Who Will Win the Tagging Wars: RFID or Barcodes?

Stephen DeAngelis

August 04, 2011

I have written several posts about the future of product tagging in the supply chain and have noted that the future of tagging remains unclear. When radio frequency identification tags were developed, they were hailed as the future for the supply chain. Tagged items would make it easier for everyone involved to monitor inventory with greater precision. But, as the editorial staff at Supply Chain Digest note, “the initial vision of an RFID-enabled consumer packaged goods to retail supply chain that was the foundation of the electronic product code (EPC) movement starting in 2003 has largely floundered.” [“Will Bar Code Base Self-Scanning Systems Doom Item-Level RFID Tagging in CPG to Retail?” 6 July 2011] The greatest drawback for RFID technology has been cost. SCD staffers believe that RFID costs may not decrease fast enough for the technology to win the tagging wars. They write:

“While many believe that someday the value prop for item-level RFID in mainstream retail (grocery, mass merchandise) will emerge as tag costs go low enough, we wonder if the emergence and apparent popularity of bar code-based mobile self-scanning systems will mean the need for or potential advantages of item-level RFID in most retail applications will never get off the mat.”

The “bar code-based mobile self-scanning systems” that have caught their attention are being introduced in supermarkets like Stop & Shop and Tesco. The article explains:

“The basic concept of these mobile self-scan systems is this: shoppers are given small mobile wireless devices as they begin their shopping, scan item bar codes to view product information, see and claim discount offers, and ultimately put the item into their electronic as well as physical shopping cart, making checkout fast and easy. There are several such system offerings for retailers in the marketplace, primarily deployed in Europe, though Swedish retailer Ahold has deployed its ‘Scan It’ system not only in several Euro countries but also in about half of its Stop & Shop and other US store banners. All told, Stop & Shop says the system has already been used about 10 million times in the US. Carrefour, the world’s second largest retailer behind WalMart, has also started to roll out a system in parts of Europe, based on the My-Scan system from a technology provider called Re-Vision, which says UK retailer Tesco is also a customer, among others.”

One of the reasons that barcode-based mobile self-scanning systems could be catching on is because they feel cutting edge. Customers get the impression that they are helping move the frontiers of retailing forward into the future. One woman interviewed by CNN concerning her experience with a barcode-based mobile self-scanning system told the reporter, “I love Scan It.” Asked why, she replied, “Because it makes shopping fun.” Surely the novelty of such systems will wear off as they become more ubiquitous; but, novelty is not their only advantage. As another woman told CNN, “I love those pop-up coupons.” In the end, “those pop-up coupons” may prove to be the tipping point for retailers. The article reports, “Scan It customers spend on average about 10% more than customers that don’t use the system, in large part driven by the deal promotions.” If the technology does proliferate and gain wide acceptance, retailers would like to see labeling laws changed. As the SCD article explains, “Ultimately, these systems could eliminate the need for shelf labels, which are a huge cost and headache for many grocers and other retailers (though in the US such labels are currently mandated by many state laws).” The article concludes:

“If use of these type of self-scan systems takes off, one interesting question would be if there would be any real future for item-level RFID in consumer packaged goods, a cost that would be incurred then solely for the potential inventory control benefits, not to improve the shopper checkout experience, such as rapid checkout. RFID might still be used at the pallet/carton level for supply chain efficiencies of course, but as with bar code scan tunnel system Kroger’s has been piloting, these bar code-based self scanning systems are a bet that item-level RFID in consumer packaged goods is a long, long way off. SCDigest has a hard time envisioning retailers paying for both.”

Kroger has been testing the scan tunnel system mentioned since May 2010. The folks at Supply Chain Digest call the system “a revolutionary new approach to Point of Sale and retail checkout that involves high speed imaging of bar codes or other identifiers to reduce its own labor costs and speed shoppers through the checkout process. [“New Kroger Bar Code Scan Tunnel Could Revolutionize Retail Checkout,” 11 January 2011] The article describes the system this way:

“Kroger, a pioneer in self-checkout systems generally, concepted the idea a few years back, and then began work with Fujitsu, an existing POS partner, to develop a pilot system. Two of the Advantage Checkout systems have been installed and been operational in a Kroger store in Hebron, KY since May, according to Lynn Marmer, group vice president for corporate affairs at Kroger. The heart of the system is a ‘scan tunnel’ similar in a sense to similar tunnels some airlines have tried to deploy to manage the tricky job of scanning baggage bar codes that are oriented in every possible angle. Inside the Advantage Checkout tunnel are a battery of imaging scanners on all sides capable of not only reading bar codes, but using optical character recognition (OCR) technology to read letters and numbers and potentially to capture a picture of the product as it goes through the tunnel. A scale could also be added to the system, but has not been installed in the pilot system, Kroger says. The result of all this is a very high read rate of product UPC bar codes despite the huge variation in orientation of the bar codes as products move through the tunnel. Current read rates in the pilot program are 98.5% percent or more, Kroger says.”

