The See-It-All Chip

By Cathy Booth-Thomas

In Arizona a busy mom with kids charges fast food to her American Express by flashing a key fob in front of a plastic box. In London the same technology helps retailer Marks & Spencer track gourmet dinners to prevent spoilage. The U.S. military used it in Iraq to electronically search supplies and keep tabs on hospital patients. In Singapore and Helsinki DHL tested it in anticipation of tracking the 160 million packages it ships annually. And in Arkansas the world's biggest retailer, Wal-Mart, is telling its top 100 suppliers to put it on all cases and pallets by 2005, or else.

The technology behind all these--radio-frequency identification, or RFID--is so old it's almost laughable. In World War II, the British used it to make sure incoming planes were theirs, not Germany's. Today new RFID applications are fueling a quiet business revolution that promises to speed up inventory and payment systems--and change our lives. Soon the family refrigerator may read the RFID tags of its contents, then alert you to fetch another carton of milk, toss an out-of-date product or cut back on cholesterol consumption. In Italy an appliance maker has designed a washer that can read RFID-tagged garments and process them accordingly. "It's going to be huge for industry," predicts futurist Paul Saffo. "RFID will start to arrive in 2004, and it will unfold over a decade, and we will wonder how we ever lived without it."

Radio-frequency identification is, in fact, already pervasive in our lives--used to track everything from pets to prisoners to products. Cars zip through tollbooths thanks to payment systems using RFID. More than 50 million pets worldwide are tagged with RFID chips. At least 20 million livestock have RFID tags to follow them for possible disease breakouts. A museum in Rotterdam uses RFID to guard its Rembrandts and Renoirs. And for the past two years, Oscar-goers have been screened and tracked by RFID.

Now RFID is about to reach ubiquity, bringing its ability to track everything, everywhere, all the time from the factory right into your home. Spooky but incredibly productive, RFID is the basis of 6,000 patents filed for wireless payments, keyless entries, cosmetics mixing, laundry tracking and patient monitoring. Think of it as the me-generation successor to the bar code, a technology that initially had its own Big Brother rap to beat. Bar codes identify a category of products. All Gillette Mach 3 razor blades, for instance, have the same code. With RFID tags, each packet of Mach 3 blades would have its own unique Electronic Product Code (EPC) embedded in a microchip no bigger than a piece of glitter. Projections vary wildly, but analysts say today's $1 billion worth of RFID sales could hit $4 billion by 2008 and $10 billion in a decade.

An RFID reader emits a radio wave to scan the chip via an attached antenna. Unlike bar codes, which have to be scanned one at a time, an RFID reader can theoretically scan every item in a shopping basket, case or pallet--at one glance, at a distance, even in rotten conditions like inside a freezer or in a sandstorm. Place an RFID reader in a series of gateways, and it can follow supplies from assembly line to store shelves and right out the door with the customer.

And that's precisely what freaks privacy advocates like Katherine Albrecht, founder of New Hampshire--based CASPIAN (Consumers Against Supermarket Privacy Invasion and Numbering). In Albrecht's nightmare, her grocer scans her credit card--at the bottom of her purse--and tracks her around the store recording her selections. Police come knocking after tracing an RFID-tagged soda can found at a crime scene to her credit card. While RFID certainly has the potential to be the most invasive consumer technology ever, supporters--consumers themselves, after all--are working on safeguards, such as "kill codes" for tags after checkout. "Privacy mavens are going to wring their hands over this, and I'm sympathetic," says Saffo, "but RFID is too good to stop."

Kevin Ashton's obsession with RFID began with a single shade of lipstick. When he launched Oil of Olay's ColorMoist Hazelnut No. 650 at Procter & Gamble in 1997, it was popular--too popular. "Four in 10 stores couldn't keep the item on the shelf," says Ashton, "and we were losing money because of it." He needed to track this item and others through the supply chain so clerks would know when to reorder and replenish the shelves. It took Ashton a year to identify RFID as a technology that would solve his problem and to hook up with two M.I.T. professors who could help him. The profs, Sanjay Sarma and David Brock, had their own obsession: getting a robot to recognize anything, whether a sheep or a car, that crossed its path. That task proved daunting until Sarma had a revelation: "Why don't you just ask the damn thing what it is?" Thus was born the idea for giving each item a 96-bit code, or EPC, to communicate its identity.

