Attend a radio barcoding (RFID) conference a couple of years ago and you could almost smell the fear radiating from food manufacturers in the audience.
Wal-Mart had just thrown down the gauntlet to its top 100 suppliers, Metro was sounding out the big brands and Tesco was widely expected to follow suit. Start trialling this now, thundered the voice from the podium. And if you can't make a business case, you'll just have to try a bit harder, because this is going to happen whether you like it or not. Doing nothing is not an option.
Two years down the line, however, nothing is precisely what many UK food manufacturers are doing, partly because of delays in standards, but chiefly because their customers have not actually told them to do anything yet.
Tesco has not issued a mandate; Asda is still learning from Wal-Mart; Morrison and Sainsbury have bigger fish to fry and Somerfield is busy fielding takeover bids. In the meantime, while some food suppliers have built a business case for RFID through tracking assets like beer kegs or reusable produce trays for Marks & Spencer, few believe we will see the mass tagging of cases with disposable RFID tags in the UK for at least another year or two.
Indeed, the mood at Food Manufacture's round table discussion for food companies at last month's RFID Networking Forum was relaxed. Nestlé UK business technology manager Paul Roberts says: "Tesco hasn't put suppliers under pressure. I sit on its RFID working group, and everyone is focusing on where the genuine benefits will come.
"Right now, there are strong business cases being developed for tagging reusable, returnable assets, but just sticking [disposable] RFID tags on cases without changing our existing supply chains offers absolutely no benefit. For standard, high volume, low value lines at case level, there is no business case at all for suppliers."
And this is not simply because of hardware costs, he says, but because the infrastructure isn't yet there to allow the technology to realise its full potential. "This is not about RFID," he insists. "This is about EPC data [electronic product code encoded into RFID tags], and utilising it properly."
After all, even if tag costs plummet, suppliers will not get a return on their investment if they simply bolt RFID on to electronic barcode-based systems, and read and utilise data from RFID tags at the same time and in the same way as they read and utilise data from barcodes, says Kraft director, international b2b strategy, Peter Jordan.
Without a critical mass of customers yet demanding RFID, however, manufacturers will be reluctant to engineer major changes to supply chains for the benefit of one customer, as their current set-up is the most efficient way of servicing everyone else.
Instead, many are separating stock for customers wanting RFID at the factory or depot and having to unload pallets in order to tag cases and rebuild them again, just for the benefit of a handful of customers.Conversely, some manufacturers wanting to apply tags off the production line are having to introduce new stock keeping units for these customers.
As to whether tag costs will ever hit the magical five cents (US) or less, the jury is still out, says Unilever head of customer e-business Nigel Bagley. "My personal view is that using current [silicon-based] technology, tag costs will never come down far enough to be commercially viable. We will have to look at other alternatives."
However, a working version of tags using printed polymer-based electronic circuits -- potentially a far cheaper option -- is not expected until 2008, and current prototypes do not yet function at frequencies much higher than 125kHz and cannot carry much data.
Meanwhile, 'generation 2' silicon-based tags and readers should be widely available later in the year, but with prices still very high, investment is being carefully targeted.
At Unilever, cash is being pumped into trials in Brazil, the US and Germany to track pallets at depots, check retailer compliance with promotions by tagging display units and monitor temperature on ice creams, he says. "If a pallet has been left too long somewhere, it may be that we can salvage some of its contents if we know that the temperature of cases in the middle of the pallet stayed low, and only the outer ones are damaged. Previously, it would all have been wasted."
In the drinks industry, the focus has been on using RFID to track assets such as beer kegs, where shrinkage levels can be as high as 5%, says Coors Brewers UK logistics manager Frank Bell. "There are lots of possible applications. Customs & Excise has been looking at radio barcoding on alcohol as a means of automating the duty collection and payment process, for example. For us, traceability is the priority, both to comply with legislation and to reduce costs by preventing the need for blanket recalls by being able to pinpoint problem batches.
"We might be able to trace raw materials back to the field, but we don't always know which kegs, pallets or cases our distributors have delivered to which customers."
However, given the cost of RFID, third-party logistics companies, which typically operate on margins of 2-5%, are not falling over themselves to get involved, he says.
The key to realising the potential of RFID technology will be turning the torrent of data it will generate into actionable information, says Jordan. Suppliers already have a lot of data from systems like Tesco Information Exchange (TIE) and Wal-Mart's Retail Link, which enable trading partners to access depot stock levels and electronic point of sales data, he concedes. "But they all present data in different ways, so it can be difficult and time consuming to aggregate it into something meaningful. We don't want the same thing to happen with EPC data.
"However, if we could get a clearer view of what's on the shelf and particularly levels of promotional stock that retailers have, RFID could deliver a step change in availability. But retailers will also have to change the way they receive and process goods in-store if this is going to happen."
As fresh produce supplier Worldwide Fruit has demonstrated (see left), RFID can also reduce invoice mismatches and speed up the payment process, he adds.
The jury is still out when it comes to making a business case for food suppliers on disposable tags, says Marlow Foods, which is planning an RFID pilot this year on steel bins of raw materials coming into the business and selected cases and pallets leaving it.
Inventory manager Craig Todd says: "If we tagged all of our cases, it would cost us £3m a year. On £100m of turnover, that's not viable. However, if Tesco comes knocking on our door -- which I suspect will happen in late 2006, I will at least have a clearer understanding of the costs and benefits, which will put me in a stronger position."FM
RFiD tagging: where is the business case?
I can see potential for tracking beer kegs and monitoring temperature in the future, but disposable tags on cases -- I'm not so sure -- Colin Simpson, Fuller, Smith and Turner
If we tagged all our cases, it could cost us £3m. On turnover of £100m, that's just not viable -- Craig Todd, Marlow Foods
There are strong business cases being developed for tagging reusable, returnable assets, but just sticking [disposable] RFID tags on cases without changing our existing supply chains offers absolutely no benefit at all -- Paul Roberts, Nestlé UK
If RFID can deliver accuracy levels at the point of despatch this high, commercial departments don't have to waste time arguing about service levels -- Neal Collishaw, Worldwide Fruit
Using current [silicon-based] technology, tag costs will never come down far enough to be commercially viable for the mass tagging of cases -- Nigel Bagley, Unilever
If we could get a clearer view of what's on the shelf and retailers' levels of promotional stock, RFID could deliver a step change in availability -- Peter Jordan, Kraft
Blazing the trail
When Marks & Spencer first announced plans to RFID-enable its supply chain in 2002, Worldwide Fruit could only see costs, not benefits. Today, its deliveries into M&S depots are so accurate they are not even checked on receipt and payment is made upon receipt of the advanced shipping note. WWF writes data on to reusable RFID tags embedded in M&S's produce trays. By reading them again before despatch, discrepancies between inner labels and outer tray ends, miscounting and inaccurate retail prices are picked up, says logistics manager Neal Collishaw. "We got a payback in four months just from better service levels as we used to get fined when goods were rejected. We still make errors, but now we pick them up before we ship our products."