A Radio Chip in Every Consumer Product

[Dave Farber <dave () farber net>]

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Date: Tue, 25 Feb 2003 08:31:42 -0500 (EST)
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Subject: NYTimes.com Article: A Radio Chip in Every Consumer Product

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A Radio Chip in Every Consumer Product

February 25, 2003
By CLAUDIA H. DEUTSCH and BARNABY J. FEDER




 

Here's a tip to thieves: If you are bent on stealing
packages of Gillette Mach3 razor blades, go someplace other
than Tesco's Newmarket Road store in Cambridge, England.
There, a "smart shelf" continuously queries tiny radio
chips embedded in the packages it holds, and senses the
silence when one is removed. The system may soon be
programmed to alert security when several are taken at
once, Greg Sage, a Tesco spokesman, said.

And, yes, Procter & Gamble will notice if a case of Pantene
shampoo does not make it to the Wal-mart Supercenter in
Broken Arrow, Okla. Its truck is equipped to monitor
signals continuously from chips hidden in each case. If any
case stops sending its "Hi, I'm still here" signal, a
monitor in the "smart truck" will record exactly when and
where. 

Such technology, known as radio-frequency identification -
the same techniques that enable an electronic sensor to
record data from an E-ZPass tag or an office door to open
for people with chip-equipped cards in their pockets -
could one day stymie pilferers. But it is also capable of
doing much more for commerce. Beyond Gillette and Procter &
Gamble, companies as diverse as International Paper and
Canon USA are teaming up with retailers and customers to
apply R.F.I.D., as it is known, to tracking products from
the time they leave an assembly line to the time they leave
the store. 

The companies are tagging clothes, drugs, auto parts, copy
machines and even mail with chips laden with information
about content, origin and destination. They are also
equipping shelves, doors and walls with sensors that can
record that data when the products are near. "We want to
track all of our merchandise, and that includes items that
people are unlikely to steal," William C. Wertz, a
spokesman for Wal-Mart Stores, said.

Chip manufacturers are busily spreading that gospel. "That
need to have the right product on the right shelf in the
right store at the right time - ultimately, that's what
will drive our business," said Karsten Ottenberg, a senior
vice president at Philips Semiconductor, the leading maker
of radio frequency chips and a unit of Royal Philips
Electronics. 

Early tests are encouraging. For three months in 2001, Gap
tested radio frequency tags on denim clothes at a store in
Atlanta. Sales jumped because the tags prevented the store
from running out of popular items, and the tags made it
quicker to find any items in stock.

Typically, 15 percent of shoppers leave clothing stores
without getting what they want; during the test, fewer than
1 percent of Gap shoppers left empty-handed.

Radio frequency identification still has too many kinks,
however, to be an immediate panacea for retailers. Cordless
phones, two-way radios, local wireless networks and other
communications devices that are widely deployed in
factories, warehouses and stores can interfere with the
signals. And, although radio tag readers can, under ideal
conditions, identify well over 100 tagged items every
second from quite a distance, radio waves have a hard time
penetrating metals and liquids - something that Procter &
Gamble is addressing with the Pantene test.

And costs are still prohibitive. The electronic tags cost
at least 30 cents apiece; most experts think anything above
5 cents is too expensive to be widely used for individual
packaged goods. Prices would have to fall to less than a
penny for virtually everything in stores to be tagged.
Sensors, which can be either hand-held or built into walls,
can cost $1,000 each.

But costs are coming down fast. Alien Technology, for one,
says that it can now sell radio frequency identification
tags profitably at 5 cents each for orders of a billion
tags or more. Just last month, Gillette said it would buy
up to 500 million tags over the next few years from Alien.

But Alien's manufacturing capacity is currently just a
small fraction of what it would need to fill orders over a
billion quickly. And experts warn that while the silicon
chips continue to shrink in size and fall in price, making
the attached antennas small enough and cheap enough is much
harder. 

Moreover, most retailers say they are reluctant to invest
in the technology until product tags are universally
readable, as bar codes are today. That means that every
retailer, manufacturer and carrier must agree to standards,
and use tags and sensors that speak the same language.