In 1999, with the help of P&G and Gillette, the three men co-founded the Auto-ID Center at M.I.T. to pursue RFID uses. Today 103 companies are members, including consumer giants like Johnson & Johnson, Kimberly-Clark, Kraft Foods and Unilever. Ashton estimates that U.S. retail giants alone lose up to $70 billion a year in potential revenue because of their labyrinthine backroom networks. Half of that loss results from failure to restock popular items. The rest comes from lost or stolen items (shrinkage, in the parlance), particularly stuff like Gillette's Mach 3 razor blades and Duracell batteries--possibly the two most frequently stolen items in the world. (If you doubt it, look at all the Mach 3 blades selling on eBay, says Ashton.) What if a retailer could always know the whereabouts of every razor blade? The Accenture consulting firm, an Auto-ID member, says such a system--Auto-ID's holy grail--could increase sales 1% to 2%, decrease inventory 10% to 30%, and reduce labor costs between 5% and 40%. Those are huge numbers in the $3.6 trillion retail industry.

Manufacturers and retailers are moving forward with RFID for backroom logistics. In June Wal-Mart CIO Linda Dillman gave the firm's 100 top suppliers--which provide half the goods on its shelves--a veiled ultimatum about the stuff flowing into its 103 U.S. distribution centers. Vendors who don't use EPC codes on pallets and cases by 2005 could risk losing business. "By 2006, we'd like to roll it out with all our suppliers," says spokesman Tom Williams. Wal-Mart, which did much the same with the bar code, has admitted there is no timeline for RFID-tagging each product--reassuring news for privacy wonks.

On the other hand, DHL Worldwide Express, which handles 160 million packages a year, plans to go global soon with RFID tracking. Earlier this year DHL's RFID program manager Trevor Peirce stood next to a conveyor belt at its Helsinki gateway, watching computerized RFID scanners identify packages inside passing cargo containers at the rate of 300 items per second. "This is amazing technology when you see it working, and it's all fine-tuned," says Peirce. For customers, the payoff is later posting times and earlier deliveries, says the company's CIO, Steve Bandrowczak. "RFID clearly can help customers by reducing inventory cycles, reducing lead times."

The biggest user of RFID today is probably the U.S. military, which has plowed $272 million into RFID asset tracking--a system that has been battle tested in Iraq. The Army Materiel Command required all air pallets and commercial shipments for Gulf War II to be digitally tagged so commanders like General Tommy Franks--a big supporter of the technology--knew when and where critical cargo like tanks would arrive. One unit told software developer Savi Technology of California that taking inventory, normally a two-or three-day job, was completed in just 22 minutes--highly convenient when you're under fire. (The system also proved handy one night for hungry soldiers, who used the RFID reader to hunt down milk for their cereal.) In all, RFID technology helps the military track 300,000 containers in 40 countries every day.

The Department of Defense (DOD) also tracks humans with RFID. For the first time in a war zone, the Navy's Fleet Hospital 3 kept tabs on wounded soldiers, civilians and POWS at its 116-bed facility in the Iraqi desert by using wristbands with RFID chips. By scanning the wristbands, medical personnel could access treatment and track patients in a central database. "In Iraq the real challenge was tracking noncombatants, but ultimately we hope every soldier will have an RFID tag," says Lisa Mantock, president of Texas-based ScenPro, which developed the software. Using similar technology, Calipatria State Prison in California became the nation's first such facility to monitor guards and inmates alike with TSI PRISM, a tracking technology using RFID wristbands that look like large diver's watches. The surveillance curtails violence.

At Texas Instruments these days, RFID is the workhorse behind applications like access control, baggage handling, sports ticketing and product authentication. In Plano, Texas, vice president David Slinger traces the genesis of the revolution to 1993, when companies like TI collaborated with carmakers to deter theft. TI, working with the Ford Motor Co., came up with a key that literally talks to a car. Use the wrong key, and the car is immobilized. "RFID transponders are now in 7 out of 10 cars," says Slinger, and car theft is down--as much as 75% for Ford's often-targeted Mustang.

Today TI is turning its efforts to consumer applications like wireless transactions, helping American Express launch ExpressPay, an alternative to cash for purchases where speed and convenience are important, such as at fast-food restaurants, gas stations and dry cleaners. In July Amex set up a real-world RFID test in Phoenix, Ariz., allowing card users and employees to charge at 200 merchants with an RFID-ready fob attached to a key chain. Amex vice president David Bonalle says RFID pilots have cut transaction time 30% to 50% and average sales have gone up 20% to 30%.

