Tuesday, September 11, 2007

RFID Memo to the CEO

Back in 2004, we were given a memo assignment in my Advanced Business Writing class (one of my first at USC) on the topic of "trickle-down effects in business" - a subject of our choice. We had to address this memo to our professor as if she was the CEO. The use of RFID has come a long way since this memo I wrote then (it may appear a bit distorted because of the blog-tool):

To: Yolanda Kirk, CEO
From: Fiona Torrance
Subject: Trickle-down Effects of RFID Technology
Date: September 16, 2004

We recently discussed the future of the barcode, and as we both agreed that it wasn't the most efficient technology in terms of inventory tracking and cost used by retail companies like our own, I decided to research its successor – Radio Frequency Identification (RFID) technology.

This analysis with provide you with the following:
· industries experiencing the trickle-down effects of RFID
· origin of RFID and how it works
· RFID's benefit to the retail industry

RFID application is not limited to any particular industry. It has multiple effects on businesses and consumers. The retail industry have recognized the impact of RFID use, and are pioneering its advancement. The web site, internetnews.com, had an interesting write-up titled, “Are You Ready for RFID?” by Colin C. Haley. In discussing this trend, he says, “Retailers believe RFID will replace bar codes, vastly improve the efficiency of their supply chain and cut down on theft and loss.

Still other business sectors are looking at tags and readers for a variety of tasks” (Haley 1). Business sectors are considering the advantages of implementing RFID and the trickle-down effects RFID is having on other industries, and on individuals.

Industries Experiencing Trickle-down Effects of RFID Besides the retail industry, RFID technology is revolutionizing many other industries and organizations, some of those experiencing the trickle-down effects of RFID include:
· Engineering and Information Technology
· Educational Institutes, Library Services, and Publishers
· National and International Security
· Public Services
· Agriculture, Botany, and Zoology
· Health and Medical
· Food and Beverage
· Legal, Accounting, and Financial
· Retail and Manufacturing

Recently, RFID technology has been embedded in bandages to monitor wounds and to monitor SARS patients in China. It is also being used in refrigerators to detect spoiled food. Research in all fields greatly benefits from RFID development. RFID technology has the potential to alter the operations of almost every industry that you can think of, and to change the way that businesses and individuals interact.

The technology is becoming much less costly to produce, ranging from 10¢ to $1 per RFID tag depending on the particular type of RFID required – read-only, write-only, or both. You can think of RFID technology as a database with programmable capabilities. I'll now give you some background of RFID's origins and how it works.

The Origin of RFID

RFID technology was previously used during the 1940’s in World War II military aircraft to detect friend from foe. Mainly being used by the military for detection and tracking, its other uses for many years did not venture much further than air traffic control and vehicle monitoring at tollgates. But RFID is now being developed by engineering firms world-wide for multi-use in industries and organizations. Scientists have drawn an analogy between the development of the Internet - and its global impact - and RFID development.

Debora Vrana recently featured an article in the L.A. Times about the Pasadena-based company, Avery Dennison Corp., and their use of RFID in labels. She quotes the editor of the RFID Journal, Mark Roberti, as saying, “This is a lot like what the Internet was in 1995, we are on the verge of a major change in the way companies do business” (qtd. in Vrana C1). With this change comes many ramifications because of how RFID works, so I've provided you with a brief description below.

How RFID Works

RFID is a transponder that allows identification of radio frequency. This transponder contains programmable electronic code, embedded with a unique identification number. It is often referred to as an ‘RFID tag’. A receiver, containing an antenna, detects the tag within its electromagnetic field, and is able to wirelessly receive and transmit information to and from the tag.

The RFID tag can be as small as a pin-head and can share information about any object, animal, or person that it is attached to. It acts as a tracking device and a portable database that allows multiple tags to be read simultaneously. RFID tags survive harsh climatic conditions and hazardous environments. Because of its features and versatile use, the RFID tag is deemed to replace the barcode and smartcard in the future, and to revolutionize industries and organizations globally.

The retail industry is at the head of this revolution with its implementation of RFID. Retail companies, like our own, have to make a decision about whether or not to embrace this change. It's not an easy decision to make without the knowledge of how we will be affected, and what measures will need to be in place to facilitate RFID use. This information on RFID's benefit to the retail industry may give us a starting point for further discussion.

RFID Benefits the Retail Industry

Retailers and manufacturers stand to benefit from RFID in the following three main areas:
· Financing Activities
· Operating Activities
· Investing Activities

The effect on each activity is briefly discussed below, starting with financing activities.

Financing Activities

Retail financing activities involve the exchange of resources between owners for a return, or gaining resources from creditors for future settlement. Retailers are experiencing an effect on their financing activities due to RFID in some of the following ways:
1. Improved tracking of resources due to RFID's accurate monitoring abilities
2. Substantial reduction in shrinkage costs as RFID enhances security
3. More efficient business forecasting because of the quality of data transmitted by RFID

Intel list the values of RFID in the Business/Enterprise section of their Homepage stating: “RFID reader-generated data can be converted into valuable, actionable information that delivers a significant return on investment by capturing, consolidating, and analyzing huge volumes of data which can be used to make faster and better business decisions” (Intel 1).

