incorrect shop deliveries, uncontrolled out-of-stocks.

5.3.3 Impact

The project is obviously a financial undertaking, but Euro Pool is confident that the investment will pay off, and ROI will be achieved in a short period, possibly less than 1 year.

Since the actual implementation has yet to take place, the only results currently available are those from the pilot implementation. However, if the results from the pilot project manifest themselves in the actual implementation, then Euro Pool can rest assured the investment will pay off in a brief period.

More results of the pilot project include:

IT improvements: Integrated data with the backend systems to get financial information

Business benefits:

o Improved claims handling for all constituents

o Ability to read >300 tags per pallet with >99% accuracy

o Cost savings from claims, deposits, reconciliation with retailers and growers.


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Euro Pool System had moderate concerns regarding interoperability, but was able to solve them. Furthermore, since the company had little prior experience in testing the RFID EPC technology, there was no backward compatibility and improvements will take place only within the 4 walls of the company. Overall though, the pilot project for RFID implementation in the firm's logistics and inventory operations were a very positive change for Euro Pool System, as witnessed by the company's decision for full-scale deployment.

Addressing concerns

An internal discussion was held with the company's workforce in Berlin. The workforce did not present any problems or additional concerns with the project.

Euro Pool System addressed any concerns for health safety prior to approving the project. In effect, there were no health issues to be concerned with.

Fears concerning Euro Pool System clients included infringement of privacy rights. The firm addressed this issue by adding to the crate only an identification number along with the RFID tag, thus unintelligible information if malicious users do not have access to the central information system.

In the future, the tags will have a higher storage capacity, in an IT architectural move that will bring intelligence to the edges of RFID systems, as opposed to current RFID systems where intelligence is largely centralized.

5.3.4 References

Research for this case study was conducted by Gaia Gallotti, IDC Manufacturing Insights and Ivano Ortis, IDC Global Retail Insights, on behalf of the Sectoral e-Business Watch. Sources and references used:

Interview with Henry Loek, October 2007

Euro Pool System Presentation "Optimal Logistics in Returnable Packaging", D. Vercammen, May 31 2007

Web: Euro Pool System, http://www.europoolsystem.com.

http://www.europoolsystem.com


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5.4 Hong Kong International Airport

Abstract

This case study analyses Hong Kong International Airport’s implementation of RFID technology to better its baggage handling system. Hong Kong International Airport (HKIA) is the main airport in Hong Kong and a relevant regional trans-shipment centre, passenger hub and gateway for destinations and transit in China, East Asia and Southeast Asia. The implementation of RFID took place at its Baggage handling area paralleling an already existing bar code system. The goals of the project included being able to reduce manpower costs and short ship rate as well as baggage processing and transfer in order to improve connection time. Symbol Technologies installed HKIA’s RFID system, but many other IT vendors were involved such as SITA, Matrics Inc, Marubeni Corp, EMSD Corp and Lyngsoe Systems. RFID rolled out in 2005, without any previous pilot project, and full implementation is expected for January 2008.


Full name of the company: Hong Kong International Airport

Location (HQ / main branches): Chep Lap Kok

Main business activity: Air Transportation



Turnover in last financial year: HK$1,410 million for the financial year 2004/05

Primary customers: World wide passengers

Most significant geographic market: Asia

Main e-business applications studied: RFID in Baggage Handling


HONG KONG AIRPORT, also named Chek Lap Kok, has a very short history dating back to 1998 when it started its commercial operations. Currently, around 75 airlines are taking passengers to more than 150 destinations through 96 gates and around 700 flights per day. In 2006, 44,443,000 million passengers either arrived (22,326,750) or departed (22,116,250) through this airport, almost 8.7% over 2005. While the estimates for cargo state an annual total of 3,580,000 in 2006, 5.2% over 2005. Hong Kong international airport is a primary hub for around 280,000 planes that each day land and take off (2006-2007 Civil aviation Department, The Government of the Hong Kong Special Administrative Region of the People’s Republic of China).

Despite its short history, HKIA shows very strong figures in terms of air transport movements of aircraft, passengers and freight. Dealing with such massive numbers have not diminished the airport’s quality. In fact, HKIA has been a frequent winner of the Best airport award (2001-2005 and 2007), a survey-based award conducted and given by Skytrax considering the opinion of more than 7.8 million passengers in 170 airports over


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an 11-month period throughout the world. Top passenger priorities in 2007 proved to be general ease of airport usage and waiting times, judging from over 40 categories of product and service quality (such as terminal cleanliness, staff efficiency and courtesy, terminal signage and walking distances, as well as features like shopping, dining options, internet services).

Because passengers want security processes to incur without seeing their travelling experience in the airport affected, HKIA considered implementing RFID. Some of the driving forces behind this implementation aim at boosting security while improving baggage-handling efficiency. In other words, the rationale was operational efficiency as well as a good customer experience. The main objectives can be resumed as such:

1. Manpower costs: RFID seemed a viable alternative to manpower (local authorities) going beyond the barcode.

2. Reduce short ship rate and baggage transfer: HKIA wanted to reduce and improve connections times through RFID.


The process

Born as an airport initiative, the RFID project started piloting in January 2004 when it was assigned to Matrics and its Japan-based partner Marubeni. On January 1st, 2005 the project was set to go live and full application was scheduled for January 2008, after three years of implementation.

The RFID technology deployed across Honk Kong airport paralleled an already existing bar code system in the baggage-handling area. Before any bag is loaded in its corresponding flight, it has to be checked, tagged, examined and tracked.

This process starts at the luggage-handling conveyor. All items of luggage (both checked in and in transfer) are fitted automatically a smart label bearing a 10 digit IATA (International Air Transport Association) number. This IATA “license” includes the basic airline information and flight number. A bar code scanner reads the bar coded label stick to the bag so the label’s IATA number is written in the bag’s RFID tag. Whenever a bag’s bar-coded label isn’t read properly, that bag will be diverted and the process of writing the IATA number to the RFID tag will be handled manually.

There are different types of baggage: arrival, departure and transfer. About 50% of the bags sorted at HKIA are transfer bags. The induction of transfer baggage for sorting starts at the baggage detector. The bag is scanned at the barcode scanner and then read at the RFID RW Antenna. Finally, it goes through a double baggage detector. To ensure bags reach the correct destination, readers track arrival, departure and transfer bags at various nodes:

Explosives-detection systems

Baggage carousels

Loading devices


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Conveyor belts

Once the induction and sorting is completed, a baggage handler places the bags into the associated Unit Load Device (ULD) for its specific flight. Before this happens, luggage must be identified before it is loaded, Matrics deployed readers on the luggage carrousels and the lateral conveyors that take the luggage to the loading piers. At the loading piers, the luggage is transferred manually to the ULD. The ULDs are nothing more than the containers that are loaded later onto the plane later.

Bag Volume at HKIA can be particularly oversized, above all during peak times. There is more than a slight possibility of errors. To reduce error rate, HKIA incorporated Symbol Technologies into the project to install an RFID field in front of the ULDs. Thus, An RFID reader is clipped temporarily to each ULD to ensure luggage is loaded correctly. Once the loading process is finished the reader can be unclipped. While loading the ULDs, the RFID tag, previously stick to the bag, goes through the field in front of the ULD and registers a visual and audible signal to inform the handler whether or not the bag was placed correctly. This error checking mechanisms has meant a process change for RFID technology, something that could not be achieved before with the bar code system.

At length, HKIA ‘s RFID system in the handling process encompass a wide rage of tasks from the induction and transfer stations to manual coding and lateral carousels.

Costs

The RFID project estimate rounded $50 million. HKIA implemented RFID on its already existing barcode system reducing the final cost figures this way. And according to HKIA, RFID can help pay itself through cost savings. Moreover, the system’s costs are also


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covered through the security charge negotiated with airlines and regulated by the local aviation department. This security charge is in the end paid by the passenger within the ticket price. The fare is fixed for airlines belonging to the same category. ROI, in these terms, will be seen through the security service charge.

Some other investments related to this project and included in the final estimate concern 120 Matrics readers, which cost $3.5 million. An initial order for 1.5 million of Matrics’ smart labels has already been placed.

Technology

HKIA RFID project is based on an already existing barcode system. Therefore a reengineering process was called for involving new readers and a change of software. Symbol Technologies joined HKIA RFID project installing the Airport’s RFID system. Matrics Inc. together with its Japan-based strategic partner Marubeni Corp. deployed the RFID baggage-tracking infrastructure and provides support services, also with the help of EMSD Corp, HKIA’s electrical and mechanical systems service provider. Lyngsoe Systems is also behind this reengineering process supplying the control system for the original bar code based sortation system.

HKIA is using Gen2 RFID tags from Intermec to tag baggage. The RFID tag currently in use consists of a silicon chip and antenna. It looks like a bar code strip, which is attached to the bag using and adhesive inlay. Matrics supplied 120 AR 400 read/write readers and a future order includes EPC Class O+ Read/Write Single Dipole smart labels. Over the next five years, the facility is expected to buy and use around 80 million of smart labels of about 6 inches long and ¾ inches wide and a 25 ft read range. Currently, HKIA is using around 25 to 30 m tags.

To complete the RFID system reengineering, around 214 Symbol XR400 Series RFID readers were used for the implementation as well as more than 500 Symbol High performance RFID antennas.

5.4.3 Impact

According to SITA, IT business solution provider for the Air transport industry, in 2005 the industry lost around $2.5 billion on mishandled baggage (including the costs involved in re-routing the delayed baggage to its owner). “In 2006 mishandling reached the two billion passenger landmark which translated into 30 million pieces of mishandled baggage." RFID implementation in HKIA increased security and accuracy, improved customer satisfaction and augmented the productivity.

On security and accuracy, systematic baggage identification and tracking errors mean that bags risk falling through security cracks. With the use of barcode in the past, the volume of mishandled baggage was reaching intolerable levels. Bar code tags, which are easily stretched, torn or defaced, became unreadable and 10 to 15% of the luggage had to be processed manually due to misreading. This security crack represented an average cost of $100 in replacing or transporting the missing or mishandled bag to the owner. With the prior existing rate, rectifying such error at HKIA meant $17 million a year.


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Customers reported higher levels of satisfaction, as the Skytrax award shows, particularly related to delay reduction and mishandled baggage. Because RFID tags do not require contact or direct line of sight, HKIA was able to reduce the number of tag errors. Subsequently this diminution mirrored on a 17% productivity increase.

Productivity increase at HKIA can be split in:

Luggage sorting capacity, reduce maintenance costs (barcode systems cost, adjustment and cleaning) due to a minimized manual encoding.

Reduced manual labour at load stations – automatic reconciliation (BSM authorized to load process) and at all Manual Handling Stations (encoding, loading, lost)

Increased passenger security by ensuring more positive passenger / bag matches and automatic security screening level writing to bag tag.


Overall, RFID implementation proved to be positive at HKIA. The existence of a previous automatized system –the bar code- in the baggage handling area ensured an easier transition to RFID not only in the application of the process, but also among employees and airlines. Even in terms of technology and partnership, this implementation did not represent any major complications. Some of the partners involved had already had previous experiences at HKIA or closed strategical partners in the area. Furthermore, costs never represented an issue and with the support of the local civil authorities and the airlines, this project ensured its self financing.

Nevertheless, some issues that arose while implementing the system among the baggage handlers who were worried about health risks. Thanks to a HK University professor, this situation was contained. The professor shared his thoughts on the issue and explained how “he was more concerned about mobile phones rather than RFID”.

5.4.5 References

Research for this case study was conducted by Gaia Gallotti, Alexandra Pallares and Ivano Ortis, IDC, on behalf of the Sectoral e-Business Watch. Sources and references used:

Mark Turner, telephone interview on Nov 19th, 2007

Annual Report 2006/07. HKIA: Where Opportunities Converge

Websites:

• HKIA website http://www.hongkongairport.com/eng/aboutus/index.html

• Civil Aviation Department's website: http://www.cad.gov.hk/english/kaitak.html.

http://www.hongkongairport.com/eng/aboutus/index.html

http://www.cad.gov.hk/english/kaitak.html


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5.5 Land Rover (UK)

Abstract

This case study examines Land Rover's implementation of an RFID-based Vehicle Tracking and Management System (VTMS) for newly assembled vehicles at Land Rover's facility in Solihull, England. The project is Land Rover's second application of RFID at the Solihull production facility. In the first project in 2002, Land Rover focused on material replenishment, using RFID products and services from WhereNet, a Zebra Technologies company to manage inventory on the manufacturing lines. In 2006, the production managers approached Land Rover's IT organization asking for a way to better manage work-in-progress inventory and track vehicles as they come off the assembly line and are prepared for delivery to the dealers. The implementation went live in January 2007, and Land Rover estimates it received a return on its investment in less than a year.


Full name of the company: Until recently, Land Rover's worldwide operations were wholly owned by Ford Motor Company. In March 2008, Ford announced an agreement to sell its Jaguar Land Rover operations to Tata Motors.

Location (HQ / main branches): Gaydon, England is the corporate headquarters for Land Rover and the home of its Design and Engineering Centre. Land Rover's manufacturing is in Solihull and Halewood England

Main business activity: Production of luxury, four-wheel drive vehicles


Number of employees: Worldwide 16,000, with most employees located in the UK

Turnover in last financial year: $7.7B USD in sales (estimate). Ford Motor Company did not disclose financials for the Land Rover brand

Primary customers: Automobile buyers in 160 countries around world

Most significant geographic market: Primarily in the UK, US, and Europe, with strong growth in Russia and China

Main e-business applications studied: RFID for vehicle tracking in Solihull England


Land Rover has produced four-wheel drive vehicles since 1949, through many changes in the automotive industry and in its own product line, progressing from utilitarian to premium vehicles. Today, the company's most widely recognized vehicle is the luxury utility vehicle introduced in 1970 – the high-end Range Rover with a starting price of more than 60,000 euros. Land Rover vehicles introduced in the last 30 years were designed to address changing market conditions, including increasing global competition, market expansion, and changes in consumer demand. For example, the Discovery was


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introduced to compete against more car-like utility vehicles from Japan, and the Freelander and the Range Rover Sport are smaller and less expensive sports utility vehicles intended to appeal to a broader market and address consumers' interest in utility vehicles for everyday use.

Across the automotive market, most well-established automotive manufacturers need to improve capacity utilization of older production facilities. They are also undertaking efforts to improve communication of bills of materials (BOM) and attain higher levels of flexible manufacturing. Many companies are looking to new emerging markets, often China, India, Russia, and Eastern Europe for growth; although many of those markets will be served by low-end more basic vehicles than those that Land Rover delivers. In turn, the increasing strength of companies that can deliver to the lower end of the market will also make them a greater source of competition on a global basis. Most importantly, the global automotive market is facing weak sales, high labour costs, and declining net profits.

Going forward, Land Rover's primary challenges in this competitive market include maintaining its premium quality against rising production costs, while responding to consumer demand and expansion into Russia and China. Land Rover's transition from Ford Motor Company to Tata Motors will also put a spotlight on Land Rover's operations. To address these challenges, Land Rover adopted RFID to improve its visibility into its manufacturing processes and inventory, and as a result, improve its overall efficiencies.


