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Assess RFID's Transformational Potential
Get an introduction to Radio Frequency Identification's (RFID) compelling—but controversial—capabilities, and its role in Microsoft's product plans.
by Lynne Harvey Zawada and Peter O'Kelly

October 2003 Issue

Radio Frequency Identification (RFID, often pronounced "riff-id") technology is gaining ground quickly as an effective way to manage products and other objects. This realtime electronic labeling and tracking system uses radio frequency, digital codes, and microchips (called tags) to identify and track objects without scanning them manually, and you can apply the tags to almost anything, from large appliances and heating systems to car parts, razor blades, paper documents, and even currency.

From an IT systems perspective, RFID has major implications for information systems architecture, ushering in compelling Business Intelligence (BI) opportunities and significant data management challenges. Microsoft already has announced its support for RFID as well as its strategy for incorporating RFID into its BizTalk and Microsoft Business Solutions product lines (see Resources). IBM, SAP, Oracle, NCR, and other vendors have also pledged to support RFID. We believe Microsoft might be able to exploit this technology to give itself a significant advantage over its application competitors.

RFID offers many tangible benefits to businesses, especially with regard to managing product quality control and the supply chain. Most notably, RFID eliminates the need to re-scan products constantly to verify inventory status and keep product information complete and up-to-date. In the long run, RFID systems could automate the scanning process completely, replacing manual scanning. The labor savings alone could justify the cost of the system, and large consumer products and manufacturing companies would gain better tracking and inventory location capabilities, from the manufacturing plant to the store shelves.

RFIDs to Reveal Consumer Trends
Many early adopters believe that when RFIDs are deployed on store shelves, companies will better understand the customers' in-store shopping experience. Specifically, when every product in a store is tagged, and the tagged products are placed on the shelves, retailers will be able to determine several things. They'll know when shelves need restocking, which products the customer picked up initially and put back on a shelf, which items customers buy together, and even the sequence in which customers select products.

Further, RFID has transformational potential for many industries and business domains beyond the manufacturing and retail sectors. The consumer packaged goods industry, banking and financial services, the airlines, the automotive industry, healthcare services, the government, and the defense department can all benefit from RFID. Several European Union (EU) Central Banks are considering RFID to help them guard against counterfeiting and currency theft. And automobile, pharmaceutical, and chemical manufacturers hope to use RFID to help them meet federal regulations.

For example, Michelin and Goodyear plan to use RFID to aid their compliance with the Transportation, Recall Enhancement, Accountability and Documentation (TREAD) Act. The TREAD Act was created in the wake of the Firestone/Ford Explorer debacle. It mandates that carmakers track tires from the 2004 model year and beyond to streamline recalls if problems arise. In the pharmaceutical industry, Information Mediary Corp. and Shorewood Packaging Corp. (a business of International Paper Corp.) have developed a RFID-based smart drug packaging solution, the Med-ic ECM (Electronic Compliance Monitor), which monitors patient compliance with prescriptions during clinical drug trials. And, to comply with federal and international chemical manufacturing and distribution regulations, The Dow Chemical Company has invested in RFID to improve its manufacturing process control networks and track the location of chemicals from production to delivery. Even the US Postal Service and the United Parcel Service (UPS) want to use RFID to track mail and packages.

Although most people don't realize it, RFID technology is similar to smart cards. In fact, many banks and credit card companies, including American Express, MasterCard, and Visa, are looking into combining the two technologies to create contactless payment systems. American Express is now testing its ExpressPay RFID payment product, a device similar to ExxonMobil's Speedpass. It attaches to a user's key chain and she can wave the device in front of an RFID reader to pay for small items she purchases normally with cash. The RFID transponder transmits a serial number that identifies the customer, and the transaction is charged to the customer's credit card that's registered with the system. Consumers also can opt for ExpressPay Pre-Loaded, which stores a prepaid amount of money in the system. The price of the purchase is deducted each time the user makes a transaction.