At burger chain Carl's Jr., which is testing ExpressPay, faster lines at the cashier and reduced backups at the drive-through window have brought in new customers. "It's a no-lose situation," says Jason LeVecke, grandson of the chain's founder. Women seem to grasp the advantages of the new system quicker than men--something Amex learned to its surprise in focus groups. "It sure would be easier than fumbling around in my purse," says Tracey Serenka, who had her two sons--Eric, 1, and Jason, 4--in tow at a Carl's Jr. recently. Another advantage over a credit card: there is no name or signature on the fob, and the account number differs from that on the user's regular card, reducing chances that crooks can steal from the account. If the fob is stolen or lost, American Express eats the liability.

Bonalle says the "light came on" for him nearly three years ago, thanks to his wife, who uses ExxonMobil's RFID-based Speedpass fob to pay for gasoline at the pump. At least 6 million people have used Speedpass since its 1997 introduction. But the technology spread far beyond the pump this year after all three major card companies--Amex, Visa and MasterCard--endorsed interoperability standards for RFID payments. Besides the Amex pilot, there have been trials by MasterCard (for its PayPass card in Orlando, Fla.) and Visa (which plans to use RFID-ready phones in Asia). Someday you will stroll down grocery aisles with a PC tablet that uses RFID technology to find products, place deli orders in advance and automatically ring up sales.

So far, Europeans have made the biggest investments. In England retailer Marks & Spencer has spent the past two years rolling out RFID tracking of its gourmet take-home foods, supplied to 200-plus stores by 300 providers. The RFID tags are embedded in some 3.5 million food trays and dollies, allowing the company to track the trays and reducing employee hands-on time 80%. While setup costs for a large company can run from $100 million to $200 million, the efficiencies can amount to 1% of revenues (that's theoretically around $100 million at M&S), says TI's Slinger, which supplied Marks & Spencer. "Companies are talking about payback for the investment in one to two years, even months," he notes.

Italians have been early adopters too. In 1998 appliance maker Merloni Elettrodomestici started turning out Ariston appliances--washing machines, dishwashers and refrigerators--with RFID readers that will eventually allow them to communicate with products bearing smart tags. Washers, for instance, will be programmed to read clothing labels for cleaning instructions. But that vision had a setback last spring, when Benetton nixed RFID tagging for its Sisley line because privacy groups threatened a boycott. Benetton is still determined to use RFID for inventory, hoping to replicate a system in place at Prada's New York Epicenter store. Sales personnel there can search inventory without leaving clients, thanks to RFID tags. Next year Prada hopes to roll out RFID in its new Beverly Hills store.

While the U.S. and Europe are concentrating on using RFID in logistics, Jun Murai, head of Japan's Auto-ID center at Keio University, says gadget-crazy Asians in Japan, South Korea, Singapore and Hong Kong are more likely to want household items with RFID chips that can communicate with a home network. The Chinese are more pragmatic. Shanghai and 44 other cities already use an RFID payment system for public transportation. In Singapore's library system, all 9 million books, videos and DVDs are embedded with antitheft chips, allowing self-checkout. "With bar codes, you need to precisely align the reader and the tag, but with RFID even old people and young children can use the system," says library-board senior development manager Wong Tack Wai. With costs down to 40-c- an item, libraries in Australia, South Korea, New Zealand and Macau have adopted the island's patented system.

With Wal-Mart requiring RFID tagging on pallets and cases, the stampede is on for U.S. suppliers to get up to speed. Earlier this month, the Auto-ID Center planned to issue its first RFID privacy guidelines, promising clear notification, choice and confidentiality. Saffo thinks that RFID may save us all some headaches in the future. It certainly might have helped a certain actress caught shoplifting in Beverly Hills, he says. "If only Winona Ryder had waited a couple of years, floor sensors would have detected her purchases as she headed out the door, and just charged her credit card." --With reporting by Steve Barnes/Little Rock, Dan Cray/Los Angeles, Chaim Estulin/Hong Kong, Jeff Israely/Rome, Nadia Mustafa/New York, David Schwartz/Phoenix and Nathan Thornburgh/Boston

With reporting by Steve Barnes/Little Rock, Dan Cray/Los Angeles, Chaim Estulin/Hong Kong, Jeff Israely/Rome, Nadia Mustafa/New York, David Schwartz/Phoenix and Nathan Thornburgh/Boston