In 2006, Land Rover's production managers approached its IT organization asking for a way to better manage work-in-progress inventory and track vehicles as they come off the assembly line and are prepared for delivery to the dealers. Under the direction of Dave O'Reilly, IT manager of manufacturing and purchasing for Jaguar and Land Rover, Land Rover's goal was to improve the efficiency of delivering vehicles to meet dealer orders and in the process, build on the success of its first RFID project, applying their knowledge of how RFID worked as well as re-using some of the RFID hardware. Basic requirements included improved visibility of all finished vehicles at the facility including in the yard, better coordination of post assembly verification and test processes, and managing quality repair, containment, and shipping zones.

The company operates close to capacity, but since Land Rover's operations are not capacity constrained, the initial focus was on tracking vehicles after they are out of captive sequence. Vehicles physically move around the facility for testing, configuration setting, rework, rectification, and so on, making it difficult and time-intensive to manually track exactly where each vehicle is and what its next process should be. With RFID, the company expected to minimize the vehicles’ dwell time between end of line and the delivery chain because of the greater visibility RFID would provide.

Project justification was completed through Land Rover's standard process for appropriation requests – what Land Rover calls "Time Adjusted Rate of Return" or TARR. In other words, any appropriation request must indicate when the company will receive a payback on its investment. If the investment will be paid back in less than a year, it's


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considered 100% TARR, and understandably, projects with 100% TARR are much more likely to be funded. Land Rover's IT organization was able to justify its projections of 100% TARR based on the value derived from reducing work-in-process and overtime. Although Land Rover did not indicate the total project cost, the company did break the project costs as follows: 56% for the cost of the software including training; 12% on hardware; 20% for installation costs mainly for the antennae placement; and 12% for local labour costs.

Implementation: installation details and technology

Because Land Rover had already implemented an active RFID real-time locating system (RTLS) from WhereNet, a Zebra Technologies company, for the parts replenishment system in 2002, Land Rover already had an existing wireless infrastructure to build upon, as well as an understanding of how RFID worked and its challenges. The intent with the newer project was to re-use some of the existing infrastructure but expand the system as necessary for vehicle tracking. The entire project took place over a year, starting in early 2006 and going live in early 2007. The ramp-up phase included a 3 month planning cycle, applying for project funding, installation, testing, training, a 2 month pilot, and then final implementation details. A significant amount of time was devoted to installation and configuration – almost 7 months.

The implementation relies on reusable active RFID tags (transmitters) directly placed in vehicles as they leave the captive sequence of the assembly line. Each tag, in a bright yellow tag holder, is placed on the rear grab handle within the cabin so personnel may easily identify the tag. The tag's identification number is connected to the VIN in Land Rover's database. The active tag is programmed to transmit a signal every four minutes to identify the exact location of a vehicle, until the tags are removed once the vehicle is released for shipment. At about 50 key points, WherePort exciters send messages to the tags to send out a signal to one of 130 wireless WhereLAN location sensors, which record an exact time a tag is passing a specific location, in addition to the read every four minutes. The information is then sent back to the WhereNet visibility server software. The exciters do require a power source, but are not connected to a wired network.

The location sensors were installed in and around the facility, on ceilings and mostly outdoors in the shipping yard, on light poles, or corners of the outdoor buildings, to complement the sensors previously installed for parts replenishment. This part of the project was lengthy, because of the civil engineering aspect - locating sensors on fairly large poles, which were sunk into the ground to make them stable, or attaching sensors to the outside of Land Rover's buildings and positioned to operate properly.

The location information received from the tag is also used to analyze the time vehicles take to pass through certain key processes, and this can be compared to the expected time and to identify areas that can be improved. The VTMS includes workflow features where you can add rules based on the vehicle model, destination, or task. The data can also be used to issue dwell time alerts or create alternative workflows if the system detects a bottleneck at one of the stages.

The shipping yard staff is equipped with Intermec's mobile handheld RFID readers with displays. The readers are used to scan the vehicle RFID tag and establish if the vehicle


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is authorized to ship. This forms part of the quality control process to ensure a vehicle is not released for shipment until it has passed through the required processes.

Change requirements and stakeholders

Although IT was responsible for identifying the appropriate technology, the implementation process, and the project justification, the production organization identified the business need – vehicle tracking. The production staff is responsible for keeping work-in-process (WIP) below specific thresholds and ensuring vehicles move as quickly as possible from end of the assembly line to the main dispatch point. If WIP builds up, then vehicles aren't moving to the dealership quickly enough and inventory carrying costs increase. As inventory increases, locating vehicles becomes even more challenging, and overtime labour costs increase as time is wasted physically locating and managing the flow of vehicles. As a result, the production staff was very receptive to the implementation and considered the project as a way to help them improve their jobs, not replace jobs.

The implementation also required minimal changes to existing business processes and minimal training. Incorporating RFID into the work was relatively simple and required workers to scan an RFID tag and hang it in the vehicle. The bigger change was in how the information could be used to identify a vehicle's location, but that training was also basic and replaced a more difficult process of making verbal inquiries to physically locate a vehicle.

Satisfying corporate guidelines

Throughout the project, Land Rover ensured the implementation satisfied corporate guidelines related to issues such as data security, interoperability, and health and safety. For example, Land Rover has strict policies related to security over a wireless network, and the company worked with its vendor WhereNet to include encryption and security standards to prevent external parties from accessing its network. Other aspects of the implementation satisfied European or UK legislation related to health and safety. Although there weren't any issues in this project, Land Rover did note that occasionally there were regulatory conflicts when the company wanted to use its former parent's resources, given that Ford is headquartered in the United States. The FID project also satisfied Land Rover's company requirements related to Interoperability, such as the WhereNet software operating on the company's standard platform and hardware.

The outcome -- benefits from RFID in Land Rover's facilities

As a result of the RFID project, the key business benefits were a faster order-to-cash cycle and a reduction in overtime costs. Of the total project cost savings, 25% of the savings were achieved through overtime reduction, and 75% of the savings were from reducing the inventory of finished cars on site and expediting them through the order-to-cash process.

Other benefits include:


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Labour productivity: reduced the amount of labour needed to search for vehicles in the yard or to check the status of a vehicle,

Production velocity and throughput: higher velocity moving cars through the system and the ability to expedite shipping on a daily basis

Use of Land Rover's facility: decrease in work-in-process and inventory carrying costs and higher utilization of Land Rover's physical space,

Vehicle quality management: better implementation of quality procedures to ensure vehicles are shipped only once all steps have been completed and verified

Improved documentation of the vehicle and the process: creation of a historical record of a vehicle's progress as well as information necessary to perform flow analysis for continuous improvement and monitoring lean manufacturing principles.

5.5.3 Impact

The Land Rover implementation highlights a key point – the first RFID project often gives a company insight in to other areas of the business that could improve with RFID, as Land Rover only identified the vehicle-tracking project after completing its first RFID project for material replenishment. The first project also enabled the company to be more cost effective in its second project, reusing some of the original project's infrastructure to keep costs down. Another key point is Land Rover's leadership from the IT organization which added a valuable, "big picture" perspective on how the system could speed the order-to-cash cycle, and not just improve vehicle tracking. Understanding how to evaluate a project and its contribution to the overall business is critical to getting a project off the ground.

In the future, Land Rover is considering expanding the VTMS to additional facilities as well as other processes within its factories and in its extended supply chain. One option would be to use RFID to track reusable containers, beginning at the supplier's location, in transit, and upon arrival at Land Rover's facility. This type of project would incorporate global positioning satellite (GPS) system because of the distances goods travel from supplier to production. Because the company uses many specially-designed stillages to carry petroleum tanks and other items, the stillages are relatively important to Land Rover's processes. RFID tags on the stillages would provide a way of tracking the containers and preventing their misplacement. Although the tag would be on the containers, the information could also provide visibility into the movement of the goods themselves, if the contents of the container were associated with the tag on the container. The result would be both an inventory and asset tracking system. The company has a study underway to decide when it is appropriate to replace bar codes with RFID. Any future projects will also need to satisfy Land Rover's TARR requirements.


From the two RFID projects for materials replenishment and vehicle tracking, Land Rover's Dave O'Reilly, IT manager of manufacturing and purchasing for Jaguar and Land Rover, summed up his advice as follows:


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Bring in a partner for RFID: the project implementation was much more successful with WhereNet than it would have been handling the services on his own.

Allow time for the physical implementation survey: matching the physical conditions with the RFID technology could be challenging, especially in older facilities.

Get management buy-in early in the process: improving the order-to-cash cycle helped gain management's approval for the project, which in turn made it easier to convince the rest of the company.

Make the implementation easy from the end user perspective: Land Rover wanted the system to be easy to use, and the company also made sure the people who would be using the system – including all of the equipment, the readers, the tags, and the software – received the training they needed and understood how it would make their jobs easier.

5.5.5 References

Research for this case study was conducted by Kimberly Knickle, IDC Manufacturing Insights, on behalf of the Sectoral e-Business Watch. Sources and references used:

Interview(s) with Dave O'Reilly, IT manager of manufacturing and purchasing for Jaguar and Land Rover, on March 6th and April 16th, 2008

Interview with WhereNet, February 29th, 2008

Websites: www.hoovers.com (financial estimate); www.landrover.com.

http://www.hoovers.com

http://www.landrover.com


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5.6 Istituto Nazionale dei Tumori (Italy)

Abstract

The Fondazione IRCCS Istituto Nazionale dei Tumori, in Milan, is recognized nation-wide as a centre of excellence in cancer care and research. In 2005, the ICT department launched a pilot for the implementation of RFID solutions at the blood bank. The pilot yielded the expected results in terms of traceability of vital transfusions, thus increasing patient safety, saving time usually spent tracking blood bags, and enhancing compliance with auditing processes. Because of the excellent results, the Istituto received a new round of funding from the regional government to extend the solution to the entire cycle of transfusion, it will evaluate the applicability to tissue banks and will collaborate with other hospitals in Milan, which the regional government is pushing to adopt the same model.


Full name of the company: Fondazione IRCCS Istituto Nazionale dei Tumori

Location (HQ / main branches): Milan

Main business activity: Cancer care and research


Number of employees: 1,532 (excluding around 200 external consultants and 106 students / researchers with scholarships)

Turnover 2006 financial year: € 180 million

Primary customers: Oncology patients

Most significant geographic market: Italy

Main e-business applications studied: RFID


Founded in 1925, the Fondazione Istituto Nazionale dei Tumori (henceforth Istituto) is widely recognised as a top tier Scientific Research and Treatment Institution (IRCCS); in fact the organisation has achieved excellence nationally and internationally in the field of pre-clinical and clinical oncology. More than 350 research projects are currently under way, many of these being undertaken with prestigious international institutions, in addition to various collaborative projects with universities and health organisations. The Istituto admits approximately 14,000 acute-care patients (39% from outside Lombardy region) and about 12,000 day-hospital patients, every year. There is an annual average of 900,000 outpatient treatments and more than 15,000 surgical treatments (including 28 liver transplants). The Istituto’s researchers publish about 300 scientific papers each year, mostly in international scientific journals. The Foundation also manages the Lombardy Cancer Network (ROL). The Istituto has 362 acute-care beds, 51 day-hospital beds and 8 operating theatres; its diagnostic and laboratory equipment is state-of-the-art. The organization employs over 300 medical professionals, around 180 biologists, chemists and physicists, 400 nurses, and over 200 technical staff.


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The ICT department has a staff of 16 professionals and annual budget of €3.7 million. The application environment is a complex one: the hospital information system that enables to manage centralized booking, patient admission, discharge and transfer, has been developed and still runs in a mainframe environment; single wards use specific applications; the Istituto is connected to regional information networks. To complement ICT staff, the CIO office "recruited" nurses, or doctors, that in each clinical department act as "ICT Focal Points" to optimize collaboration among clinicians and technology personnel.

The role of ICT in healthcare

A long-term shift is underway to transform service delivery to a patient-centric model where prevention of acute episodes is part of patients' everyday lives at home and patients act as gatekeepers to national consolidated electronic health records. Sharing information along the health value chain will be the enabler of the personalized health paradigm. A 2001 study by the U.K. National Patient Safety Agency found that of 112 adverse incidents, 35 involved information not being available. Information and technologies that can capture, store, organize, and analyze clinical and administrative data will play a key role in supporting real-time high-quality decisions for all medical professionals and health administrators. The European Union 2004 e-Health Action Plan identified some of the information technologies that are expected to have a key role in the healthcare modernization process, in particular electronic health records, mobile and wireless, and patient identifiers; however the list of investment priorities for healthcare IT executives is much broader and encompasses things like telemedicine, disease management applications, ERP, and RFID.

Pilots on the usage of RFID tags are spreading throughout Europe, especially in large hospitals that apply tags for asset tracking. Surgical instruments, medical equipment, syringes, and other items must be properly cleaned and packaged between uses, or disposed when it is proper to do so, and must be rapidly located to prevent losses, theft and made them available in the right place at the right time. Tags on the instruments, and readers on the sterilization chambers, portable carts, doorways, and storage cabinets can validate proper cleaning, disposal, and help locate the required instruments. Furthermore, much deeper impact of RFID on the clinical processes is expected to derive from identification of patients, medications, blood, and laboratory samples. The five rights of patient care are: right patient, right medication, right dose, right method and right time. RFID offers a way to maintain those five rights, precisely by identifying the patient and its therapies and tests, and matching them unambiguously, thus having a remarkable impact on the reduction of drug and patient identification errors.

The drivers of RFID at the Istituto Nazionale dei Tumori

The Fondazione IRCCS Istituto Nazionale dei Tumori can be considered a forerunner in the usage of RFID in the European hospital sector with a pilot project that started in mid 2005. The initiative aimed to address two major pain points: patient safety and the lack of auditing of transfusion processes.


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Patient safety. Blood banks have to worry about two types of risks: risk of infection and risk of mismatching patient and blood type. The former is almost reduced to zero due to investments and scientific advances that nowadays have made collection and storage of blood donation safe (see Exhibit 5.6-1). The latter is highly dependent on nurses and physicians making the right choice in a traditionally manual process. This process on the one hand involves taking samples from a patient, tracking, storing and analyzing those samples to identify blood type while encompassing in-taking donations, categorizing them under the right blood type and unit type (plasma, blood platelets and staminal cells), transferring blood bags from bank to wards where the transfusion is taking place, and eventually matching the patient with the appropriate blood bag; in essence, there are multiple sets of information on the "identity" of patients, samples and blood bags raising the risk of mismatching.

Exhibit 5.6-1: Decline in HIV, HBV and HCV risks of transmission through transfusion

Source: M.P.Busch, Jama, 2003

Lack of auditing of transfusion processes. Blood banks have to be able to trace and optimize usage of blood bags, especially as donations become scarcer and scarcer. Information must be collected, archived and shared at the hospital, regional and national level. At the Istituto, each transfusion uses a bag containing the blood component required by a specific patient, and is prepared according to a precise procedure. A label is affixed to the bag, showing all the necessary information, and the bag is then given a final check before it is sent to an operator who takes it to the destination department. On arrival, a doctor who supervises the transfusion as a qualified nurse carries it out records it on the patient’s notes. The basic architecture consists of three information systems: the analytical laboratory (DN-web), the central hospital information system, and the application, which controls all the regional transfusion organisations (EmoNet). However, the three systems do not operate in an integrated way. There is also a lack of detailed reporting on the final part of the process: for example the Transfusion Centre had no information about the status of the units delivered (if transfused, if stored in the ward, if wrongly issued, if nurse shifts happened when the transfusion had to take place, and so on).


