RFID Gains Momentum

Wal-Mart, Target and the
European Union's Tesco
have more in common
than just being among
the world's largest
retailers. The three companies recently
began requiring their suppliers to adopt radio frequency
identification technology (RFID) to track merchandise from
warehouses to store shelves.

Now government agencies use RFID tags to better track
military supplies, equipment, drugs and even people. The
Department of Homeland Security (DHS) and Department of
Defense turn to RFID to speed the inventorying of food, clothing
and military supplies, thereby reducing
overall supply chain and logistics-related
costs. And the Food and Drug
Administration (FDA) encourages
pharmaceutical manufacturers to adopt
RFID to thwart drug counterfeiters that
try to infiltrate legitimate distribution
channels with knockoffs of name brand
prescription drugs.

After the terrorist attacks of Sept. 11,
security checks held up U.S. border
crossings for up to 12 hours. Delays at the
Detroit-Windsor crossing—where 25
percent of U.S.-Canada trade crosses—caused parts shortages, which curtailed
production at many U.S. auto plants.

At DHS, the Bureau of Customs and
Border Protection have turned to RFID
technology and its Free and Secure Trade
(FAST) initiative to help ensure the integrity
of supply chain management and speed the
flow of traffic crossing U.S. borders with
Canada and, since 2003, with Mexico.

To get expedited clearance at border
crossings, suppliers enroll in Customs Trade
Partnership Against Terrorism (C-TPAT) and,
in Canada, Canada's Partners in Protection.
Passive RFID tags affixed to the windshields
of vehicles operated by those import
companies, commercial carriers and
individuals that Customs has classified as
low-risk let the C-TPAT-certified vehicles use
FAST lanes equipped with RFID tag readers.

Today, the FAST system is used at 11 of the
busiest Canada-U.S. border crossings and
three Mexico-U.S. border crossings.

Department of Defense Salutes RFID

Department of Defense's phased RFID
program requires its suppliers to use RFID
tags on supplies it bought after Oct. 1, 2004,
and takes delivery of after Jan. 1, 2005. The
tags will help Department of Defense
automate its supply chain management,
eliminating errors and more efficiently
tracking supplies—both while they're in
transit and after they reach their destination.

In the first stage of the new policy's
implementation, supplies requiring passive
RFID tags will include packaged rations;
clothing, individual equipment and tools;
personal demand items (such as health
products, writing material and snacks); and
weapon systems repair parts and components
that are bound for Defense distribution
depots in San Joaquin, Calif., and
Susquehanna, Pa. Other supplies and depots
will be added in January 2006 and January
2007, says Alan Estevez, the Pentagon's
assistant undersecretary of defense for supply
chain integration.

"It's a significant step beyond the barcode
system used to inventory goods today,"

Estevez says. "RFID is more advantageous
because it allows you to scan 40 boxes at one
time, rather than scanning each box serially."

Active RFID technology, in use at
Department of Defense since the early 1990s,
proved its utility in tracking critical supplies
during the Iraq war, Estevez says. "When
you're in the middle of nowhere, your
communication tends to be limited," he
points out. "Using active RFID tagging in Iraq
enabled us to make sure that supplies such as
ammunition, fuel and water reached our
mobile troops."

Beyond providing vital visibility to the
supply chain overseas, RFID technology
could dramatically improve Department of
Defense's supply chain efficiencies and lower
its logistics costs, Estevez says. Working
closely with Wal-Mart, the department is fine-tuning its RFID implementation, he says. The
retailer, like Department of Defense, is
planning to require many of its suppliers to
incorporate passive RFID tags on
merchandise shipped after January 2005.

Secure the Supply Chain

The FDA works with suppliers in the
pharmaceutical industry to encourage use of
passive RFID tags on pallets, cases and even
individual containers to provide electronic
pedigrees for drugs while they are in transit
from pharmaceutical manufacturers to
dispensing sites, such as hospitals and
pharmacies. Unlike active RFID tags, which
cost up to $100 each, the smaller, lighter
passive RFID tags have no power supply of
their own and are thus much cheaper—between 20 cents and 50 cents apiece.

The electronic pedigrees, which would
replace the paper trail currently in place,
would help manufacturers track shipments of
drugs throughout the supply chain. They also
could be used to identify drugs for recall,
verify their authenticity, and help ensure that
they have been manufactured and distributed
under known conditions.

"We believe RFID is potentially the best
way to track and trace [pharmaceuticals]
from manufacturing to dispensing," says Paul
Rudolf, M.D., J.D., senior adviser on medical
and health policy for the FDA. "RFID should
make the copying of medications either
extremely difficult or unprofitable."

Although counterfeit drugs make up less
than 1 percent of the U.S. market, estimates
of counterfeit drugs such as antimalarials can
range as high as 50 percent in
underdeveloped countries, Rudolf notes.

The problem is on the upswing. Drug
counterfeiters are using the Internet
to distribute counterfeit prescription drugs
globally, according to Rudolf. The number of
open FDA investigations of pharmaceutical
counterfeiting rose from about six in 2000 to
about 22 in 2003, he says.

FDA has no immediate plans to mandate
adoption of RFID and has avoided setting
agency requirements that could stifle the
technology's progress or increase costs,
Rudolf explains. But the agency has been
working closely with industry to help
develop RFID pilot implementations to test
and fine-tune the concept.

FDA believes that the widespread use of
RFID technology will be feasible in the
pharmaceutical supply chain by 2007,
Rudolf says.

Transformational Technology

As the public and private sectors embrace the
use of RFID technology, the market has
nowhere to go but up. Global sales of RFID
hardware and software, which surpassed $1
billion in 2003, will reach $6 billion annually
by 2008, predict analysts at ABI Research, a
market researcher in Oyster Bay, N. Y.

However, RFID technology faces some
obstacles. Standards governing transmission
of data between RFID tags and readers are still
evolving. Also, the quality of RFID hardware
and software can be spotty.

The transformational impact of RFID on
the supply chain should begin to materialize
by 2008, says Jackie Fenn, vice president and
research fellow at Gartner, a research firm in
Stamford, Conn., in her report, "Emerging
Technologies: Transforming Industries and
Business Functions."

"As the cost of RFID and other tagging
technology falls dramatically over the
next decade, smart networked objects
will become prevalent," Fenn predicts.
The technology, she adds, "will lead to
new cost efficiencies in tagging even low-value items."