"It's one thing to say something is a great technology, but
quite another to say that you're ready to scrap existing
systems to accommodate it," said Daniel Butler, vice
president for retail operations at the National Retail
Federation, a trade association based in Washington.

Consumer privacy is also an issue. It would be easy to
combine credit card data with information from the retail
chips to know who bought what, and when - and, conceivably,
track the product even after it left the store.

"I don't think the average consumer understands the threat
to personal privacy that these kinds of technologies can
present," said Alan N. Sutin, a partner specializing in
information technology at the law firm of Greenberg
Traurig. 

William H. Steele, a consumer products analyst with Bank of
America, doubts companies will "succumb to the temptation
to keep tracking products in the consumers' hands," but he,
too, stops short of calling the issue specious. "There
should be a certain level of skepticism on the part of the
U.S. consumer," he said.

Still, companies are increasingly viewing the
identification technology as a potential savior. In 1999,
Gillette, Procter & Gamble and the Uniform Code Council,
which administers bar code standardization, founded the
Auto-ID Center at the Massachusetts Institute of Technology
to be a standards and research clearinghouse. The center
has satellite labs at Cambridge University in England, and
in Japan and Australia.

The technological limitations of bar codes makes the
growing interest in R.F.I.D. easy to understand. Kevin
Ashton, a P.& G. executive who directs the Auto-ID Center,
estimates that on average 10 percent of stores are out of
items the managers think are in stock - and as many as 40
percent do not realize they are out of a color or size.

The monetary impact of losing track of goods is huge.
According to a survey by the University of Florida,
shrinkage - the common retailing term for goods that
disappear either through theft, misplacement, fraud or just
bad record keeping - cost retailers a record $31.3 billion
last year. Only a third was a result of shoplifting. Nearly
half was employee theft, about 5 percent was vendor theft
and 15 percent was paperwork errors.

Suppliers have as much at stake as retailers. Colin
Peacock, the leader of a Gillette task force to study shelf
availability, said that 73 percent of customers left a
store if Mach3 blades were out of stock; 27 percent bought
a competitor's blades. He said Mach3 sales had gone up 288
percent at the Cambridge Tesco store that had the smart
shelf. 

Stores often resort to putting frequently pilfered items
behind glass or behind counters. That means customers must
wait for a clerk to get the products. The practice drives
away impatient shoppers and all but eliminates impulse
buys. 

Mr. Peacock suspects that sales are halved when products
are hidden away. "The impact of such defensive
merchandising can be worse than the problems it solves," he
said. 

Once it is perfected, radio frequency technology may solve
not just those problems, but some that are unrelated to
stocking issues. Because the tags, unlike bar codes, are
programmable chips, a store like Wal-Mart that frequently
changes prices can attach the price to the item and know
exactly what a consumer paid if the item is returned - even
if the customer lost the receipt.

And then there are product recalls to consider. Radio
frequency technology could pinpoint a tainted batch, and -
if customers paid with credit cards or used store discount
cards - identify customers who purchased such items.

"It would be wonderful to be able to spot just those items
that came from a plant that has a flaw, or those perishable
items that took too long to arrive and thus might spoil
sooner," Mr. Wertz of Wal-Mart said.

Canon USA wants to deploy radio frequency identification to
track machines at locations that use dozens of printers and
copiers. "It would help us schedule preventive maintenance,
and alert us to get equipment back when the lease expires,"
said James J. Gordon Jr., Canon's vice president for
logistics. 

Even the United States Postal Service has gotten into the
act. Last month, it promoted Charles E. Bravo, until then
its chief technology officer, to the new job of senior vice
president for intelligent mail and address quality, and
charged him with studying tracking technologies.

"We'd love to be able to tell a company that a customer's
check is truly in the mail, or that its direct mail flier
was just delivered to a customer's door," Mr. Bravo said.

And imagine if the company can also be sure that the item
the flier is advertising will be available.

"Increasing productivity, lowering inventories, decreasing
theft, all are important," said Paul J. Rieger, Procter &
Gamble's associate director of supply chain innovation.
"But ending out-of-stock situations, that is still our
biggest goal." 

http://www.nytimes.com/2003/02/25/technology/25THEF.html?ex=1047179710&ei=1&;
en=cfcc0cc045fa21f6



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