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The majority of ICT resources at the Istituto Nazionale dei Tumori have been dedicated to maintenance and upgrades of the existing systems, over the last three or four years –"most of the budget was dedicated to keep the lights on", says Elena Sini, CIO of the Istituto – as it is often the case in public healthcare in Italy and beyond; in fact, IDC surveys indicate that, in 2005, 25% or less of the IS budget was dedicated to brand new projects in the Western European hospital sector, whereas the remaining share was allocated to maintenance, routine upgrades, or completion of projects started in previous years. Therefore the ICT department had been looking into potential applications of RFID, for tracing blood bags, radioactive waste, and tissues, but no initiative had been launched.

Implementation of the project

In summer 2005, Fondazione Politecnico di Milano, the R&D foundation of the Polytechnic University of Milan, approached the Istituto Nazionale dei Tumori, suggesting a partnership to apply for funding that HP EMEA was making available for innovative projects. The combined effort of the two institutions won the attention of HP EMEA management in August 2005 and a project was started in September 2005.

Between September and December 2005, Fondazione Politecnico di Milano and HP consultants analyzed processes and workflows and HP labs assessed the suitability of RFID tags and frequencies to the blood bank environment, which requires materials that can stand refrigeration, boiling, gamma-rays sterilization and prevent radio-waves absorption.

Between January and June 2006, the three partners developed the solution, and performed testing and debugging.

From June 2006, 6 physicians and 13 nurses were trained and started to use the technology.

This pilot project has been implemented in the Allogenic Bone Marrow Transplantation ward (TMO), a new ward belonging to the Department of Oncology since 2001. The ward has eight beds, accounting for 256 admissions in 2005. The staff consists of six doctors, thirteen nurses, a ward sister, and administrative clerks. The Istituto’s Transfusion Centre (SIMT) belongs to the Department of Experimental Oncology and provides blood bags and other services to all other wards. SIMT's staff consists of six laboratory technicians and six biologists / doctors. The TMO was selected to act as the pilot ward for three main reasons:

It represents one of the excellence Departments of the Istituto. This is true also for the blood transfusion process; in fact the compliance with recommended guidelines enables the ward to return only 2% of unused blood bags every year, against an average of the Istituto of 11%.

The ward head nurse is a very pro-active advocate of innovative ICT solutions and acts as ICT focal point for the ICT department.


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The ward uses 9.1% of the total number of transfusion units – 1,177 out of 12,985 throughout the entire Istituto –, but they account for 26% of total value of managed blood bags: i.e. the average value of blood units they use – at roughly €200 a piece – is much higher than the average of other departments; therefore the potential impact in terms of higher efficiency and effectiveness is much deeper.

The RFID solution

HP, Fondazione Politecnico di Milano and the Istituto co-developed the RFID pilot platform. Hardware components include 3 HP iPAQ handheld devices equipped with RFID antennae, one desktop with a cradle to synchronize with the handhelds, and an RFID printer. RFID tags are used for blood bags, patient wristbands and staff cards.

The developed application, custom developed by Fondazione Politecnico di Milano and HP on the Microsoft.NET platform, consists of four main elements (see Exhibit 5.6-2):

1. The transfusion management application running on PDAs enabling the staff to perform patient check-in, patient identification, self-identification, blood bag identification, bedside cross match.

2. TMO ward client application to download to the PDA the admitted patient’s data and to download from the PDA the data on performed transfusions.

3. Transfusion Centre client integrated with EmoNet system (an application developed in the late 1990s by Insiel to connect regional blood banks) for seamless print of standard and RFID labels simultaneously on the two printers.

4. HTTP daemon filling the XLM exchange file on the ward client and managing EmoNet’s database seamless alignment via the internal communication network.

Exhibit 5.6-2: The RFID solution

DN-WEB Laboratory

Request Manager

DN-WEB Laboratory

Request Manager

SIMT ClientSIMT Client

DN-WEBDN-WEB RFIDRFID

EMONETEMONETSIMT ClientSIMT Client

DN-WEBDN-WEB RFIDRFID

EMONETEMONET

DN-WEB Laboratory

Request Manager

DN-WEB Laboratory

Request Manager

SIMT Staff

Standard bar-code printer

Standard bar-code printer

EMONETEMONET RFID PrinterRFID Printer

PDA Application

PDA Application

TMO ClientTMO

Client

DN-WEBDN-WEB RFIDcheck-in

RFIDcheck-in

RFIDtransfusion

RFIDtransfusion

PDA Application

PDA Application

TMO Nurse / doctor

TMO Nurse / doctor

EMONETEMONET

Direct link

Web / XML link

Source: Istituto dei Tumori


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Involvement of stakeholders

The project team involved people from the Istituto's ICT department (3 resources including the CIO), Fondazione Politecnico di Milano (3 resources), HP (2 resources and temporary allocation of man-hours from HP lab engineers) and medical professional and administrators, from day one.

When the pilot project started, the CIO presented the plan directly to the head of the Istituto, at that time a special commissioner, and, when the Istituto acquired the Foundation status, she kept the new president and general manager informed.

The selection of the ward was agreed with the physician heading SIMT and the TMO head nurse was part of the implementation team. The direct involvement of the head nurse was instrumental to avoid changes disrupting the daily routine, which already had very standardized processes in place. For instance RFID tags only complemented the existing bar code labels to prevent any disruption of the workflow in this pilot phase.

To ensure that the new system became embedded in day-by-day operations, ICT technicians were trained to provide helpdesk, as soon as the application went live.

The results of early involvement of all stakeholders were: continued senior executive commitment, and comfort, and even sense of proud, for nurses and physicians using the innovative system. Thus take up among end-users was very rapid; mean usage rate in September – October – November 2006 was 83% but from the fourth month of testing the mean usage rate has shown above 90%; when taking into account incidental events occurred during testing phase (system unavailable, patient transferred to detached ward area and so on) the mean usage rate indicator points to 98,4%.

How the system works today

All professionals in the TMO ward are using the system; nurses are the heaviest users. When patients are admitted, their names are checked against the data in the registers of the central information system by using handheld terminals (each morning the handheld are placed on the cradle and updated with the list of patients), fitted with RFID antennae. The nurse then gives the patient a wristband and initialises the tag bedside, so that the patient can be safely identified. Doctors and operators then use PDAs to transmit and acquire information, by means of RFID labels affixed to each bag by the Transfusion Centre as it is assigned. The nurses receiving each bag use their PDAs to record the time of arrival and read the patient’s wristband to match the data, thus ensuring that the correct transfusion bag has been received. The transfusion operator also uses the PDA to identify himself by means of a badge, and then continues with the procedure, recording both the starting time and the finishing time of the process, together with a set of useful data relating to it. The new RFID system makes transfusion absolutely safe: if there is a conflict between the data read from the bag and the patient’s wristband, the system immediately issues a visual and acoustic alarm, and halts the application. Staff in the Transfusion Centre has been provided with an RFID printer to issue the new labels to tag the blood bags delivered to TMO ward. Now the staff is able to receive information electronically also from the ward about the transfusions performed and to monitor the


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status of delivered blood bags. When the patient is discharged the staff is responsible for deleting information embedded in the disposed wristbands.

Exhibit 5.6-3: Transfusion process at TMO after implementation of the RFID solution

Transfution Center Allogenic Bone Marrow Transplantation Unit (TMO)

Ward admission

Requirement: admission list transmitted to PDA

Doctor’s visit

Patient data check against the central information system registers. RFID

wristband initialisation by nurse.

Blood sample collection

Sample deliverySample receptionB

lood

Req

uest

Sample analysis

Blood bag assignment

Blood bag deliveryReq

uest

Pro

cess

ing

Bag tagging and ID check

Visual check prior to delivery

Blood bag reception

Unit storage preparation

Transfusion

Tran

sfus

ion

RFID bag-patient cross match, transfusion

event recorded Transfusion data download from PDA, update of

synchronisation file for Transfusion Centre database

alignment

Audio visual alert in case of

mismatch

Source: Istituto dei Tumori

5.6.3 Impact

HP awarded the bulk of the funding to the Istituto, thus the organization did not have pressing needs to set and measure ROI targets. However the collaboration with Fondazione Politecnico di Milano granted to establish a model for KPI measurement (see Exhibit 5.6-4).


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Exhibit 5.6-4: RFID Key Performance Indicators Map

BENEFITSBENEFITS

∆ Effectiveness

∆ Productivity

∆ Margin∆ Cost ∆ Revenue ∆ Volumes

∆ Information∆ Brand ∆ Patientsatisfaction

TangibleTangible IntangibleIntangible

∆ Efficiency

∆ Internal Quality ∆ Time ∆ External

Quality ∆ Flexibility ∆ Process

Planning & Control

∆ ComplianceGuidelines

Source: Istituto Nazionale dei Tumori/Fondazione Politecnico di Milano

Given the form of funding and the nature of the pilot, tangible benefits turn out to be of relatively little importance, as the application run side-by-side with the existing manual and bar code procedures already in place: no significant cost reductions and productivity improvements were recorded.

The intangible benefits instead, despite being hard to quantify, were the most relevant:

Total traceability of the transfusion process.

Improved safety of patients and medical staff involved in the transfusion process.

Non-invasive technology for patients, with increased and improved capacity for intervention where patients are unable to interact with the medical staff.

Enhanced process awareness by staff.

Enhanced capability of process monitoring and controlling, through establishing a continuous flow of information between the departments involved.

Increased "brand" recognition for the ward and the Istituto as a whole, due to the degree of innovation that the RFID solution introduced.


The TMO pilot project was a challenging one: it was very innovative in a traditionally conservative environment, such as healthcare; it had to involve multiple stakeholders; and most of all it dealt with vital and very private information. The success factors that enabled to tackle those issues were:


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Putting forward a bold strategic vision to take advantage of HP funding, despite the traditional resistance of public sector environment.

Involving of all stakeholders, from senior executives down to nurses operating in the ward and encourage a proactive attitude.

Creating a project team, including Fondazione Politecnico di Milano (project manager, consulting and technology assessment partner) and Hewlett-Packard (technology partner) that enabled to combine know-how, good practice and coherent methodology.

Developing a pilot that was as user-friendly as possible and built on the existing standardized processes, instead of infringing on day-by-day routines of medical professionals.

Focusing on selected KPIs that addressed the major pain points: patient safety and transfusion information requirements.

Taking care of interoperability with existing systems, instead of pushing for a rip-and-replace approach.

Providing training and helpdesk to end-users in time for the launch of the application.

The pilot also enabled to highlight bugs in the design, deployment and usage of the solution. For instance data formats had to be adjusted to take into account double names or surnames of patients and various formats of birth date inputs, and stricter file transfer and back up procedures had to be put in place, to make sure EmoNet was updated correctly.

Next steps

The success of the RFID pilot project at the Istituto's TMO is increasingly recognized beyond the organization boundaries; in fact, in November 2006, the Istituto's CIO presented the project at the Healthcare Risk Management Forum in Arezzo, where it won accolades from one of the healthcare policymakers of Lombardy regional government. As a result the regional government allocated €142,000 for a 2-year initiative aimed at extending the solution to the entire SIMT. The new phase of the project will aim at:

Extending the RFID tagging to all 13,000 blood bags dispatched every year by SIMT to all wards (and, as a pilot, to bags delivered to an external clinic, the Istituto Besta, which specializes in neurology and already receives its supplies of blood from the Istituto Nazionale dei Tumori).

Improving the integration with the laboratory application (DN-Web) and the regional blood bank network information system (EmoNet), beyond the existing XML file transfer. Better integration will also include single sign-on.

Implementing a wi-fi network to enable real-time synchronization of data between servers and handheld devices.

Applying RFID tags also to blood samples taken when the patient is admitted and visited by the doctor, in order to close the entire loop of transfusion (Exhibit 5.1-3).

Distributing RFID badges to staff, instead of sticking an RFID tag on existing badges.


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Tightening privacy; processing of discharged patients and disposed wristbands is for instance an area where the Istituto is keen to apply state-of-the-art process and technologies.

Estimates were made to evaluate the results in terms of informative feedback to Administrative staff and Transfusion Centre in case of extension of the solution to the overall transfusion volumes. The aim was to see on how many units the Istituto Nazionale Tumori would have received an informative feedback (and so how many units the Istituto would have under control) if the application were extended to all departments. The analysis was based on the following hypotheses:

Units delivered by Transfusion Centre in September, October and November 2006 (2,405 units delivered).

Return rate of non-transfused units registered in TMO ward in the test period (13,2%).

System usage rate registered in TMO unit (98.4%).

Quality standards followed by TMO Unit staff.

As a result on 2.405 units delivered (estimated value: over €470,145), the Istituto would have been able to have an informative feedback on 2,371 units (98,4%). The Istituto would actually have become no informative feedback on 1,4% of the sent units, this caused by incidental events or non-use of the systems by nurses as it happened in the TMO ward. It is important to notice that the value of this “little” 34 units is over €6,740.

The excellent results of the pilot also had spill over effects on usage of RFID beyond the blood bank; in fact the 2007 ICT budget has made available €200,000 to test the solution for the tissue bank. The Istituto runs a massive tissue bank coming from sample tissues taken during internal surgeries and used for research purposes; after tissues are taken, they must be refrigerated and stored at –80°, as quickly as possible, as the time span between sampling and storage infringes on the quality of the sample, thus tracking and tracing is of paramount importance.

5.6.5 References

Research for this case study was conducted by Massimiliano Claps, Research Director, IDC EMEA Health Industry Insights on behalf of the Sectoral e-Business Watch. Sources and references used:

Interview(s) with Ing. Elena Sini, CIO of Fondazione IRCCS Istituto Nazionale dei Tumori, September 18th, 2007, Milano

Websites:

o Fondazione Istituto Nazionale dei Tumori, http://www.istitutotumori.mi.it

o National Ministry of Health, http://www.ministerosalute.it

Fondazione Politecnico di Milano, http://www.fondazionepolitecnico.it/pagine/pagina.aspx?&L=EN

HP, http://h20247.www2.hp.com/PublicSector/cache/83502-0-0-107-199.html

http://www.istitutotumori.mi.it

http://www.ministerosalute.it

http://www.fondazionepolitecnico.it/pagine/pagina.aspx?&L=EN

http://h20247.www2.hp.com/PublicSector/cache/83502-0-0-107-199.html


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5.7 New Look (UK)

Abstract

NewLook is a UK fashion retailer operating 590 stores in the UK and Ireland and 263 stores in France under the brand name Mim. In addition the company is expanding internationally in Europe and the Middle East. In 2004, New Look conducted a concept trial of RFID within their logistics unit. Following the trial, the retailer decided not to implement RFID at that time, due to standardisation issues, prohibitive technology costs and poor technology performance.


Full name of the company: New Look

Location (HQ / main branches): Weymouth, Dorset (U.K.) / 590 stores in the UK and Eire, 263 stores in France (Mim), 13 stores in Belgium and France, franchise stores in Dubai, Kuwait, and Saudi Arabia.

