RFID fails to deliver, says Sara Lee's CIO

Sara Lee Corp. CIO George Chappelle believes RFID has a bright future, but right now it isn't delivering.

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Sara Lee Corp. CIO George Chappelle said he believes radio frequency identification (RFID) supply chain technology isn't mature enough to deliver benefits to consumer product manufacturers.

Until it works an order of magnitude two, three or four times better than it does today, it's never going to deliver on some of the benefits that everyone – including myself – agrees exist.
George Chappelle
CIOSara Lee Corp.
"It has to work better than it does today," said Chappelle, speaking at the recent CIO Impacts Forum in Los Angeles, a conference addressing business and technology issues for today's enterprises. "That might not sound like the most technical explanation in the world, but it doesn't work well. Until it works an order of magnitude two, three or four times better than it does today, it's never going to deliver on some of the benefits that everyone -- including myself -- agrees exist."

Sara Lee, the $12 billion food manufacturer based in Downers Grove, Ill., started using RFID technology at the request of Wal-Mart Stores Inc. The Bentonville, Ark.-based retail giant announced in 2003 that it would require all its top suppliers to integrate the product identification and tracking technology into their supply chains.

"We were told we would implement RFID, and a lot of us didn't even know what it was," Chappelle said "We started projects to implement RFID and over time we've learned a lot about it."

Chappelle said his company is taking a "slap and ship" approach to RFID. So far, Wal-Mart requires RFID-tagged products at only three of its Texas distribution centers (DC). So when one of those DCs puts in an order, workers at a Sara Lee DC rip open a pallet of products, tag each case, put it back on a pallet and shrink-wrap it.

No other major retailers are using RFID, Chappelle said. And since only three of Wal-Mart's distribution centers require RFID, there is no efficient way to tag products. The tags are too expensive to use on every product, so Sara Lee tags only those items it knows are being shipped to an RFID facility.

At the time that Wal-Mart launched its RFID campaign, other retailers started thinking about using the technology, too. The buzz seems to have died down.

"Other retailers have not followed," he said. "I used to get letters all the time, 'What's your plan for RFID?' I have not seen a letter in over a year."

Chappelle said he has no doubt RFID will eventually automate the supply chain and help manufacturers and retailers sell more products.

"I believe these benefits will happen," he said. 'We're only talking about when. Hopefully in my lifetime. There is no question if you look at what it takes to produce a product and get it on the shelf in the store that the automation of RFID -- proof of delivery, advanced shipping notices, automatic inventory, recalls -- all these things, there is absolutely zero debate RFID will help those things. It's only about when."

Chappelle said there are several challenges standing in the way of RFID delivering real benefits.

The first challenge is cost. He said it costs his company about 45 to 55 cents a case to apply RFID tags to its products.

"We've never taken in the history of the company a 50-cent per case cost increase," he said. "So cost is a real issue. When I meet with suppliers of RFID I tell them, 'You're doing a lousy job.' Tag prices have not come down significantly. Reader and writer costs have not come down significantly. Until they do, this whole RFID movement is not going to go at the pace people believe it will."

Chappelle said training employees is also a major challenge. Employees need to know how to fix equipment and they need to know how to program and RFID tag with the right information. He pointed out that training throughout the supply chain can be a major issue.

"We were tracking things and we had 800 reads from a case of breakfast meals in one Wal-Mart store in and out of the back room 800 times. How can this happen? What happened was the clerk in the store was using the box to carry other stuff out. So there is another piece of this that says, 'Look, this technology is great, but somebody better figure out how to use it.'"

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Chappelle said the technology is also unreliable. He said the read rates -- the rates by which RFID readers accurately identify information in an RFID tag -- are too low, especially for refrigerated products. RFID tags do not work well with refrigerated products because water negatively affects their accuracy.

"You can't operate an efficient supply chain on those read rates," he said. "As bad as our processes are today, as paper-driven as they are and as time-consuming as they are, they are accurate. This [RFID] is not accurate enough to depend on."

Chappelle said he is also reluctant to make a major investment in RFID because the future of the technology is unclear. He said he could invest $30 million to buy 100 readers, 1,000 writers and a billion tags and "tag the world." Chappelle said he is wary of this because a vendor could announce a new solution a year later and say, "We've solved the read rate problem, but you've got to buy all new equipment."

Wayne Kernochan, senior IT analyst at Illuminata Inc. in Nashua, N.H., said Wal-Mart's suppliers aren't yet seeing benefits from RFID. Manufacturers haven't yet been able to integrate RFID tagging into their manufacturing process. Instead, they take the "slap and ship" approach in distribution centers, which is less efficient and more costly.

Kernochan said food containers can be "squishy" and difficult for RFID tags to work with, requiring more expensive technology.

"I would say you need to get the RFID tag to down to one cent or less in order for it really to pay off," he said.

Kernochan said a key to making RFID really cost-effective is to leverage the data that can be collected with the technology.

"You've got to use the data," he said. "It's not just that RFID is really nice for passing products from one location to another."

What you want to do is use RFID to improve your inventory management and learn more about your customer, Kernochan said.

"If it had just stopped short at, 'Boy, this makes much fewer errors in shelving,' that wouldn't have paid for it," he said.

Additional customer satisfaction and improvements to inventory is the real key to making it work, he continued. You've got to have the software in place to analyze that.

"There are all kinds of data mining applications, but the architecture at companies has gotten large enough to handle anything more than a warehouse."

Let us know what you think about the story; email: Shamus McGillicuddy, News Writer

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