The biggest problem is that the tags' read rates are still not satisfactory for most companies, according to research company IDTechEx.
Low tag read rates are still preventing RFID from gaining momentum as of mid-2007, even though the potential benefits of the wireless technology are making it look more attractive, according to a report issued May 29 from Cambridge, England.-based research company IDTechEx.
"The tagging of pallets and cases to meet retail mandates is still struggling to take off," said IDTechEx CEO Raghu Das, in the report. "This year, IDTechEx expect that only 375 million tags will be used for this sector, the main reason for this is that the read performance is still not satisfactory for most companies. For example, George Chapelle, CIO of Sara Lee, reports that on frozen and dry foods they achieve about a 70 percent read rate, and on chilled foods the read rates is about 30 percent using Gen 2 tags. With such poor read rates, they cannot realize internal benefits."
Although retail giant Wal-Mart is continuing to push its radio-frequency identification efforts, Das said, it can only force the hand of suppliers so far.
Wal-Marts "aim is impressive," Das said. "Rollin Ford, CIO of Wal-Mart, reports that if RFID can resolve 10 percent of their out of stock problems and inventory inaccuracies, it would save the retailer and its suppliers about $250 million a year. However, with poor read rates, many suppliers have seen no ROI, let alone savings above this."
Not all suppliers are struggling with RFID, though. The report found that Kimberly Clark, maker of Kleenex and Huggies, is using RFID to good advantage to monitor out-of-stock items.
"Shelf stock information is something that consumer good suppliers did not have good visibility of before RFID. The products it supplies are mostly RF inert, being mainly paper based, so read rates are good enough for the company to obtain significant paybacks. And significant they arethe firm discovered that out of stocks on the supermarket shelf were about twice [as bad as] they had expected," Das said in the report.
Das noted that Kimberly Clark has set up an RFID stock monitoring system in 500 stores and hopes to expand it to all stores where its products are sold, even if those stores do not yet have RFID capability. "However," he said, "to date, Kimberly Clark is unfortunately the exception rather than the rule."
According to the report, Procter & Gamble told IDTechEx that it ordered "several million" tags in 2006, and $12 billion retailer Sara Lee "will use only about 50,000 RFID tags in 2007 to meet retailer mandates."
Das notes in the report that the industry has seen these concerns for a couple of years, but the fact that there seems to be little or no evidence of improvement is alarming. "The challenges faced by consumer packaged goods suppliers are not new, but as a result they are doing little more than slap and ship," Das wrote in the report. "UHF Gen 2 tag suppliers, therefore, have found the RFID market disappointingly slow, with many looking into other applications such as asset tracking and other closed loop applications, which is still one of the biggest growth areas in RFID and usually profitable for suppliers."
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Evan Schuman is the editor of CIOInsight.com's Retail industry center. He has covered retail technology issues since 1988 for Ziff-Davis, CMP Media, IDG, Penton, Lebhar-Friedman, VNU, BusinessWeek, Business 2.0 and United Press International, among others. He can be reached by e-mail at Evan.Schuman@ziffdavisenterprise.com.