Main business activity: Retail of apparel, lingerie, shoes, and accessories


Number of employees: Over 5,000

Turnover 2006 financial year: GBP 640 in 2003. NewLook was taken private in 2004 by private equity firms Apax Partners and Permira, which own 66% of New Look.

Primary customers: Consumers

Most significant geographic market: U.K., Eire, France, Belgium, Middle East



New Look sells apparel, lingerie, shoes, and accessories at over 866 stores in the UK, Belgium, France, and the Middle East. New Look customers have an average age of 30 and most of its products are private labels. In France the firm operates 263 stores following the acquisition of the Mim chain in 2003.

New Look main competitors in the UK include H&M, Next, Top Shop and Dorothy Perkins, and overall in the UK the firm has a 4.8% market share, with over 6 million customers (Source: TNS).

The UK retail sector remains highly competitive and increased store operating costs, escalating energy costs and rising rents and rates are all squeezing margins. As a fashion value retailer, New Look must continually look for ways to improve efficiencies in everything it does — from sourcing to supply chain, to delivery of goods into stores and to the operation of stores themselves. With one central distribution centre, previously in Weymouth and relocated to Lymedale in 2005, New Look must ensure that this vital link


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in its supply chain is as efficient as possible. To support its expansion strategy and growing sales volumes, the company decided to open a new distribution centre in 2007.

Within this context, New Look started in 2004 a new strategic program with the objective of improving operational accuracy, productivity and overall efficiencies of its Distribution Centre (DC).


New Look conducted a 3-months RFID concept trail in 2004 with the objective of assessing the potential impact of RFID in improving DC efficiency.

One productivity measure used as a benchmark was the time needed to perform the scan of a tote. With barcode technology, it took 5 seconds to New Look DC workforce to complete a tote scan along with the visual verification of the scan on a screen. If New Look had been able to reduce the time needed to perform the scan and improve the process accuracy thanks to full automation, productivity and efficiency of the DC would have increased significantly.

In addition, New Look decided to benchmark sales performance and replenishment accuracy of the stores receiving deliveries tracked with RFID versus traditional ones.

At the time of the trial, New Look DC handled 1.5 million units per week with a total DC workforce of 600 people.

New Look used Microlise software and RFID Gen 1 tags provided by Philips during the trial. The RFID trial was conducted at box-level, with each box carrying 10 to 14 items on hangers. 12 to 20 boxes were processed simultaneously at four loading bays equipped with RFID readers.

The RFID tag price for New Look was GBP 0.20 at the time of the trial.

5.7.3 Impact

The evaluation of the RFID trial performance and the assessment of the investment required to deploy the RFID solution in the DC and to track with RFID also store deliveries turned out to be negative.

New Look experienced the following issues that stopped the retailer in implementing the technology:

RFID read rates were poor. Although New Look managed to improve read-rates during the course of the trial, with optimized tags and readers positioning, the performance were not sufficient to meet the firm accuracy objectives. The main factors that negatively affected performance were caused by simultaneous read of up to 20 boxes and by radio interferences resulting from the proximity of the four RFID-equipped loading bays.

The company for two main reasons considered the investment costs prohibitive. On one hand, high tag prices were a strong barrier to a full-scale deployment of the technology. On the other side, to make the business case robust, New Look wanted


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also to track with RFID the goods delivered at the stores. Thus, New Look considered the following two options: installing RFID gates at every store – but again this solution was considered as too expensive in 2004 – or install RFID gates on-board the vehicles transporting goods from the DC to store, but at the time no technological solution was found.

New Look also had concerns on the RFID standard, mostly due to the lack of a consolidated frequency standard.

In conclusion, New Look believed that it was too early to move ahead with the RFID implementation, as it considered the technology to be unproven and too expensive in 2004.

As a result, the firm decided to implement a fully automated distribution center without using RFID, including the implementation of 9 automated hanging systems, 4 mini-load cranes - a rail running crane designed for automatic storage of non-palletized loads such as cartons, trays and totes - 4 mini pallet cranes, a garment sorting machine and pick-by-light technology - pick-by-light systems consist of lights and LED displays for each pick location; the system uses software to light the next pick and display the quantity to pick in order to improve process accuracy and productivity, especially suitable for warehouse areas with a high number of picks per SKU (Stock keeping Unit).

As a result of the DC automation, New Look currently manages 3 million units per week with a DC workforce of 700, versus 1.5 million units per week in 2004 with a workforce of 600.


The RFID trial enabled New Look in learning where DC process inaccuracy took place, and this helped the company to improve business process efficiencies thanks to re-engineering efforts and modernization of the DC automation equipments.

New Look reported that if the RFID tag costs would have been at a level of $0.10 to $0.15, they would most likely decided to start the RFID implementation. Under this assumption, New Look would have been able to achieve a payback for the RFID investment between 24 to 36 months, which was considered to be a good Return On Investment (ROI) target by the company.

5.7.5 References

Research for this case study was conducted by Ivano Ortis, Global Retail Insights, an IDC Company, on behalf of the Sectoral e-Business Watch. Sources and references used:

Interview with Jason Keegan, Logistics Director, April 29th 2008

New Look, http://www.newlook.co.uk

http://www.newlook.co.uk


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5.8 Futura Systems (Spain)

Abstract

This case study analyzes Futura Systems implementation of Radio Frequency Identification Devices (RFID) in its production lines as well as in its warehouse. Futura Systems is a Spanish polyethylene tubes and accessories manufacturer, part of a larger Italian polyethylene tubes producer, System Group. The implementation took place at its headquarters in Rodoñá, Spain and involved being able to track all its products during the production process. Futura Systems started conversing with Atos Origin about a possible implementation project in October 2006, with the project taking off in February 2007. After a 3-month long pilot phase, which involved Futura Systems' three most expensive product lines, Futura decided to start a second implementation project that covered not only the remaining production lines but also RFID in the warehouse. Currently, Futura Systems has begun a third RFID implementation project, which will add this benefit to three new product lines.


Full name of the company: FUTURA-SYSTEMS, part of System Group

Location (HQ / main branches): Rodoñá, Tarragona, Spain

Main business activity: Production of polyethylene tubes and accessories


Number of employees: about 45; System Group in total employs about 400 people

Turnover in last financial year: (not available)

Primary customers: Suppliers of construction material and electric material

Most significant geographic market: Primary market: Spain (95% of sales)

Main e-business applications studied: RFID in the manufacturing process


Futura Systems was founded in 1997 in Rodoñá, Tarragona Province, Spain. The company is family run and is made up of around 45 employees. Futura Systems along with another 17 independent companies make up System Group, and Italian producer of Polyethylene tubes and accessories. The firm's core business is production of polyethylene tubes and accessories for suppliers of construction material and electrical material. Since 95% of its sales are experienced in Spain, its primary clients include: S.O.T. (Suministres Obres i Terrenys), DESESA, IBERAGUA LEVANTE, DISAPLAST, ALMACENES ELECTRICOS MADRILEÑOS.

Often in this industry, like in the case of Futura Systems, there are no production control data, statistics, or reporting capabilities. Rather, polyethylene tube production is measured by weight (kilograms) or length (meters), so companies' production depart-


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ments will have targets based on meter quantities produced. As a result, the main driving force for an RFID implementation was control of production.

Futura Systems, like any other manufacturer in today's global market place, faces some critical challenges, such as:

How do you keep cost pressure to a minimum, being involved in such a material intensive market? Especially when having to compete with low cost markets.

Being a small company, how do you take on large-scale implementations, which can be an extreme financial burden and possible risk?

An implementation of RFID was a possible way to remedy rising costs, by addressing unnecessary costs endured by Futura Systems, such as production problems and shipping errors. An RFID deployment would allow Futura Systems to be able to manage and handle problems in the manufacturing lines sooner and more rapidly, hence, limiting the costs of errors in production. The accuracy brought on by the RFID implementation limited the damage caused by the shipping errors.

Exploring RFID

The implementation period took a long time to take off because it took time to find the "right" tag, which involved a large quantity of trial and testing. In order to select the most suitable RFID implementation, after much research, a Futura Systems representative attended an RFID conference in Valencia, Spain, having the opportunity to see many different offerings. Finally, Futura Systems opted for Atos Origin, due to their already established long-term relationship and Atos Origin's expertise in applying RFID systems to the manufacturing industry. Atos Origin was the software and middleware supplier, while DCB, an Atos Origin partner in Spain, was selected to provide the hardware.

Finding an RFID tag that fit the requirements was not an easy task, for the atmospheric conditions to be sustained were not regular. Futura System's warehouse is in an open area; so stocked tubes are not protected from rain, flood, wind or heat. Futura Systems had to find an RFID tag that would be able to survive these extra weather conditions. Another key issue was that the steel and iron material in the tube also had to tolerate the tags.


The RFID implementation project began in February 2007, and is still going on. The project team is composed of 5 people from Atos Origin (software and middleware), 3 people from DCB (hardware) and the Futura Systems' Logistics Director. The scope of the project was to be able to track production, at the beginning in three product lines, and then in all of the product lines as well as in the warehouse. Hopefully, this would reduce costs brought on by errors in production or in shipping by the workforce.


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Implementation: installation details, costs and technology

The pilot project was three months long, and it involved the deployment of RFID tags to the three most expensive tube production lines. In this manner, it would be easier to recover the investment and reach a positive ROI (return on investment). This first implementation cost a total €70,000 for hardware, software and services.

The second implementation project was obviously easier and faster to implement than the pilot project (1st implementation). This second phase involved all the remaining product lines as well as the deployment of RFID to the warehouse. By adding RFID to the warehouse, the company would be better able to control stocks and control shipping of tubes. For example, often the difference between two tubes is simply a couple millimetres in the diameter, creating high levels of error by the workforce. However, after the implementation, an error would be signaled immediately, allowing the workforce to correct it prior to the shipping leaving the warehouse. This second implementation project cost a total (hardware, software and services) €110,000 including both the production lines and the warehouse.

A third implementation project, which has not yet started, will involve three new product lines, and will take about 6 months. This deployment should be operative by mid 2008, and will cost between €30,000 and €40,000.

The most elevated cost of the project was the RFID hardware, in particular RFID tags. For the first implementation (pilot project) Futura Systems bought 30,000 tags (initially 20,000 followed by another 10,000). The initial price per tag was €0.40, but for the second implementation project the price was negotiated to €0.18 per tag. Regardless, the most important criterion was that 1-meter of tube could not be more expensive to produce than the tags the tubes contained.

Atos Origin also customised the RFID readers, forcing them to generate a red line or make a noise if there were errors when reading the tags, at either the production or logistics level. This was extremely beneficial for the workforce. For example if a shipment contained the wrong product it was signalled immediately, rather than when it was received by a client and did not fit properly.

Required change and stakeholders

When Futura Systems was figuring out how to go about implementing RFID, it also had to consider any important requirements and conditions that had to be met prior to implementation. Fortunately, there were no organizational changes to be made in order for the project to move forward. Atos Origin took care of the training and educating the workforce on how to use the new system. Any technological changes were supported by Futura Systems' Enterprise Resource Planning (ERP) software, LogiClass, where the updated data regarding stocks is stored. Atos Origin took care of an interface to integrate LogiClass with Atos Origin's software, which gathered the RFID data.

There are several main stakeholders that benefited from these implementation projects. Among them: the financial department, which keeps track of inventory, the production department, the logistics department and warehouse. The warehouse was very involved because a key benefit for them was to be able to see if there was overstock or


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overproduction in real-time. Obviously, since before the project took off, top management was also heavily involved.

Current situation

As of the end of the third quarter 2007, the full scale RFID project is 70% complete and operative. As already mentioned above, the third stage of implementation, which is handling 3 new production lines will be completed by mid 2008, at which point the project will be 100% complete. There are, currently, no foreseeable projects after this third implementation.

Atos Origin will continue to take care of the IT formation of the workforce, teaching them how to use the RFID readers. Overall though, there were no significant changes or re-engineering of the business processes. The main effort was done at the logistics level.

5.8.3 Impact

Even though, Futura Systems did not use any type of financial metrics, such as Net Present Value or Return On Investment, to make the final decision on whether to launch or not the RFID project they still made sure they would achieve a positive return on the RFID investment in a very short timeframe.

However, since the beginning the main objectives were production control, and reducing errors in production or shipping, so reducing costs was a secondary benefit rather than a primary target.

As for quantitative data the company utilized to better understand the benefits of their RFID implementation project, the following was demonstrated:

Shipping errors, usually cause by errors in the workforce, were reduced from 3% to 0.5%.

Inventory tracking, which once took 6 people 8 hours to do every month, was reduced to just 2 people for 2 hours once a month. However, when the final implementation project will be concluded and all of the production lines will be RFID tracked, Futura Systems hopes this process will be automated and only have to be verified once a year.

Overall project goals, such as having real-time visibility and information regarding stocks, were also realized by the implementation project. However, due to the recentness of the implementation's completion, there is still no data available on the savings of overstock reduction.

Addressing concerns

When it came to addressing privacy or security concerns, Futura Systems decided to take extra measures to ensure their business data was kept internal. Since the databases and servers, which would hold the RFID data, were controlled from an external company, Futura Systems decided to invest in a second server that would store the collected RFID


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data. This allows Futura Systems to keep their business data safe and not have to share it with the outside world.

Another concern Futura Systems addressed was possible health problems generated from the RFID tags in the workplace. Futura Systems consulted its insurance company in regards to the implementation project. Futura Systems was pleased to find that the tags had no potential risks on the well being of its employees, and, hence, moved forward with the implementation.


Overall, Futura Systems believes the RFID implementation project was a very positive experience, and the results were even better than it had originally expected. The project team, which included parties from Atos Origin, DCB and Futura Systems, had a smooth collaboration and everyone included was eager to work together.

The most difficult hurdle to overcome was difficulties with the RFID hardware, and in particular with RFID tags. In effect, during the pilot phase it took a significant amount of time to properly implement the hardware. After a long phase of testing, thousands of tags had to be eliminated. Futura Systems along with Atos Origin, who is a partner of the hardware provider, strongly guided the company through the implementation process.

5.8.5 References

Research for this case study was conducted by Laura Converso, IDC European Software and Services Research, Gaia Gallotti, IDC Manufacturing Insights, and Ivano Ortis, IDC Global Retail Insights on behalf of the Sectoral e-Business Watch. Sources and references used:

Interview with Roser Cabal, Logistics Director, Futura Systems, September 26, 2007

Futura Systems, http://www.futura-systems.com

System Group, http:/www.tubi.net.

http://www.futura-systems.com

http://www.tubi.net


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5.9 Schuitema (Netherlands)

Abstract

This case study analyses Schuitema's implementation of Radio Frequency Identification Devices (RFID) along its distribution and supply cycles, under a project called FRESHLINK (project Vers Schakel). Schuitema is a goods and service delivery provider in the Netherlands for 450 C1000 local supermarkets. The firm chose its Breda Distribution Centre for the RFID pilot implementation. The RFID pilot implementation involved other key players along the supply and distribution cycle, including one of its suppliers, W. Heemsherk, and one of its end-users, a C1000-supermarket. The main IT vendor leading the pilot RFID deployment was Capgemini. Fresh Link began in May 2005 took two years to complete and involved a total of 8 partners. The pilot project ended in May/June 2007 and Schuitema has now started to develop a business case to involve all its suppliers, distribution centres and end-user C1000 supermarkets.


