Issue #160 | Sept. 5, 2008 | by Clarke McAllister

McAllister’s Law states that mass compliance with retailer tagging mandates will not occur until the cost of encoding and applying an RFID tag is less than the cost of the tag itself.

Retailers such as Wal-Mart and Sam’s Club have issued RFID tagging mandates to selected suppliers. However, most suppliers remain hesitant to respond to those mandates, choosing to limit their project objectives to tactical goals such as baseline compliance - calculating them as a cost of doing business rather than embracing them as a strategic customer alliance or business process initiative.

For those suppliers, this has resulted in a business process cost of $2 to $5 per tag plus the cost of the RFID tag. Their hesitancy to fully embrace RFID, while understandable a couple of years ago, prevents them from scaling up and keeps their tagging costs high.

Fast maturing technology
Although many hurdles have been overcome since the original Wal-Mart mandate, one final obstacle remains. There is a chasm between the world of low volume pilot projects and the world of mass RFID adoption.

Of those problems written about these past few years, the one that has received the least attention is the cost of commissioning RFID tags. This is a hidden cost that exists in addition to the material cost of the RFID tag itself. The cost of commissioning the tags (encoding the right data and applying the tag to the right pallet or case) depends largely on the vendor’s internal business process.

In 2004, the hype revolved around a sub 5-cent tag that would already have the correct data in it and be a physically integral part of the box itself. When people discovered that this was a decade or so away from reality, interest in RFID plummeted. Such is the nature of leaders sharing their dreams of what a new technology can achieve. Bill Gates said the short term impact of a new technology is often overstated, but the long term impact is understated.

Playing it "safe"
In 2005 mandate compliance started slowly with slap-and-ship, a method of just getting the job done with preprogrammed RFID tags manually applied to a few pallets and cases. Zebra, Sato, Printronix, Monarch, and others sent in their engineers, and sold upgraded versions of their legacy printer technology for demand label printing. The market purchased these products since they were a continuation of something they understood, from companies that they already trusted.

The business process was awkward though, and the sleek new printers were big and power hungry. They were really good at spitting out beautiful RFID labels that contain all of the printed information you could think of, as well as a perfectly encoded RFID tag that contained all of the data that Wal-Mart needed. Then the labels would be carried out to the shipping dock 20, 50, or 100 at a time. Tags were peeled off and slapped onto the cartons, and off they went to the Wal-Mart distribution centers.

Engineers from those printer companies discovered that a high percentage of those labels were failing in the field. The problems were traced back to how the labels were being handled after they were printed, encoded, and carried off to the shipping dock. Failure rates improved, but the fundamental problem remained – printing and encoding were two different things which were being combined into one thing called a Smart Label.

Smart Labels are different than RFID tags. Tags are not labels. Tags are not printed using a demand label printer, such as a Zebra printer/encoder. Tags are manufactured on a high speed press. Tags only have pre-printed information on them which may include logos, consumer messages, or bar code, but not tag-specific information. Labels may contain shipping addresses, SSCC bar codes, or any other information that has been required by previous retailer mandates or by MIL-STD-129 for DoD shipments.

It is important to know that neither Wal-Mart nor DoD require Smart Labels. They specifically state in their requirements that the tag and the label can be separate, and describe how they could both be applied to packaging. In terms of RFID performance, a separate tag can be placed on the carton in a location where it will read better. An RFID tag is actually best used as a supplement to the shipping labels of previous mandates. It has been the printer companies that have promoted the combination of printing and encoding into a single Smart Label in an attempt to perpetuate the importance of printing and the printers they manufacture.

The Smart Label Problem
So why is the Smart Label a problem for mass adoption of RFID? It seems like a great idea to have the bar code mandates, MIL-STD-129 mandates, and the RFID mandates all satisfied by a single label that can just be applied to a box and shipped out the door. It turns out that would be true, especially if companies would just spend the $150,000 necessary to retrofit existing production lines with print/encode/apply machines to do it automatically.

If they would only do that and get their per-tag costs down, and just eat the cost of shipping RFID-tagged cartons to retail stores and distribution centers that do not require tagging yet. If suppliers would just do that, then the chasm would be no more than the cost of retrofitting 1 million production lines at a cost of $150,000 each, totaling $150 billion dollars, give or take a few billion.

The problem is that a capital investment of $150,000 for automatically printing, encoding, and applying RFID labels on 100% of their production output is not likely to pay off before smart packaging finally arrives to replace it.

Clarke McAllister is Chief Technology Officer of ADASA Inc. Next week, he will explain what it will take to bridge the gap from the short-sighted approach to the future. Welcome - ADASA INC