RFID provides the information that businesses need to make more efficient calculations of future earnings. Its tracking abilities also reduces the cost of shrinkage and theft, as operations are streamlined.

Operating Activities

Running a retail and manufacture business involves daily activities where RFID is playing a major role. Some of these business operational activities include:
1. Improved system for purchase and sale of inventory as recorded data is accurate and immediately available
2. Efficient management of the supply chain, reducing labor costs and human error
3. Better customer service in terms of monitoring of stock, defective goods, and delivery

Prashant Bhatia and Greg Gilbert, writing for the E-Business Executive Daily, highlight the effects of RFID on the supply chain and customer service, saying, “The rippling effects of RFID will permeate across many industries enabling a new level of customer service and nimbleness in the supply chain.

Instead of looking to the industry to dictate what RFID can do for them; leading businesses will gain recognition for what they have done with RFID” (Bhatia and Gilbert 2). Their view is that how businesses use RFID will be what redefines their position and influence in the business sector. The retail supply chain is expected to invest from $91.5 million in 2003 to nearly $1.3 billion in 2008 on RFID technology (Earls 1).

Investing Activities

Retail and manufacturing firms try to spend capital productively in line with company objectives. RFID is viewed as a key contributor in making some of these investing activities successful:
1. The replacement of long-term assets to facilitate RFID use will become more economical as RFID's costs reduce, and because of RFID's long-term durability
2. Cash availability for investment in marketable securities will increase because of these cost-savings
3. Changing company objectives to meet the capabilities of RFID will enable positioning and influence within the business sector, and will spur industry growth

Investing in RFID technology carries with it risks and rewards, William Atkinson discusses these in the Risk Management publication. In his analysis, he quotes the principal of Stamford, Gartner, Inc., Jeff Woods, as saying,
RFID represents huge investment in new IT.

Wal-Mart, for example, is expected to be investing a couple of billion of dollars in equipment alone. As such, one implication for risk management is the tremendous shift in a company’s data collection budget from labor to assets” (qtd. in Atkinson 3). Moving the company’s data collection budget from labor to assets is an example of the risk Wal-Mart is taking by investing its capital in RFID-compatible equipment.

There is no doubt that the implementation of RFID will boost the activities of industries, such as the retail and manufacture industries, however, the advent of RFID and its infancy is not without its concerns. And, these concerns seriously affect all industries mentioned and not mentioned in this document. I've listed some of these concerns for you to consider.

Concerns about RFID

There are arguments both in favor and against RFID advancement with respect to the following important issues:
· No current standardization of RFID technology exists
· Regulation of RFID capabilities, and international use, is still to be determined
· Royalties on RFID designs are a grey area that could increase trickle-down costs
· Public reaction to RFID use and its capabilities, particularly when in the wrong hands,
is pending because of the lack of awareness about the technology
· The need to protect personal privacy could be costly

All these concerns are valid and could intensely weigh the benefits down if RFID is implemented prematurely, or too late causing loss of competitiveness and industry position. We would need to balance these interests and the decisions we make to protect us from both possibilities.

Weighing the Interests of RFID

The ‘birth’ of the internet sparked debate about its origin, features, and uses, yet it is still evolving even with jurisdiction and security issues within the United States. Similarly, the mandates by Wal-Mart Stores Inc. and the Department of Defense (DoD) which force suppliers to adopt the new RFID technology starting January 1, 2005, are igniting awareness and discussion amongst industries, organizations, and individuals.

The far-reaching ramifications created by the ‘birth’ of RFID is yet to be experienced and identified as it evolves and changes how we do business, or how we conduct our lives. Although, in the retail industry specifically, we foresee substantial benefits to our financing, operating, and investing activities if we embrace RFID, the concerns raised about standardization, regulation, and privacy will have to be addressed.

We will have to consider the restructuring process within our company accordingly, and this is why I have provided you with this overview of RFID technology. Should you have any questions or details that you would like me to research more in-depth, let me know and I'll do so with pleasure.

Works Cited
Atkinson, William. “Tagged: The Risks and Rewards of RFID Technology.” Risk Management 51.7 (2004) : 12-19. Proquest. Business. USC Lib., Los Angeles, CA. 5 September 2004

Bhatia, Prashant, and Greg Gilbert. “Now’s the Time for RFID”. Line56.com: The E- Business Executive Daily 22 April 2003. Google. 12 September 2003

Earls, Alan R. “Are You Ready for RFID?” The Know Retail Management 2004. Google. 9 September 2004

Haley, Colin C. “Are You Ready for RFID?” Internetnews.com 14 November 2003. Google. 12 September 2004

Intel Homepage. “Rfid Converts Data into Business Value.” Business/Enterprise. 2004. Google. 12 September 2004

Richardson, Helen L. “Tuning in to RFID.” World Trade Magazine 1 November 2003. Google. 10 January 2004

Roberti, Mark. “The RFID “Revolution”.” RFID Journal 12 January 2004. Google. 10 January 2004

Vrana, Deborah. “Avery Dennison Is Hoping New Technology for Its Labels Will Stick.” L.A. Times 29 August 2004, Business: C1

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