Full name of the company: Schuitema (73% owned by Royal Ahold)

Location (HQ / main branches): Amersfoort, The Netherlands

Main business activity: Distribution of fresh produce goods from suppliers to major supermarket chain in the Netherlands

Year of foundation: 1888 (in 1988, 73% purchased by Royal Ahold)


Turnover in last financial year: € 3,184 million

Primary customers: C1000 supermarkets

Most significant geographic market: The Netherlands

Main e-business applications studied: RFID in supply and distribution processes


Schuitema was founded in 1888 in Amersfoort, The Netherlands as a goods and services delivery firm, providing its services to a large chain of Dutch supermarkets, C1000. Schuitema deals, for the most part, with fresh products, delicate and easily spoilable. Schuitema has six distribution centres in the Netherlands, from which it allocates all the produce it receives and then ships it off to the respective end-user supermarkets. Schuitema handles exclusively the Dutch market. The Fresh Link project was launched by Schuitema, but involved a total of 8 partners, all with their respective business drivers and goals. The RFID deployment project attracted a great deal of attention and support due to its originality. In May 2005, when Schuitema started looking into RFID, the project was a pioneer, for the application of RFID had never been experienced and studied when dealing with the retail supply chain of fresh edible products.

The retail industry of fresh products is extremely susceptible to decay, due to the delicate nature of fresh vegetable and fruit. In the past, the industry was plagued by problems in


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shipping and shelf related logistics, which caused the material to rot. Hence, Schuitema's main drivers and goals included:

Acquire insight into the possibilities of RFID improving the shelf product quality, and enhancing shelf availability, by:

Reducing amount of decayed goods, decrease loss of products as well as Out-of-stocks (OOS)

Increasing cooling processes monitoring

Improving the supply and distribution chains' transparency

Increasing the transparency within supply chain operations.

Schuitema's desired end result was to improve the quality of the products made available at the C1000 supermarkets, and consequently better serve its customers.

Exploring RFID and Partners Involved

In total there were 9 key players involved in the Fresh Link project, all with respective desired outcomes in mind (Exhibit 5.9-1):

Exhibit 5.9-1: Schuitema’s partner firms involved with the RFID project

Partner Business Activity SCHUITEMA Distributor of fresh produce CAPGEMINI IT services provider CENTRAL BUREAU LEVENSMIDDELENHANDEL (CBL)

Owner of the fresh product crates (versfust-kratten) and Dutch supermarket organizational representative

W. HEEMSKERK B.V. Produce supplier INTEL Implementation of RFID – EPC technologies and chip

supplier KPN Technical infrastructure provider NXP Semiconductors Tag supplier WAGENINGEN UNIVERSITEIT en RESEARCHCENTRUM (WUR)

Expertise on existing and alternative temperature control systems regarding supply chains

CONTAINER CENTRALEN (CC) Pool manager of the CBL crates. CC started its own pilot specifically for crates’ track and tracing in the supply chain.

Back in 2005, when Schuitema and its partners began looking into RFID applications, the technology available was somewhat limited or unfit for what Schuitema was looking for, so it became very involved in helping RFID know-how develop further at EU levels. The Fresh Link project completely adheres to EPC global standards and even contributed to putting the standards concerning RFID to practice.


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The process

Schuitema launched the pilot (Phase 1) in May 2005 and moved to full implementation (Phase 2) in September 2006. The pilot was designed to gain insight into the most beneficial uses of RFID technology in the fresh cut vegetables supply chain. Important questions around this technology, based on the pilot, regarded RFID functionality in terms of necessary conditions to asses it; information management, from selecting information to setting up an information architecture; optimal use of RFID knowledge and use towards the supply chain.

Overall, the Vers Schakel project was laid on a fully operational and existing supply chain: from the supplier (Heemskerk), via the distributor (Schuitema) to the C1000-supermarket (De Veij) and backwards. 2,500 standard CBL fresh vegetable crates were fitted with RFID tags. The contents of the crates consisted of small consumers’ packages of fresh cut vegetables, in preset and unvarying amounts, always keeping one article type per crate. Using RFID, the crates are tracked, both empty and full, throughout the chain and it was possible to access real-time information through the central database, allowing a more precise management of the end product. The crates involved are part of a general pool of 20 million crates in total managed by the outsourced organization CC, Container Centralen.

The pilot phase was limited to the exchange of crates, between Heemskerk, where readers were placed at the labelling line and the loading dock, and Schuitema Distribution Center in Breda, where RFID readers were placed at the loading/unloading point. As the container or pallets passed through the reading port, all the information became visible on a computer display while feeding the central supply chain information database. At this point of the pilot, errors could be traced and corrected immediately.

One of the pilot’s goals was to reach optimal levels of RFID-tags reading accuracy, as this is a fundamental variable to ensure accurate real-time tracking & tracing of crates. For this reason, during the pilot Schuitema tested different configurations for readers and tag attachments. Some of the results deriving from this pilot were that it was possible to trace crates throughout the chain; reading accuracy depended in general on the crates’ contents, as different product combinations resulted in different reading accuracy percentages. At the end of phase 1, NXP semiconductors supplied Gen2 UHF RFID tags, so both oxidation and reading accuracy were no longer a problem.

By the end of the pilot-phase, Schuitema extended RFID-tracking from its distribution center and C1000 supermarket Mario De Veij. With this final link the chain was made complete, from the supplier to the retail shop. 80 tags in rolling containers carried 40 crates through different reading ports until the shop shelf.

During the second phase, the goal was to achieve shelf stocking and crate registration within 15 minutes. C1000 supermarket Mario De Veij would fill a daily order of vegetables that was communicated by telephone to Heemskerk where 2 RFID scans occurred: at the delivery filling process and upon loading the containers into the Heemskerk truck. Containers were then distributed to C1000 supermarket Mario De Veij. Schuitema


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checked again the crates, during the delivery, after compiling and before loading. Once at C1000 supermarket Mario De Veij, crates were distributed between shop and cooling cells (marked as “destination cooling cell”).

Whenever the 15 minutes limit was exceeded, an email or SMS alert would be sent to the stakeholders to inform that products were outside the optimal cooling conditions.

Restocking shop shelves implied only removing those crates from the cooling cells according to best before date. Removed crates, sent to restocking, were RFID registered as “existing cooling cell” while “empty crates” were registered as such. This way, users were alerted on remaining perishable goods. Afterwards, empty crates were returned to Schuitema and registered as “received”.

Temperature logging devices were attached to the crates to monitor the product’s temperature during the logistics process which made it possible to pinpoint it at any given location. Alerts on this regard were also implemented.

In this project, crates were tracked with 99% to 100% accuracy along the entire supply chain. It is also important to note that even from the pilot phase information was available not only throughout the entire chain, but also to all parties involved. Currently, Fresh Link is using 2 tags per crate in order to allow optimal read rates by attaching one tag on each short-side of the crate. This decision was made to permit proper insulation and accurate readability while containing implementation costs.

Container Centralen (CC) had also carried out an accompanying pilot for pool management. The results achieved by Schuitema added to CC’s in crate stock and availability.

Vers Schakel started only with one standard supply chain and transport process. In the future, and because of the results achieved, Schuitema plans to extend this pilot to all of its stores. Insofar, some of the players that joined in the piloting stage have shown interest in rolling out a full implementation given the satisfactory results of the pilot. In order to give the project full coverage, Schuitema fully depends on CBL which is the supplier of tagged crates. Nevertheless, a successful and full implementation does not require all suppliers to participate. A positive business case is also possible starting with fewer but larger suppliers.

Costs/ROI

The whole start up estimate rounded to $12 million, split in $9 million for hardware, $1.5 million for software and $1.5 million for IT services. Annual benefits are expected to reach US$ 7 million. Schuitema expects ROI in 2.7 years.

In order to carry out the project, suppliers together with Schuitema invested in RFID detection ports next to corresponding software and middleware.

Technology

The players involved in this project played a key role in shaping the results contributing in different ways. Capgemini outlined the project roadmap; CBL contributed with its fresh product crates made out of plastic; Intel guided the chip strategic decisions and supply;


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KPN had the reader units developed and handled the Cyber Center to refine and manage the information; NXP semiconductors was able to supply the needed tags in the required volumes.

Chosing the right tag and reader/antenna combination was one of the biggest challenges for the project. Versschakel chose EPCglobal-compliant Gen2 tags (passive UHF RFID tags) as this protocol is quickly becoming the global standard for passive tags in logistics environments. The combination of low cost and high tag density reading over up to 5 meters is essential to for successful implementation at crate level. After several upgrades on both reader and tag side, these tags have proven to be up to the task. As implementation enlarges, and more dockdoors will be equipped with RFID readers, interference between different dock doors will need to be overcome, but this ‘reader collision’ challenge has been overcome already in other trials. Durable application of the tag to the crate or the choice for ‘inmold’ tags will be one of the critical choices for further roll out.

As mentioned before, CC carried out its own pilot along Vers Schakel. This meant for both players to agree on how to share data. During the pilot, CC and Schuitema used two EPCglobal proposed interfaces: the EPC discovery service and the EPC IS (Information Services). The discovery interface is not yet a published standard. It works like a central web-search facility that enables track & trace by pointing the searching party to the right EPC-IS database. The EPC-IS interface then enables the searching party to query the events stored in this local database. This architecture for data sharing is effectively an open platform that enables supply chain transparency in a very flexible way. Additional security on top of this platform will also be a critical for further roll out.

5.9.3 Impact

Considering target goals of the pilot, the project showed positive results. Some of the improvements regarded the following:

Alerting functionality - product notification was available throughout the entire chain allowing the detection in distribution and related problems that could derive (swapping for example).

Transparency - monitoring was permitted successfully in the entire chain but also in its segments. Times were tracked for the entire moment the crate was handled: removal from the cooling cell, packing and unpacking until reaching the shelves.

Manpower reduction and optimization in production - In the long run as the chain becomes more efficient the manpower will reduce, particularly due to a faster inbound in the receiving area. This result caused by the transparency of the distribution-chain will open areas of opportunities to optimize the production and reduce costs at the same time.

Overall supermarket performance improvement - Whether it concerns delivery of products or transportation, RFID offered the possibility to monitor and respond effectively to real-time problems detected along the supply chain.

Data Availability - information was accessible from everywhere at all times helping the monitoring process for all the involved players.


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Packaging management - crates are now better monitored and controlled in number. Crates loss had become in the past a critical issue for suppliers. Crate production numbers have decreased allowing benefiting from the total life span of the crate.

Consumer satisfaction - As the chain grows more efficient and accurate, the supermarket keeps a better shelf availability.


Vers Schakel showed that it was possible to track crates throughout the chain. As the results are indicating, there are positive advantages, some expected and some new. Regarding benefits, readability and innovation in the materials used, some lessons were learned.

There were hidden benefits coming from the Vers Schakel experience concerning monitoring. The pilot showed it is possible to fully track the crate, not only throughout the chain but also on a minute basis. By tracking the crate, it is also possible to monitor the personnel’s efficiency in restocking.

As mentioned before, tags really represented an issue in this project in terms of readability and application. Gen1 tags showed poor read rates, below par. During the pilot, Gen1 tags experienced oxidisation being exposed to damp and cold working conditions without being laminated. Another lesson learned from Gen1 tags relates to the contents of the crates, the reading accuracy was affected by the lack of quality of the antennas. Different elements –in this case vegetables- with corresponding different packing densities had a direct significance on read rates. It is also interesting to note that green vegetables, because of their relatively high percentage of iron ions, proved they could create problematic reading situations. After the introduction of Gen2 tags and thanks to the previously acquired expertise, these problems were surpassed. Attaching the tags was not as easy as thought mostly because the crates were exposed to temperature fluctuating between 2 to 50 degrees Celsius, which made it difficult for any glue to cope with. Exposure to such variable temperatures resulted in a shrinkage and expansion of the crates causing tags to fall when lightly tapped to the crates with the glue or RFID-chips to deteriorate after using hot glue. After one and a half months of testing, Schuitema came up with the proper glue though a more definite long-term solution foresees moulding the tags into the crate.

5.9.5 References

Research for this case study was conducted by Ivano Ortis, Global Retail Insights, and IDC Company, on behalf of the Sectoral e-Business Watch. Sources and references used:

Interview with Erik Hess, November 2007

Fresh-link project web-site and public presentations

RFID suppliers perspectives.


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5.10 Motol university hospital (Czech Republic)

Abstract

Motol University hospital in Prague, Czech Republic is one of the biggest and most important hospitals in the Czech Republic. It is one of the few hospitals that use RFID (Radio Frequency Identification) for comprehensive inventory tracking and management of its IT assets. The deployment of RFID has helped Motol automate the entire asset management of the hospital's IT resources, facilitate quick inventory checks, and track location and flow of IT equipment. The solution has also reduced the time spent on inventory management and return on investment of the RFID solution was attained in just six months after implementation.


Full name of the company: Motol University Hospital

Location (HQ / main branches): Prague, Czech Republic

Main business activity: Provision of a wide range of healthcare and treatment services for the general public



Turnover in last financial year: about € 190 million

Primary customers: Individuals

Most significant geographic market: Czech Republic



The Motol University hospital was established in 1971 through the integration of City Hospital Motol and Faculty of Children's Hospital. The Motol university hospital is now the largest and one of the most important public healthcare institutions in the Czech Republic. The hospital has 2,410 beds and provides a comprehensive range of therapeutic and diagnostics care through a wide range of specialized departments. In 2006, the number of hospitalization was 74, 577 and number of outpatient treated totalled 855,676. In addition to providing healthcare, Motol is also actively engaged in scientific research. Research projects are often carried out in cooperation with universities and research institutions, and other hospitals on national and international level. The mission of Motol is to maintain its reputation as one of the key healthcare institutions in Czech Republic and Europe.

Healthcare in the Czech Republic is largely provided by public hospitals and the sector is currently undergoing several structural and legislative reforms to reduce high debt levels and improve efficiency within the industry. Hospitals are trying to differentiate themselves by improving service levels, expanding scope of operations, and improving hospital infrastructure.


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Overview

RFID is beginning to be used by a few leading hospitals in the Czech Republic for a variety of purposes including patient safety, patient & employee identification, and tracking drugs & medical supplies.

Motol was looking for a suitable technology for extensive registration agenda related to asset and people registration, managing processes of asset agendas plus registering the asset flow and current location in the hospital, and track information about registered equipment. The deployment of RFID has fulfilled all of the above objectives. The deployment of RFID for tracking the IT assets is viewed as a major success within Motol. The hospital has plans to expand the usage of RFID in healthcare equipment registration and employee & patient registration.

Solution description

The solution consists of 5000 RFID labels and RFID terminals and is integrated with current asset management system via file exchange mechanism. These tags are used for equipment identification and for keeping services records and data about equipment location and operation within the hospital. The system is planned to be integrated with the hospital's new facility management system on database level. Hardware components constituted RFID labels andTerminal Psion WorkAbout Pro + Accessories; Software is made up of two main parts- terminal application written in Compact.NET framework and synchronization application running on a PC terminal; IT services included RFID site survey, solution architecture design, technical planning, and application development.

