Logistics companies wary about RFID advent

The logisitics industry in northern Nevada is watching the advent of a major new technology with more nervousness than anticipation.

The technology known as Radio Frequency Identification everyone calls it RFID for short allows a tiny chip to be embedded into merchandise so it can be continually tracked.

An RFID-tagged pallet loaded off a truck into a warehouse, for instance, passes through a scanner that instantaneously records the arrival of the merchandise.

The location of the pallet can be easily tracked as it moves through the supply chain.

"It's a huge, earth-shaking thing in the industry," says Dale Rogers, director of the Center for Logistics Management and a professor of logistics at the University of Nevada, Reno.

It's also an expensive thing, and some in the logistics industry think they're being asked to pick up a tab that will largely benefit retailers.

The most immediate push for the technology comes from Wal-Mart, which on Jan.

1required its 100 biggest suppliers to place RFID tags on cases and pallets delivered to three Wal-Mart distribution centers in north Texas.

Next up is a similar requirement for the 200 vendors in the second tier of Wal-Mart suppliers.

"Clearly, the gauntlet has been thrown," Rogers says."The industry absolutely has to start figuring out how to do this."

The big challenge is cost.

In the months before Wal-Mart implemented its decision, logistics industry analysts predicted that suppliers would need to spend $1 million to $500 million each to comply.

A survey early this month by the technology investment company Incucomm found, however, that the average upfront investment by a Wal-Mart supplier was about $500,000.

Still, Rogers notes, RFID devices themselves might add $3 to the cost of handling a pallet a huge sum in a logistics industry that operates on thin margins.

Those costs probably would go down as the technology spreads.

The costs, however, ripple throughout warehouses.

Wooden pallets, for instance, sometimes hamper RFID performance because their moisture content varies and because their metal nails and staples can interfere with RFID readers.

The answer, some pallet suppliers say, is conversion to plastic pallets embedded with RFID tags.

The cost? About $140 a pallet compared with less than $10 for most wooden pallets or about $30 for ordinary plastic pallets.

And some folks in the logistics business in northern Nevada say privately they think that retailers will reap most of the benefits from RFID technology while logistics companies bear most of the cost.

Retailers so far have been clear that they expect the logistics industry to pick up the tab.

The ultimate dream of some retailers is this: Every item in the store will carry an RFID tag.

A shopper will simply roll her cart filled with merchandise through an RFID reader and pay the total recorded by the reader.

But even the giants of the logistics industry are moving with more deliberation than speed into the new technology.

Ozburn-Hessey Logistics, which handles warehousing and distribution for accounts such as Gerber from its Sparks third-party logisitics center, so far has fully installed RFID technology only at its Dallas distribution center.

Karen Hall, a spokeswoman for the company based in Nashville, says Ozburn-Hessey is ready to move quickly to provide RFID to any of its customers who request it.

The company's computerized warehouse management systems, for instance, are ready to handle RFID data.

While the company has implemented RFID only at its Dallas center that move was at the request of a major pharmaceutical company Hall said Ozburn-Hessey expects to install RFID infrastructure at all its major distribution centers over the longterm.