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A close-up shot of a square radio frequency identification tag.

An example of a radio frequency identification tag produced by Texas Instruments. Unlike the traditional bar code, these tags contain a microchip that can help retailers better identify items.

Tag: you're it

by Erin Peterson

December 13, 2005

Heralded by some as the technology of the decade, radio frequency identification (RFID) made headlines earlier this year when Wal-Mart's top suppliers began using the new bar code-like tags on pallets (portable platforms) of products. Using microchips and antennae to help businesses track items without hand-scanning, RFID is expected to allow retailers to stock shelves more effectively, pull recalled items more quickly, and even prevent shoplifting. That said, the new technology poses some age-old problems that researchers and businesses are only beginning to explore.

With the help of the Carlson School of Management, however, companies are getting a better understanding of the costs and the benefits of the technology. Currently, the technology is used on some turnpikes, where cars are tagged while moving so they can be charged a toll without having to stop.

"We're trying to observe the business world so we can be ahead of the curve and help companies that are working with us," explains Rob Kauffman, professor and chair of the Carlson School's Information and Decision Sciences Department and director of the Management Information Systems Research Center. "We want to help them understand the structure of the marketplace and find out how they can pull value out of RFID."

Still considered to be a technology in its infancy, RFID hasn't been fully embraced by businesses because of its relatively high cost. Meanwhile, buyers and suppliers are trying to determine who will pay for the technology and what standards will need to be implemented as it grows in popularity. Last fall, the Carlson School hosted several discussions to help businesses clarify some of the issues with RFID. The meetings also helped provide direction for research collaboration among faculty and the business community.

Retailers, for example, might consider tagging customers, not just products. "Say you have a retailer's customer perks card in your wallet," says Riggins. "It wouldn't take much to insert a chip, such that when you walk into the door, they know that you're in the store."

There's no question about the ultimate value of RFID technology, particularly as the cost of the tags decreases from 50 cents per tag to about a nickel. Possible future uses range from tracking medical equipment to helping retailers provide personalized in-store recommendations similar to online retailers like Amazon.com.

The cost of the technology remains an issue. For the time being, retailers such as Wal-Mart, Target, and Best Buy have the upper hand, says Yan Dong, Carlson School assistant professor of marketing and logistics. Up to a point, at least, they can force suppliers to absorb most of the cost of the technology because of their size. "Having suppliers pay for the cost of RFID technology isn't the most efficient way to do it, but when suppliers pay, and retailers get the benefit, the retailers who are making the demands probably don't care."

Smart tags

* Bar codes can tell you that a box contains product XYZ. Electronic product codes, powered by radio frequency identification technology, can identify one box of XYZ from another box of XYZ, including product expiration dates.

* In retail, RFID allows retailers to keep better track of their products as they move through their distribution centers and into their stores. For the consumer, RFID means better merchandise availability--products are available for you to purchase when you need them.

* Most RFID tags never make it onto a store shelf. They're used on the case and pallet level. But when a case is also a product's consumer packaging--usually large electronic products like TVs or computer printers--you could find the RFID tag in the form of an EPCglobal symbol on the box.

* The RFID tags used in retail are passive tags, which means the tags do not emit their own signal and must pass through a special reader in order for it to relay information. (The readers being used at Wal-Mart have an average range of 15 feet.) During this process, the information travels on the same frequency band as a cordless phone.

Source: Wal-Mart

Dong would like to see suppliers and retailers share the burden, particularly since retailers may have knowledge that would ultimately speed up--and smooth out--the implementation of the technology. "Bigger companies, with their technology know-how, should take more responsibility than the suppliers, but I don't think that's happening."

Fred Riggins, Carlson school assistant professor of information and decision sciences, notes that privacy issues come into play when looking at future uses for RFID technology. Retailers, for example, might consider tagging customers, not just products. "Say you have a retailer's customer perks card in your wallet," says Riggins. "It wouldn't take much to insert a chip, such that when you walk into the door, they know that you're in the store." The tag would allow retailers to know what individual customers buy, and offer personalized service.

An RFID tag that activates while you're in the grocery store, for example, might link to a screen on your cart that would recommend new items that are similar to those you've purchased before. Put a bag of chips in your cart and the screen might recommend a particular salsa on sale in aisle six. While some consumer advocates worry that this sort of RFID tagging may be too invasive, Riggins points out that such programs have proven popular online--as long as retailers are clear about their privacy policy.

Well before that happens, however, businesses will have to become adept at understanding and managing the vast amounts of information that RFID technology can provide. "This new technology will only begin to deliver real business value to organizations once senior managers understand how to implement it effectively," says Kauffman.