In the system using the RFID standard it suffices whenever a person with a mobile terminal works around certain area. The terminal with built-in RFID reader will download data from the tags. The tags include a small chip that sends the information on a given frequency. When the stock keeping is done, the terminal is inserted into a cradle, which exports the downloaded information and checks it against the requested condition. The outcomes of these stock-keeping procedures are made available to the responsible persons and the hospital’s management in a quick and efficient manner.

Project management

IBM Czech Republic did the project management and implementation with the IT department of Motol playing an active role all stages of the projects.

Within the total project's budget, hardware accounted for 60%; implementation and consulting 25%, and software 15%. The total implementation time was 7 months. Specific stages included:

Planning: Planning stage included assessment of requirements, evaluating hardware and software, problem and market mapping took 3 months

Pilot: The piloting phase involved agenda definition, determination of the range and scope of pilot project. This was done in 2 months.


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Implementation: Implementation of technical equipment, software harmonizing, and training took 2 months.

Some of the key challenges faced during the deployment included:

Size of the hospital: Given the size of the hospital and the scale of the operations, it was very critical to find suitable agenda and scope for the pilot project.

System Integration: complex links among asset management systems within the hospital.

Limited resources: The project was limited both in terms of financial as well human resources.

Adaptation: Employees had to change their work procedures and extend their scope of work by an agenda linked to RFID tags manipulation, readers’ usage, and application upgrade servicing.

5.10.3 Impact

Cost reductions

Financially, Motol's investment has yielded a return on investment in only six months after deployment. Cost savings were brought about by reduction of labour hours spent on tracking IT inventory. Given the fact that Motol is one of the largest hospitals in the Czech republic, manual and semi automated tracking functions were extremely time consuming and equally expensive both from a labour perspective as well as due to loss of IT equipments.

Efficient tracking process

The benefits of the new system are clear when you compare its functions with those of the old system. While previously only assets with higher purchase value than the set limit was monitored, now virtually all items can be included in the system. Previously, the system was used primarily for accounting purposes and the only output of stock keeping was binary information found/not found. The new system allows the user to obtain more differentiated information and takes into account other criteria, such as the location of the property or the person responsible. The higher frequency of stock-keeping also improves the quality of the data and operative management of the property is made possible in between the stock-keeping and helps reduce the volume of lost assets.

Feasibility of RFID in other areas of the hospital

As this was the first project of Motol with RFID, the experience also helped assess whether other functions within Motol could benefit from RFID technology. Certain functions such as patient identification, tracking of healthcare equipment are seen as areas that would benefit significantly from RFID.


The deployment of RFID at Motol was not complicated; due to strong commitment from the internal IT team as well external expertise and consulting from IBM. A key lesson


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gained through this deployment is to start small but think big. Motol did not initiate a "big bang" deployment of RFID across various functions but decided on a phased deployment of RFID starting with IT inventory management and plans to extent to other areas.

5.10.5 References

Research for this case study was conducted by IDC, on behalf of the Sectoral e-Business Watch. Sources and references used:

Martin Vorisek, Head of IT at Motol University Hospital

Vladimira Kralikova, Jan Rydval, and Michael Soucek from IBM Czech Republic

Website of Motol University Hospital: www.fnmotol.cz

Annual Reports: http://www.fnmotol.cz/foreigners-department/html/annual-reports.php.

http://www.fnmotol.cz

http://www.fnmotol.cz/foreigners-department/html/annual-reports.php


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5.11 Summary of case study findings

Empirical evidence indicates that oftentimes the first RFID project gives a company insight into other areas of the business that could improve with RFID. The first project can also enable companies to be more cost effective in their future projects, reusing some of the original project's infrastructure and acquired know-how to keep costs down. Therefore, the design and execution of phased implementation scenarios for RFID projects is an opportunity to both reduce the payback period - short-term objective - and maximize the medium to long-term financial value of RFID investments leveraging on bold strategic visions.

The accuracy of ROI evaluations made prior to the implementation of RFID largely depends on assumptions surrounding benefits, e.g. anticipated timeline and estimated value of the benefits that may result from RFID. Therefore, in order to minimize investment risks and business simulation errors, it is fundamental to build a strong business case and make use of pilot environments and proof of concepts.

Among the key findings of case studies, the following considerations can be made:

Applying RFID-collected data to change processes and products represent the biggest project challenge.

The existence of automatised systems – for example bar code – can allow for an easier transition to RFID.

Health risks concerns shall always be carefully assessed. However, the empirical evidence suggests that health risks are minimal when appropriate implementation guidelines are taken into account (for example reader’s density) and when RFID devices comply with the applicable legislation. For example, health risks correlated with RFID UHF applications appear negligible compared to the ones potentially associated with widespread radio devices such as cellular phones or wireless LANs.

Successful RFID implementations typically require collaboration with a knowledgeable external partner, as opposed to handling the process exclusively in-house. Executive management shall be involved early in the process, but inclusion of all stakeholders also emerges as a key requirement.

Usability and training are important factors to make sure that the people who would be using the RFID system actually use it in the intended way and understand how it would make their jobs easier.

Reading accuracy issues that were typically reported with Generation 1 RFID tags have been surpassed with the introduction of Generation 2 tags along with RFID-site optimization techniques and fine-tuning of tag placement.

RFID implementation payback within 3 years is achievable. For small-scale scenarios and niche business process optimizations, for example IT asset tracking and logistics asset tracking applications, a payback period of 1 year is possible.


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6 Conclusions: outlook and policy implications

An average annual growth of approximately 27% is estimated during the period 2007-2009 in the number of EU-7 enterprises adopting RFID. Survey findings indicate that by 2012, potentially half of EU-7 enterprises may implement RFID. A more conservative assumption is that RFID will become mainstream in the EU-7 over the next 5 to 10 years.

The business motivation to the predicted uptake in RFID demand is that enterprises are seeking for operational excellence, dynamic profit margin optimisation abilities, advanced business performance management and improved customer response efficiencies. Global supply networks that call for synchronised, real-time flow of information aimed at optimising both, execution efficiencies and planning capabilities, are expected to further fuel RFID adoption. Empirical evidence suggests that the average payback period for most RFID investments is between 2 to 3 years, due to the achievement of labour and total factor productivity growth as well as innovation in the way enterprises can conduct business.

ROI and RFID project costs were reported as the main barrier to RFID adoption in the EU-7 (Section 3.4). RFID is a business journey and, as such, will allow for phased implementations and incremental target benefits. In addition, applications of this technology make sense whenever it is possible to improve specific business process efficiencies. As a result, RFID can be applied successfully by large global enterprises and by small to midsized companies. However, RFID is not the sole technology choice available to enterprises; for example, reductions in retail out-of-stocks can be achieved using RFID (section 3.2.7 and 4.1) but also with the implementation of advanced demand forecasting tools, automated ordering applications and collaborative replenishment systems. Therefore, enterprises are recommended to assess RFID ROI following the guideline provided in section 4.3.2, whilst assessing the impact of selected technology options on the specific use case and their eventual synergies. The development of multigenerational RFID programs to accommodate new technologies when they become available is highly advisable.

It is of paramount importance that companies do not see nor use RFID merely as a barcode with an antenna or as a disruptive replacement technology for barcodes. RFID offers more opportunities when compared to barcode (see sections 2 and 3), as it enables new levels of visibility, automation, efficiency and safety, and will run in parallel to barcodes for many years to come.

However, enterprises shall consider taking appropriate measures to mitigate risks and pre-emptively address fears that may be raised by employees or consumers; the organisation of a process performance improvement office specifically around data acquisition platforms and business intelligence for the organisation is highly recommended.


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6.1 Outlook on further possible RFID developments

Supply chain performance improvement is expected to remain a premiere area of focus for future RFID applications, in line with empirical evidence from the large majority of EU-7 enterprises indicating inventory management and container, pallet, case and returnable assets tracking as the key application areas of RFID. However, the following dynamics are expected to take place:

The focus of RFID implementations is expected to move gradually from operational execution activities to the optimisation of business planning and intelligence capabilities. By applying RFID on value-creating processes, enterprises will most likely be able to achieve higher business predictability and reduced wastage, which in turn may spur productivity growth and innovation.

Extending supply chain visibility and performance objectives to the edges, in other words beyond the "4-walls" of an enterprise, will be instrumental to maximise RFID ROI. Therefore, the recommendation is to move gradually from a closed-loop implementation scenario to include the extended boundaries.

The combination of RFID with sensor network technologies and real-time locating systems (RTLS), fully integrated with supply chain management applications business intelligence systems and back-end ICT platforms, is expected to remain a major goal for enterprises across industries.

Going forward in the next three to five years, a significant trend towards using RFID to enable promotion effectiveness and real consumer value is expected in the retail and consumer product goods industries, following the foreseeable growing adoption of RFID at item or product level (see section 3.1.2).

Person identification also emerges from empirical evidence as a key application area of RFID for both large enterprises (section 3.1.2) and SMEs (section 3.3). However, a higher degree of confidence on the technology is required for this adoption pattern to materialize. In other words, it will be crucial to overcome privacy and security issues as well as potential health risks arising from RFID-enabled person identification.

Improving product and service safety or authenticity is a key business reason driving RFID adoption (see section 3.2). Therefore, RFID-based product pedigree applications of RFID seem particularly relevant in the pharmaceutical industry and in high-value goods manufacturing (including aircrafts manufacturing, automotive, consumer electronics, fashion and luxury goods manufacturing).

The long term scenario, by when RFID will become mainstream, may eventually lead to a situation where any wireless-capable device will benefit from autonomous and unstructured communications capabilities based on meshed communications networks, RFID, digital sensors and other wireless technologies.

Other potential future developments of RFID include:

Self-service (mobile) automated stores - The store may become entirely self-service, thanks to RFID tags on the items, RFID readers at the point-of-sale terminals, self-locking doors and cameras. For example, Laxbutiken in Sweden already operates self-service convenience stores where customers can package food and beverages. This type of retail format may be especially interesting for


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extending store opening hours around the clock without requiring extra store staff and to empower franchising business models, based on the availability of pre-packaged self-service stores. Options can include mobile pre-fabricated self-service stores that can be moved to different locations. Foreseeable concerns around the potential development of fully automated self-service stores include consumers' privacy, dealing with emergency situations and impact on workforce composition.

Contact-less payments enabling speedier transactions for customers and enterprises in high-traffic, low-value transactions, making the retail industry the ideal candidate for this application scenario. ETSI (the European Telecommunications Standards Institute) approved in February 2008 a key NFC handset standard (ETSI TS 102 622 V7.0.0) 'to host secure applications on the SIM and to communicate with the outside world in a contactless manner using the NFC chip in the phone' (Source: ETSI). Nineteen million contactless payment cards are currently in circulation in the United States (Source: Aite Group) and in Europe contactless payments are mostly used in the transportation industry (for example, 10 million passengers in London use the Oyster RFID-based contactless smart card, approximately 300,000 OV cards were distributed in the Netherlands as of April 2007, Moscow Metro deployed an RFID-ticketing system in February 2007 and the urban transport authority in Frankfurt is currently implementing NFC-enabled contactless payments from mobile phones).

Incorporation of RFID directly into products' packaging. RFID can be used for recycle auto-sorting, thus making it a potentially interesting technology to improve the efficiencies of recycling disposable packaging. On the standardization side, ISO/PRF 17366 - Supply chain applications of RFID - Product packaging - is currently registered for formal approval. RFID tags embedded into products' packaging can also improve system performance, for example Proctor & Gamble changed the package design for its Gillette Fusion razors so that the packaging itself could become more RF-friendly. Taking into account the expected uptake in RFID-based product pedigree solutions discussed above, embedding RFID in product packages may also be a more cost-effective solution to ensure product authenticity. For example Rexam, a large consumer packaging manufacturer, already produces RFID bottles for pharmaceutical applications.

6.2 Policy implications

The following policy implications address in the first instance the European Commission. In second instance, national and regional governments as well as European and national industry associations are also addressed.

RFID developments can have implications for several policy areas, including for example overall industrial policy, education policy, research and technology transfer policy. Relevant considerations made in this context can be grouped as follows:

Promote RFID adoption: Policy may have an interest in accelerating the adoption of RFID activity among companies, particularly among SMEs. This is based on the assumption that RFID is a driver of productivity and competitiveness (section 4).


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Counteract RFID induced undesirable effects: At the same time, policy will have to consider intervention if RFID activity causes undesirable effects on the aggregate level of the industry.

A basic assumption of this report is that it is generally the enterprises’ decision to use or not use RFID and the extent to which they invest in it. Policy initiatives should be targeted towards areas with market failures, which may include issues related to research, development and technology transfer, knowledge and skills development, standardisation, and environment protection.

In the light of the current policy context for RFID (see section 1.1), and by taking into account the key barriers to RFID adoption (see section 3.4) - RFID ROI and project costs, interoperability concerns and complexity of implementation and IT integration – as well as the expected impact on employment and workforce composition (see section 4.2), the following political activities are suggested.

6.2.1 Supporting RFID skills development to improve European Industry Competitive Performance

High and medium-skilled labour is required to maximise the impact of RFID, therefore enterprises adopting RFID may be hiring new workforce and developing specific training programs to re-qualify their employees (see section 4.2). In parallel, RFID technology vendors, including hardware providers, independent software vendors and ICT service providers, will most likely hire new personnel and develop training programs to acquire RFID-specific skills. Considering the expected adoption growth over the next 5 years (see section 3.6), access to RFID training programs will be an important factor for the industry.

The business functions that will most likely be impacted by RFID are logistics, distribution, production and IT departments. As a result, it is important to design training programs that cater the different operational needs of enterprises, including technical and business process oriented perspectives. In addition, a combination of technological, business and managerial skills emerge as a strong requirement to support new organisational functions responsible for RFID programs. Likewise, to facilitate enterprises in finding the financial justification for RFID implementations, the development of business problem solving, business case assessment, process re-engineering, and program management skills specific to RFID-enabled environments will be crucial.

Related activities could include the following:

Build awareness of potential benefits and implications associated with RFID, particularly directed towards SMEs, to support enterprises in taking informed decisions.

Promote training and RFID skills development programmes that cater the different operational needs of enterprises to prevent the emergence of skills gaps. This requires close cooperation between policy, educational organisations and the RFID/ICT industry, typically in the form of "multi-stakeholder-partnerships".

Supporting skills developments for individual companies, typically by means of providing grants for RFID training.


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Providing information about RFID training and support to related decision-making through the sharing of good practices for the implementation of RFID, within a specific industry, but also taking into account lessons learned in other industries. The RFID adopting firms themselves, industry associations as well as public policy could become more active in this respect.

6.2.2 Long-term regulatory framework for radio frequency standards

Whilst the development and harmonisation of RFID standards accelerated during 2006 and 2007 (see sections 2.1.2 and 2.3.2), interoperability is still perceived as key barrier to RFID adoption (section 3.4). Considering that RFID standards are still fragmented on a global level (Annex II), this situation may hamper European enterprises' ability to achieve productivity gains and competitive innovation enabled by RFID (the latter being particular true for SMEs). Following Commission Decision 2006/804/EC of 23 November 2006 on harmonisation of the radio spectrum for radio frequency identification (RFID) devices operating in the ultra high frequency (UHF) band, as highlighted in COM(2007)96, most respondents (72%) to a recent consultation found this allocation to be adequate on a time horizon of between three to ten years. However, as indicated in the communication, 'there is a need to monitor demand as the use of RFID increases'.

