03/11/05 MEDIUM BUSINESS: SUPPLY CHAIN MANAGEMENT (BRIAN CHRISTMAS)

It's Wednesday. Do you know where your goods are?
If the answer is no, RFID technology could be the answer

In his 25 years in the food business, Don DiCesare has been involved in a couple of product recalls -- not many but enough to confirm they aren't fun.

To execute a major recall, a food company typically relies on UPC code numbers and best-before dates to track down products, he says. It often means casting a wider net, including for the safe products, to make sure all the offending goods are taken off store shelves.

"It can take three or four days," says Mr. DiCesare, vice-president of customer services and e-business at Parmalat Canada Ltd. "It's a significant effort."

A new use for an old technology now being demonstrated at a test centre north of Toronto could make that task a whole lot easier -- as well as give suppliers and retailers a better handle on how well-stocked the store shelves are, its backer says. It's called RFID, for radio frequency identification, and it could become an integral part of a broad-based effort involving government and industry to keep better track of food products.

For now, the initiative at an IBM Canada Ltd. facility in Markham, Ont., is focusing on food retailing and, if the cost-benefits prove acceptable, it will be extended to other industries. "If you have visibility in your supply chain, you're able to manage it better -- what doesn't get measured, doesn't get managed," says Shai Verma, an associate partner at IBM Business Consulting Services and RFID practice leader.

He's among those who believes it's not a matter of if but of when RFID will become common in Canada, perhaps as ubiquitous as the UPC codes found on packaging.

Radio frequency identification has been around since the Second World War and today finds some uses in keeping track of parts and equipment within various industries, such as automotive, officials say. It even has been introduced in long-term care facilities to keep tabs on residents.

Mr. Verma likens the application to the 407 toll highway in the Toronto region that electronically records the comings and goings of vehicles on the road's ramps.

A chip and antenna are imbedded in a palm-sized sticker or plastic tag that is fixed to a pallet or carton of goods. When it passes near a reader at the shipping and receiving doors, the origin, destination and other information about the product is recorded via radio signals into a company's data base.

"RFID promises to transform the way manufacturers and retailers plan demand, manage inventory, distribution and supply-chain partners, and market to consumers at the store level," the Markham facility says on its website, http://www.canadianrfidcentre.ca.

The benefits, it says, include:

Better traceability of a company's product across the supply chain, increasing accuracy and efficiency, and improving overall quality control.

Reduced inventory and handling costs.

Improved replenishment and inventory management between retailers and manufacturers.

Increased operational efficiencies throughout the supply chain.

While it's more of a backroom application, consumers could find store shelves better stocked. Officials say it will also help with recalls, produce freshness and counterfeit issues, especially with pharmaceuticals. It could also be used internally to keep track of product ingredients and corporate assets, from laptops to boxcars.

But it will only be as effective as the scope of its use through the product supply chain.

A RFID reader machine costs $10,000 to $15,000 and the tags less than a buck each, tied together by a sophisticated inventory management software system.

Mr. Verma says the business case for small and medium-sized enterprises is the same as that for big business: They risk losing customers if the goods are out of stock; if they have a system in place that makes product replacement more nimble, they will gain an edge on their competitors.

The Canadian RFID Centre was opened in September to show how the system works. IBM Canada and the grocery industry spent $1.7-million to build and operate it for 12 months. The facility replicates a grocery story operation, including cold storage. It's perfecting the technology's application but, more importantly, serving as a showcase for its merits; tours are offered to try to get grocery industry players enthused.

"What we're really trying to do is make sure everyone understands the potential of the technology and then work together to develop best practices and time lines to implement it -- if there's an economic case to made that it should be implemented," said David Wilkes, a senior vice-president of the Canadian Council of Grocery Distributors and chairman of the RFID centre's steering committee.

Companies may soon be embracing the technology whether they like it or not -- and the pressure will be coming from two sources.

On the regulatory front, both the federal and Quebec governments are working to establish standards for the traceability of certain food products. Quebec's requirements are scheduled to come on stream next year, Mr. Verma said, while Ottawa's are due for 2008.

Wal-Mart Stores Inc., meanwhile, has adopted RFID in a big way in the United States and has mandated that its top 100 suppliers ship cases and pallets of products with RFID tags to 104 Wal-Mart stores, 36 Sam's Clubs and three distribution centres. By January, it wants 200 more suppliers to join and expects that in 2007, 600 suppliers will be on board.

The world's biggest retailer is implementing RFID to provide better in-stock selection for its customers, Wal-Mart spokeswoman Christi Gallagher said, but down the road it will also help for product returns, recalls and warranties, and to fight counterfeits.

"Adoption is gathering momentum, and RFID will become pivotal in driving changes in the supply chain to reduce cost and enable companies to both keep prices as low as possible and deliver an improved service," she said in an e-mail interview. "Many small suppliers are realizing that RFID technology can even provide them a competitive advantage over larger suppliers because it allows them to have the same visibility to the supply chain to allow better in-stock."