Clearly, stores won’t opt to buy both scan tunnel and barcode-based mobile self-scanning systems. Each has its advantages. Kroger says it likes the advantages offered by the scan tunnel technology. Those advantages include:

“It can reduce store labor by further empowering customer self-checkout. While current self-checkout systems in grocery stores have been largely successful, they are generally used by shoppers with a relatively small number of items. Advantage Checkout is designed to be used for large or small volumes of items in a shopping cart. Consistent with that, the high speed of the system – the belt inside the tunnel is moving at rapid pace – means the system can dramatically improve the processing time for a given customer through checkout, a benefit any time but especially so on peak shopping periods near say dinner time or on Sundays. Customers or a store associate can rapidly place products on the belt and off they go through the tunnel as the cart continues to be unloaded. … The system brings up all sorts of interesting design and material handling possibilities, from shopping carts optimally designed for the system to how the in-feed and out-feed belt systems are designed.”

Kroger CIO Chris Hjelm told the SCD staff, “We don’t see RFID coming at the item level to the grocery industry any time soon. I don’t know if the products could support a one cent tag, let alone tags costing five cents or more, and even if we got to a cent or less, the rollout across all the vendors would take years.”

Before writing a eulogy for RFID tags, ABI Research reports, “Despite the 2008-2009 economic setbacks, the RFID market rebounded nicely in 2010, growing slightly more than 14 percent.” [“Continued Strong Growth in RFID Market Is Seen Across Several Verticals,” SupplyChainBrain, 12 July 2011] The article concludes:

“ABI Research foresees variation in demand and the pace of adoption between applications, verticals, regions and technologies, with the retail apparel sector in particular displaying something of a slowdown in growth this year. However, the bottom line is that across the market as a whole we continue to see strong potential for future growth. Research director Michael Liard notes, ‘The fastest-growing application between now and 2016 will be item-level tracking in supply-chain management, which ABI Research estimates will exceed a 37-percent growth rate.’ This growth is being driven by high-volume demand for passive UHF systems to support:

“• Retail apparel tagging in U.S., Europe and other select country markets
“• Pharmaceutical tagging in Korea due to government compliance
“• Wine, tobacco and other anti-counterfeiting tagging efforts, notably in China
“• Other items over long term, including cosmetics, consumer electronics and more

“‘The fastest-growing verticals over our five-year forecast period (in descending order) will be retail CPG, retail in-store, healthcare and life sciences, diverse non-CPG manufacturing, and commercial services,’ says Liard. More specifically, primary RFID applications can be broken down into ‘traditional’ and ‘modernizing’ types. In the former group are access control, animal ID, automotive immobilization, AVI and e-ID documents. The modernizing category includes asset management, baggage handling, cargo tracking and security, point-of-sale contactless payment, real-time location, supply chain management, and ticketing. The 2011-2016 CAGR for aggregated modernizing applications is expected to be double that of the traditional applications cluster.”

Ironically, the folks at Supply Chain Digest — the same ones who asked if there is “any real future for item-level RFID in consumer packaged goods?” — agree with and the folks at ABI Research that RFID is likely to come up the big winner in the tagging wars. They write, “It is inevitable that RFID will dominate the RFID landscape versus traditional bar codes – the only question is when.” [“The Seven Reasons RFID will Eventually Win in the Supply Chain,” 27 July 2011] Here the SCD Staff’s seven reasons for coming to that conclusion:

“• In most applications, RFID simply has a number of advantages over bar codes: the potential for auto versus manual reads/scanning, no line of sight requirements, ability to put more data on the tag, etc. The better capabilities will win out in the end, as users gain a level of comfort, the price comes down, and the performance improves, all of which will happen.

“• We are clearly on a path where companies want to track everything at an individual, serialized level; while that will take time, and will require a reduction in RFID tag costs in some applications (e.g., a can of soup), technologies such as printed tags are likely to make that tag cost reduction requirement a reality at some point.

“• As companies emphasize continuous improvement, whether through formal Lean programs or otherwise, this will inevitably lead to the opportunity to reduce/eliminate manual scanning in many processes, and point to RFID-based approaches as a result. Bar code scanning can clearly be seen as a ‘non-value added task’ if technology which can eliminate that step is available.

“• Companies that adopt these sorts of more automated processes and higher levels of visibility/tracking will gain competitive advantage, causing others to jump on board, after the leaders have driven costs and complexity down for the followers.

• Increased regulatory requirements, especially relative to food and pharmaceuticals, will either actually or largely mandate use of RFID for to support safety and product integrity goals. This will spur further technology development, and ultimately put pressure on other sectors to develop the same levels of visibility and control.

“• Relatedly, growing supply chain complexity and virtualization will put pressure on companies, especially as safety or other related issues emerge, to be able to track lineage, chain of custody and inventory status at higher levels than most can do today.

“• As RFID finds its way into smart phones, payment systems, etc., which is it clearly on a path to do now, that pervasiveness in the everyday world will make the use of RFID in the supply chain seem more obvious. And the RFID capabilities in these other technologies may actually be used in conjunction with the supply chain (e.g., delivery drivers using smart phones to read/automate store delivery processes.)”

You have to admit they offer some compelling reasons — IF the cost of RFID can be dramatically reduced. Cost remains the long pole in the tent. RFID tag manufacturers need to work closely with mobile phone makers to speed the introduction of RFID technologies that will make smartphone apps as useful as current barcode readers. It will be the ubiquity of such apps that will define the tipping point in the tagging wars for RFID. The staff at Supply Chain Digest makes this prediction: “We would plan with an assumption that an increasing percent of new systems will be RFID-based, and that by the end of 2016, RFID will be the dominant auto technology used in the supply chain, to the diminishment of bar codes.” I guess in five years we’ll know.