RFID implementations have a typical lifetime of about 10 years, which can go up to 15-20 years in returnable asset management applications (for example see the Europool Systems case study in section 5.3.1) and in global supply chain implementations. Thus, the resulting challenge for both large enterprises and SMEs is how to minimise RFID investment risks over a long-term scenario.

This situation calls policy makers to consider:

The definition of a regulatory roadmap for the radio spectrum assigned to RFID applications that goes beyond a time period of 10 years, thus effectively supporting enterprises in safeguarding RFID investments over time. This will enable RFID-enabled enterprises in driving sustainable productivity improvement programmes as well as innovation opportunities.

Promoting industry-specific standards for RFID applications, if they are not widely used but offer proven benefits.

One of the major challenges in driving the radio frequency standardization process forward will be the ability to assess and anticipate the evolution of radio frequency spectrum allocations, resulting from the emergence of new wireless technologies as well as potential, different usages of existing technologies, either in terms of scale or purpose.


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6.2.3 Analyse potential environmental impacts resulting from the diffusion of billions of RFID devices and provide recycling guidelines for consumer products

As reported in Europe's Information Society thematic portal, 'cumulative sales of RFID tags have totaled 2.4 billion over the past 60 years, with 600 million tags being sold in 2005'. Looking ahead, 'the number of tags delivered in the period 2006-2016 will be over 450 times the number actually to be delivered in 2006.' In a BRIDGE research (see section 3.5), a total of 3.2 billion RFID tags are estimated to be deployed by 2012 in the European retail, consumer products, aviation, pharmaceutical & healthcare, automotive, postal & express industries, and other sectors.

Although RIFD tags market estimates are difficult to make with a high degree of accuracy, it is clear-cut that with an annual average RFID adoption growth estimated in 27% between 2007-2009 (see section 3.6), the number of RFID tags to be deployed in the next few years in Europe will be in the billion-range.

As a result, more policy implications are to be found around the potential environmental impact of RFID devices. Whilst RFID hardware components meet the definition of electrical and electronic equipment provided in Directives 2002/96/EC on waste electrical and electronic equipment (WEEE) and 2002/95/EC on the restriction of the use of certain hazardous substances in electrical and electronic equipment (RoHS), the geographically dispersed and fragmented nature of RFID implementations (e.g. tags and readers deployed on pallets, cases, items, reusable assets, payment cards, distribution centers, hospitals, factories, retail stores, transportation terminals, etc..) suggests the importance of a dedicated recycling framework for RFID-components.

Related activities aimed at supporting efficient recycling measures for RFID hardware components could include the following:

Promoting recycling process recommendations and guidelines for RFID devices

Identification and enforcement of clear responsibilities for all value chain actors (e.g. technology manufacturers, end-user enterprises and citizens)

Promoting public awareness

Incorporation of RFID tags directly into product packing (section 6.1.1) may represent a market-driven opportunity to enable improved recycling practices for both RFID devices and disposable packaging in the consumer products value chain. Therefore, it is highly recommended to start developing new recycling guidelines before billions of RFID tags will be deployed and embedded into products' packaging.


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6.2.4 Promote EU level R&D cooperative research for medium-long term RFID applications and innovations – a focus on wireless mesh-network communication protocols

Mesh networking is a way to route data, voice and instructions between nodes or interoperable devices. It allows for continuous connections and reconfiguration around broken or blocked paths by “hopping” from node to node until the destination is reached. Mesh networks are self-healing: the network can still operate even when a node breaks down or a connection goes bad.

RFID is expected to become mainstream in the next 5 to 10 years (see section 3.6). In the long term scenario, e.g. 10 to 20 years from now, item-level RFID implementations will most likely be deployed, mainly due to RFID-tags cost reductions resulting from economies of scale. This may eventually lead to a scenario where any wireless-capable device – RFID devices, digital sensors, cellular phones and any other wireless devices - may benefit from autonomous and unstructured communications capabilities based on mobile mesh communication networks.

Given the unstructured and convergent nature of wireless communications, a mesh-network approach is envisaged, e.g. each device may operate as an active node of the network and not only as an end-terminal, thus extending network capacity and range in an autonomous and fully distributed manner.

This scenario would require further developments of a light-weight, standard-based communications protocol which allows interoperable communications and exchange of information or services among different wireless devices, most likely under the framework of IEEE 802.11 standards.

The above technological innovation will most likely drive the emergence of new business models and the diffusion of new value added digital services to European citizens.

As a result, the development of a universal wireless communications protocol based on mesh-network standard is suggested within the current R&D policy framework for radio frequency technologies. Interoperability guidelines will be an instrumental factor within this context. Furthermore, approaching wireless technologies under a common standardisation framework will facilitate the development of a long term regulatory framework for radio frequency standards (section 6.2.2).


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RFID: alla ricerca del valore. Osservatorio RFID Politecnico de Milano. Rapporto 2007

Solow, R. M., 1957, “Technical Change and the Aggregate Production Function.” Review of Economics and Statisticsl (39): 312-320.

Subirana, B., Sarma, S., Ferguson, C., Spears, M., Lee, R., Dubash, J., Mason, M., Langford, S. and Roth, L.. (2006). “Electronic Proof of Delivery,” EPCglobal

Vogt, H., Graf von Reischach, F., Oertel, N. and Lehtonen, M. (2007). "Report and Analysis on State-of-the-Art Tagging Technologies Specific to the SToP Project Requirements." Deliverable 4.1 of SToP Project.

"Suppliers and Retailers Views on EPC/RFID Technology for Direct Store Delivery (DSD)", April 2008, Global Commerce Initiative

Theory of Real Options and Real Options Valuation (ROV):

• Original research paper of option pricing model - Black and Merton (1973).

• Academic - Hull (2007).

• ROV Applications, Luehrman (1998), Leslie and Michaels (2000), and Latimore (2002).

Websites and RFID News sources

Europe's Information Society Portal / Policies: RFID http://ec.europa.eu/information_society/policy/rfid/index_en.htm

EUROSTAT - www.eurostat.com

CIRCA - http://circa.europa.eu/irc/dsis/nacecpacon/info/data/en/introductoryguidelinesEN.pdf

RFID Journal - www.rfidjournal.com

EPCglobal - www.epcglobal.com

GS1 - www.gs1.com

RFID Tribe (Community of RFID professionals) - www.rfditribe.com

http://ec.europa.eu/information_society/policy/rfid/index_en.htm

http://www.eurostat.com

http://circa.europa.eu/irc/dsis/nacecpacon/info/data/en/introductoryguidelinesEN.pdf

http://www.rfidjournal.com

http://www.epcglobal.com

http://www.gs1.com

http://www.rfditribe.com


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Global Commerce Initiative - www.gci-net.com

BRIDGE - Building Radio Frequency IDentification for the Global Environment - http://www.bridge-project.eu

Katz, J. (2006). “Reaching the ROI on RFID,” IndustryWeek, February 1. Available at: http://www.industryweek.com/ReadArticle.aspx?ArticleID=11346

Murphy, C. (2005). “Real-World RFID: Wal-Mart, Gillette, and Others Share What They're Learning,” InformationWeek, May 25. Available at: http://informationweek.com/story/showArticle.jhtml?articleID=163700955&_loopback=1

Sullivan, L. (2005). “Wal-Mart RFID Trial Shows 16% Reduction In Product Stock-Outs.” InformationWeek, October 14. Available at: http://informationweek.com/story/showArticle.jhtml?articleID=172301246

Interviews conducted for this report

Gerd Wolfram, Managing Director, Advanced Technologies, MGI, METRO Group Information & Communication Technology.

Erik Hess. Projectleider Voicepicking. Schuitema.

Henry Lok. Manager of engineering and development. Euro Pool System.

Jason Keegan, Logistics Director, NewLook.

Dave O'Reilly, IT manager of manufacturing and purchasing for Jaguar and Land Rover

Elena Sini. CIO of Fondazione IRCCS Istituto Nazionale dei Tumori.

Roser Cabal. Logistics Director. Futura Systems.

Martin Vorisek. Head of IT. University Hospital Motol Prague.

Vladimira Kralikova. IT Specialist. IBM Czek Republic.

Jan Rydval. IT consultant. IBM Global Services.

Michael Soucek. IT Architect. IBM Global Services.

Greg Edds. Manager of Global Operations. Hewlett-Packard.

Reinaldo Villar. RFID Program Manager. Hewlett-Packard.

Marcelo Pandini. Manager of RFID and business development- Hewlett-Packard.

Mark Turner, AGM of Landside Business Unit, Hong-Kong Airport.

Renaud Wilmet. Senior VP Global Markets, Manufacturing and Retail. Atos Origin International.

Workshops and Summits

Global RFID ROI Summit 2007, London, January 30, 2007.

eBusiness Watch RFID Workshop 2007, IDC Next-Generation Supply Chain Summit - Milano, October 23, 2007.

The Next Steps of the Internet of Things, Lisbon, November 15/16, 2007 (http://www.rfid-outlook.pt/).

RFID: Towards the Internet of Things, Berlin on 25-26 June, 2007.

ebusiness Watch RFID Advisory Board Meeting, Milano, February 5, 2008.

RFID Policy Support Workshop, Brussels, March 12, 2008.

http://www.gci-net.com

http://www.bridge-project.eu

http://www.industryweek.com/ReadArticle.aspx?ArticleID=11346

http://informationweek.com/story/showArticle.jhtml?articleID=163700955&_loopback=1

http://informationweek.com/story/showArticle.jhtml?articleID=172301246

http://www.rfid


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European Commission Industrial Policy

European Commission, Enterprise and Industry Directorate General (2005): e-Business Interoperability and Standards. A Cross-Sector Perspective and Outlook Special Report. September 2005. (http://www.ebusiness-watch.org/studies/special_topics/2005/documents/TR_2005_Interoperability_III.pdf)

European Commission (2007): Mid-term review of industrial policy. A contribution to the EU’s Growth and Jobs Strategy. Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions, COM(2007)374, SEC(2007)917. Brussels, 4 July 2007.

European Commission (2007): Sectoral e-Business Policies in Support of SMEs. Innovative approaches, good practices and lessons to be learned. A study by empirica, Databank, IDATE. Version 1.1. November.

European Commission (2008): Towards an increased contribution from standardisation to innovation in Europe. Communication from the Commission, COM(2008) 133 final. Brussels, 11.3.2008.

http://www.ebusiness


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Annex I: The e-Business Survey 2007 – methodology report

Background and scope

The Sectoral e-Business Watch collects data relating to the use of ICT and e-business in European enterprises by means of representative surveys. The e-Business Survey 2007, which was the fifth survey after those of 2002, 2003, 2005 and 2006, had a scope of 5,486 telephone interviews with decision-makers from five industry sectors in nine EU countries and the USA. Interviews were carried out from August to October 2007, using computer-aided telephone interview (CATI) technology. The overall survey was divided into four separate projects (each with a different questionnaire), which focused on different sectors and specific topics (see Exhibit A1-1). This document contains methodo-logical notes for Project 3, which accounted for 434 of all interviews conducted.

Exhibit A1-1: Components ("projects") of the e-Business Survey 2007

Survey project Focus Sectors covered No. of

interviews

1 e-Business in manufacturing

Chemical, rubber and plastics Steel Furniture

2121

2 e-Business in retail, transport & logistics

Retail Transport & logistics services

2248

3 RFID adoption

Manufacturing sectors Retail Transport services Hospitals

434

4 Intellectual Property Rights in ICT SMEs

ICT manufacturing ICT services Software publishing

683

Questionnaire

The questionnaires for Project 3 contained about 40 questions and was structured into the following modules:

RFID implementation status and plans RFID application areas Factors determining RFID investment Expected effects of RFID usage Expected organisational impact of RFID usage Financing RFID investments Reasons for not using RFID

The survey addressed companies that used or planned to use RFID as well as companies that did not use this technology. Non-users were asked to give reasons why they chose not to make use of it. Some questions were filtered, for example follow-up questions which were only relevant for companies depending on their answer to the entry question on whether they used or planned to use RFID. No open questions were used.

The questionnaires of all e-Business Watch surveys since 2002 can be downloaded from the project website (www.ebusiness-watch.org/about/methodology.htm).

http://www.ebusiness-watch.org/about/methodology.htm


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Population

The population of the survey consisted of companies from the following sectors, countries and size-bands:

Firm size-bands covered: The survey covered medium-sized companies and large companies, i.e. firms with at least 50 employees.

Geographic scope: The survey included seven EU countries: France, Germany, Ireland, Italy, Poland, Spain and the United Kingdom (named the "EU-7").

Sectors covered: The survey covered companies from four sectors (see Exhibit A1-2). These were selected with regard to their relevance for the topic at stake and defined on the basis of NACE Rev. 1.1.

Exhibit A1-2: Sector coverage and number of interviews per sector (Survey Project 3 – RFID)

No. Sector name NACE Rev. 1.1 activities covered

Size-band No. of interviews conducted

1 Manufacturing 15, 18, 19 , 24.4, 30, 31, 32, 33, 34

163

2 Retail distribution 52 94 3 Transportation 60.1, 60.2, 62.1, 62.2 82 4 Hospital activities 85.11

Medium to large sized companies (50+ employees)

95

Sampling frame and method

From the universe a random sample of companies, stratified by sector and, where possible, size (number of employees in the company), was selected per country for each of the pre-defined quota cells, i.e. ‘country-sector-cells‘. The sample drawn (for each sector) was a random sample of companies from the respective sector population in each of the countries, with the objective of fulfilling minimum strata with respect to company size-bands per country-sector cell (see Exhibit A1-3).

Exhibit A1-3: Strata by company-size

Size-band Target quota specified

(in % of total interviews) Large companies

• 1000+ employees 10-20% • 500-999 employees 20-30% • 250-499 employees up to 30%

Medium-sized companies (50-249 employees) up to 30% Small companies (10-49 employees) (not covered) Micro enterprises (up to 9 employees) (not covered)

Samples were drawn locally by fieldwork organisations based on official statistical records and widely recognised business directories such as Dun & Bradstreet (used in several countries) or Heins und Partner Business Pool (see Exhibit A1-4).

The survey was carried out as an enterprise survey: data collection and reporting focused on the enterprise, defined as a business organisation (legal unit) with one or more establishments. Due to the small population of enterprises in some of the sector-country cells, target quota could not be achieved (particularly in the larger enterprise size-bands) in each country. In these cases, interviews were shifted to the next largest size-band (from large to medium-sized, from medium-sized to small), or to other sectors.


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Fieldwork

Fieldwork was coordinated by the German branch of Ipsos GmbH (www.ipsos.de) and conducted in cooperation with its local partner organisations (see Exhibit A1-4) on behalf of the Sectoral e-Business Watch. Pilot interviews prior to the regular fieldwork were conducted with about 10 companies in Germany, in order to test the questionnaire (structure, comprehensibility of questions, average interview length).

Exhibit A1-4: Institutes that conducted the fieldwork

Country Institute conducting the interviews Sample source Germany IPSOS GmbH, 23879 Mölln Heins and Partner Business Pool France IPSOS Insight Marketing, 75628 Paris WEGENER DM, previously

IDATA Ireland CONTINENTAL Research, London EC1V 7DY Dun & Bradstreet Italy Demoskopea S.p.A., 20123 Milano Dun & Bradstreet Poland IQS and Quant Group Sp.z.o.o, 00-610

Warszawa Hoppenstedt Bonnier Information Poland

Spain IPSOS Spain, 28036 Madrid Dun & Bradstreet UK CONTINENTAL Research, London EC1V 7DY Dun & Bradstreet

Exhibit A1-5: Interviews conducted per sector and country (Project 3 – RFID)

Sector Country DE ES FR IT PL UK IE AT Total RFID - Total 110 60 70 57 40 70 27 - 434

Manufacturing 44 19 30 17 14 25 14 - 163 Retail distribution 22 16 9 11 11 16 9 - 94 Transportation 16 13 9 17 9 16 2 - 82 Hospital activities 28 12 22 12 16 13 2 - 95

Non response: In a voluntary telephone survey, in order to achieve the targeted interview totals, it is always necessary to contact more companies than just the number equal to the target. In addition to refusals, or eligible respondents being unavailable, any sample contains a proportion of "wrong" businesses (e.g., from another sector), and wrong and/or unobtainable telephone numbers. Table A1-6 shows the completion rate by country (completed interviews as percentage of contacts made) and reasons for non-completion of interviews. Higher refusal rates in some countries, sectors or size bands (especially among large businesses) inevitably raises questions about a possible refusal bias. That is, the possibility that respondents differ in their characteristics from those that refuse to participate. However, this effect cannot be avoided in any voluntary survey (be it telephone- or paper-based).

http://www.ipsos.de


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Exhibit A1-6: Interview contact protocol, completion rates and non-response reasons

DE ES FR IT PL UK IE 1 Sample (gross) 1933 917 1131 480 550 1795 413 1.1 Telephone number not valid 114 5 12 25 23 144 74 1.2 Not a company (e.g. private household) 8 8 0 2 6 7 2 1.3 Fax machine / modem 4 0 5 0 5 19 2

1.4 Quota completed à address not used 501 297 392 5 291 505 188

1.5 No target person in company 77 37 70 12 18 159 33 1.6 Language problems 1 0 0 0 1 0 0 1.7 No answer on no. of employees 2 1 0 5 1 6 1

1.8.1 Size too small: RFID < 50 empl./ IPR < 3 empl. 15 26 3 2 1 144 41

Sum 1.1 – 1.8 722 374 120 51 346 984 341 2 Sample (net) 1211 543 1011 429 204 811 72 2.1 Nobody picks up phone 37 19 127 - 0 22 8 2.2 Line busy, engaged 2 0 5 - 0 4 2 2.3 Answering machine 0 0 87 - 1 3 2 2.4 Contact person refuses 582 0 58 94 53 390 20 2.5 Target person refuses 406 445 217 75 16 249 2

2.6 no appointment during fieldwork period possible 16 0 10 2 11 52 3

2.7 open appointment 54 0 72 200 77 15 2

2.8 target person is ill / cannot follow the interview 1 0 1 0 1 0 0

2.9 Interview abandoned 3 19 2 1 5 6 6

2.10 Interview error (à interview cannot be used) 0 0 0 - 0 0 0

Sum 2.1 – 2.10 1101 483 941 372 164 741 45 3 Successful interviews 110 60 70 57 40 70 27 Completion rate (= [3]/[2]) 9,1% 11,1% 6,9% 13,3% 19,6% 8,6% 37,5%

Average interview time (min:sec) 8:15 6:05 7:54 8:14 7:56 6:04 5:53

Feedback from interviewers

No major problems were reported from the fieldwork with respect to interviewing (comprehensibility of the questionnaire, logical structure). The overall feedback from the survey organisations was that fieldwork ran smoothly and that the questionnaire was well understood by most respondents. The main challenge was the fulfilment of the quotas, which was difficult or impossible in some of the sectors, in particular among the larger size-bands. More specific comments from fieldwork organisations, which point to difficulties encountered in the local situation, are available in the detailed field-report from Ipsos, which can be downloaded from the e-Business Watch website at (www.ebusiness-watch.org/about/methodology.htm).


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Weighting schemes

Due to stratified sampling, the sample size in each size-band is not proportional to the population numbers. If proportional allocation had been used, the sample sizes in the 250+ size-band (in terms of RFID 1000+) would have been extremely small, not allowing any reasonable presentation of results. Thus, weighting is required so that results adequately reflect the structure and distribution of enterprises in the population of the respective sector or geographic area. The Sectoral e-Business Watch applies two different weighting schemes: weighting by employment and by the number of enterprises.

Weighting by employment: Values that are reported as employment-weighted figures should be read as "enterprises comprising x% of employees" (in the respective sector or country). The reason for using employment weighting is that there are many more micro-enterprises than any other firms. If the weights did not take into account the economic importance of businesses of different sizes in some way, the results would be dominated by the percentages observed in the micro size-band.

Weighting by the number of enterprises: Values that are reported as "x% of enterprises" show the share of firms irrespective of their size, i.e. a smaller and larger companies both count equally as one legal unit.

The use of filter questions in interviews

In the interviews, not all questions were asked to all companies. The use of filter questions is a common method in standardised questionnaire surveys to make the inter-view more efficient. For example, questions on the purpose of RFID usage were only asked to those companies that had actually confirmed that they used RFID.

The results for filtered questions can be computed on the base of not only those enterprises that were actually asked the question (e.g. "in % of enterprises using RFID") but also on the base of "all companies". In the study report, both methods are used, depending on the indicator. The base (as specified in footnotes of tables and charts) is therefore not necessarily identical to the set of companies that were actually asked the underlying question.

Statistical accuracy of the survey: confidence intervals

Statistics vary in their accuracy, depending on the kind of data and sources. A 'confidence interval' is a measure that helps to assess the accuracy that can be expected from data. The confidence interval is the estimated range of values on a certain level of significance. Confidence intervals for estimates of a population fraction (percentages) depend on the sample size, the probability of error, and the survey result (value of the percentage) itself. Further to this, variance of the weighting factors has negative effects on confidence intervals.

Exhibit A1-7 gives some indication about the level of accuracy that can be expected for industry totals for the EU-7 total (based on all respondents) depending on the weighting scheme applied. The confidence intervals differ depending on the industry and the respective value; for aggregate values (i.e. for the total of all sectors), on average, it is about +/-5 percentage points (in both weighting schemes). Confidence intervals for specific sectors are about +/- 8-10 percentage points, depending on values and weighting.

The calculation of confidence intervals is based on the assumption of (quasi-) infinite population universes. In practice, however, in some industries and in some countries the complete population of businesses may consist of only several hundred or even a few dozen enterprises, notably within certain size-bands. In some cells, therefore, most or


179

even any enterprise were contacted and asked to participate in the survey. This means that it is hardly possible to achieve a higher confidence interval through representative enterprise surveys in which participation is not obligatory. This should be borne in mind when comparing the confidence intervals of e-Business Watch surveys to those commonly found in general population surveys.

Exhibit A1-7: Confidence intervals for Project 3 (RFID survey)

Confidence interval Survey

result Weighted as "% of firms"

Weighted by employment

Unweighted

All sectors (aggregate, EU-7) 10% 7.3% - 13.6% 6.9% - 14.2% 7.9% - 12.6% Manufacturing 10% 5.9% - 16.5% 5.4% - 17.9% 6.8% - 14.6% Retail 10% 5.2% - 18.2% 4.0% - 22.7% 6.0% - 16.3% Transport services 10% 4.5% - 20.9% 4.4% - 21.0% 5.8% - 16.8% Hospitals 10% 5.3% - 18.0% 5.1% - 18.6% 6.0% - 16.2% All sectors (aggregate, EU-7) 30% 25.4% - 35.0% 24.8% - 35.8% 26.5% - 33.7% Manufacturing 30% 22.6% - 38.6% 21.5% - 40.1% 24.4% - 36.2% Retail 30% 21.3% - 40.5% 18.3% - 45.1% 22.9% - 38.3% Transport services 30% 19.4% - 43.3% 19.4% - 43.4% 22.4% - 38.9% Hospitals 30% 21.4% - 40.2% 21.0% - 40.9% 22.9% - 38.2% All sectors (aggregate, EU-7) 50% 44.8% - 55.2% 44.0% - 56.0% 46.1% - 53.9% Manufacturing 50% 41.3% - 58.7% 39.9% - 60.1% 43.6% - 56.4% Retail 50% 39.6% - 60.4% 35.5% - 64.5% 41.6% - 58.4% Transport services 50% 37.1% - 62.9% 37.0% - 63.0% 41.0% - 59.0% Hospitals 50% 39.8% - 60.2% 39.2% - 60.8% 41.7% - 58.3% All sectors (aggregate, EU-7) 70% 65.0% - 74.6% 64.2% - 75.2% 66.3% - 73.5% Manufacturing 70% 61.4% - 77.4% 59.9% - 78.5% 63.8% - 75.6% Retail 70% 59.5% - 78.7% 54.9% - 81.7% 61.7% - 77.1% Transport services 70% 56.7% - 80.6% 56.6% - 80.6% 61.1% - 77.6% Hospitals 70% 59.8% - 78.6% 59.1% - 79.0% 61.8% - 77.1% All sectors (aggregate, EU-7) 90% 86.4% - 92.7% 85.8% - 93.1% 87.4% - 92.1% Manufacturing 90% 83.5% - 94.1% 82.1% - 94.6% 85.4% - 93.2% Retail 90% 81.8% - 94.8% 77.3% - 96.0% 83.7% - 94.0% Transport services 90% 79.1% - 95.5% 79.0% - 95.6% 83.2% - 94.2% Hospitals 90% 82.0% - 94.7% 81.4% - 94.9% 83.8% - 94.0%

confidence intervals at α=.90


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Annex II: RFID standards

Low-frequency (LF: 125 – 134.2 kHz and 140 – 148.5 kHz) and high-frequency (HF: 13.56 MHz) RFID tags can be used globally without a license.

Ultra-high-frequency (UHF: 868 – 928 MHz) cannot be used globally as there is no single global standard. In North America, UHF can be used unlicensed for 902 – 928 MHz, but restrictions exist for transmission power.

In Europe, RFID applications are regulated by ETSI recommendations EN 300 220 and EN 302 208, EN ERC recommendation 70-03, and the following standards:

ETSI TR 102 649-1 V1.1.1 (2007-04) - Technical characteristics of RFID in the UHF Band; System Reference Document for RFID equipment; Part 1: RFID equipment operating in the range from 865 MHz to 868 MHz.

ETSI TR 102 449 V1.1.1 (2006-01) - Telecommunications and Internet converged Services and Protocols for Advanced Networking (TISPAN);Overview of RFID Tags in the telecommunications industry.

ETSI TR 102 436 V1.2.1 (2008-02) Electromagnetic compatibility and Radio spectrum Matters (ERM);Short-Range Devices (SRD) intended for operation in the 862 MHz to 870 MHz band; System Reference Document for RFID equipment.

ETSI TS 102 562 V1.1.1 (2007-03) Electromagnetic compatibility and Radio spectrum Matters (ERM);Improved spectrum efficiency for RFID in the UHF Band.

Unlicensed frequency bands are known as the ISM bands (Industrial Scientific and Medical bands). The return signal of the RFID tag may cause interference for other radio users.

ISO/IEC standards that have been ratified for RFID technology include:

ISO/IEC 14223/1 – Radio frequency identification of Animals, advanced transponders – Air interface.

ISO/IEC 15434:2006 Information technology - Automatic identification and data capture techniques - Syntax for high-capacity ADC media.

ISO/IEC 14443: HF standard, which is being used as the basis of RFID-enabled passports under ICAO 9303.

ISO/IEC 15459-5:2007 Information technology - Unique identifiers - Part 5: Unique identifier for returnable transport items.

ISO/IEC 15459-6:2007 Information technology - Unique identifiers - Part 6: Unique identifier for product groupings.

ISO/IEC 15693: RFID for item management - Unique identification for RF tags standard, widely used for non-contact smart payment and credit cards.

ISO/IEC 15961:2004 RFID for item management -- Data protocol: application interface.


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ISO/IEC 15962:2004 RFID for item management -- Data protocol: data encoding rules and logical memory functions.

ISO/IEC 17363:2007 Supply chain applications of RFID - Freight containers.

ISO/IEC 19762-3:2005 Automatic identification and data capture (AIDC) techniques - Harmonized vocabulary - Part 3: Radio frequency identification (RFID).

ISO/IEC 18000: RFID for item management (Part 1 to Part 6).

ISO/IEC TR 18001:2004 RFID for item management - Application requirements profiles.

ISO/IEC 18185: the industry standard for electronic seals or "e-seals" for tracking cargo containers using the 433 MHz and 2.4 GHz frequencies.

ISO/IEC TR 24729-1:2008 RFID for item management - Implementation guidelines - Part 1: RFID-enabled labels and packaging supporting ISO/IEC 18000-6C.

ISO/IEC TR 24729-2:2008 RFID for item management - Implementation guidelines - Part 2: Recycling and RFID tags.

ISO/IEC 24730-1 & 2:2006 Real-time locating systems (RTLS) - Part 1: Application program interface (API), Part 2: 2,4 GHz air interface protocol.

Additional ISO standards are provided for air interface test methods.

New ISO standards are under development, including ISO/FDIS 17364 (Supply chain applications of RFID - Returnable transport items), ISO/FDIS 17365 (Supply chain applications of RFID - Transport units ), ISO/FDIS 17366 (Supply chain applications of RFID - Product packaging ), ISO/FDIS 17367 (Supply chain applications of RFID - Product tagging ), ISO/IEC CD TR 24729-3 (RFID for item management implementation and operation of UHF RFID Interrogator systems in logistics applications), ISO/IEC NP 24791 (RFID for item management, system management protocol, Part 1: Architecture, Part 2: Data management , Part 3: Device management, Part 4: Application interface, Part 5: Device interface, Part 6: Security), ISO/IEC CD 24729-4 (RFID for item management - Implementation guidelines - Part 4: RFID guideline on tag data security).


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Annex III: RFID standard bodies and regulation

ISO, the International Standards Organization) is the defacto global technology standards oraganization across industries. EPCGlobal, a division of GS1, is facilitating standards development for commercial supply chains in CPG, retail, automotive and transportation. ISO has adopted the UHF Gen2 standard developed by EPCGlobal. The situation with frequency standards is far more complicated but developing in a positive manner. While there is only one UHF Gen2 standard, a limited number of UHF bands may be utilized in Europe as defined by ETSI standards. The FCC has allowed a much broader range, which facilitates read capabilities in a variety of environments in the US. HF (high frequency) is the only global radio band that is implemented uniformly worldwide. UHF (ultra high frequency) allocations are slightly different from region to region, and, in Europe, country variations do also apply. In efforts to eliminate this barrier the EU Commission issued Decision No 676/2002 in November 2006, essentially mandating to all member states the harmonisation of the radio spectrum for RFID devices operating in the UHF band by May 2007. Although allowing for slight postponements of the actual deadline in some of EU member states, this represents a great step towards making RFID a sustainable technology investment opportunity

rfid adoption and implications - empirica

Documents