Would You Like Chips with Your Assignment?

Our obstreperous observer isn't about to let RFID chips get under his skin

This is a conversation many parents must endure with their children these days: When can I have an earring? When can I have a tattoo? How old must I be before I can have a silicon chip inserted under my skin?

This last enquiry is not the mere fiction you might think it to be but occurred on a daily walk to the school bus. It appears that in the precocious brain of an 11-year-old boy, a small semi-conductor behind the ear lobe will provide sufficient "on-mind" intelligence to make not only homework irrelevant but school, too. Furthermore, a chip can prevent the need to "carry all those ID and credit cards you carry with you".

This was not such a stupid conversation, unfortunately. Implants of radio frequency identification (RFID) chips in willing citizens were approved by America's Federal Drug Administration (FDA) last month. Their use, at least for the time being, will be for purely medicinal purposes - but not quite like whisky. Doctors and hospitals will be able to scan their patient's chip to gain access to their medical records. This, of course, sends the lunatic fringe of the privacy advocates completely crazy, as they believe Big Brother will now track a "chip-carrier" wherever they go.

The FDA's move, which is pretty gutsy given society's general distrust of government on privacy issues, came two months after 100 employees of the Mexican Attorney-General's Department willingly received body implants of RFID chips. The Attorney-General himself took a chip in the arm, claiming this gave him secure access to the nation's increasingly burgeoning database of criminals. Why he could not have simply used an ID and password, like everyone else, is beyond me.

But they're a funny lot in Mexico. Silicon chips are obviously a hot fashion item.

The other members of the A-G's staff were impregnated so they could gain access to secure government areas with a swipe of their finger, a blink of an eye, or whatever. The Attorney-General's press statement said the technology would also be a deterrent to kidnapping these individuals, apparently a growing national pastime south of the border, According to the Mexicans, an RFID chip helps detect a victim of a kidnapping. Total rubbish, of course, unless the abductors are holding them in a Wal-Mart warehouse.

This is the kind of nonsense we are coming to expect to hear about RFID chips, the most over-hyped chunk of technology currently doing the rounds of the industry.

RFID chips are in the sights of leading vendors such as Hewlett-Packard, IBM, Oracle, among many others, as potential sources of revenue for software licences, maintenance annuities fees and consulting fees. While these companies push this technology almost religiously, there is an increasing body of evidence to suggest their potential clients struggle to find a business case for the technology, or show that RFID chips are really that much better than the ubiquitous barcode that was unleashed in the early 70s.

Such concerns are doing nothing to stop one of the world's most anticipated IT projects - the move by America's largest retailer, Wal-Mart, to push all its suppliers to adopt RFID tags.

The clock is ticking for the project. It begins at its Dallas distribution centre and five other cross-docking stations in Texas in less than 12 weeks. The aim is to have all the products moving in and out of these centres within a year. Wal-Mart, despite its 800-pound gorilla profile, has been working hard to help its suppliers cope with the new demands. Its CIO, Linda Dillman, says modestly, and perhaps a little misleadingly, that RFID is only an experiment but "we're not afraid to test things".

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One of Wal-Mart's key suppliers, billion-dollar battery firm Energizer, has revealed its hit-and-miss experiences with RFID tags. Some of the technology works, some of it doesn't. Success and failure can depend on spurious influences, such as whether a pallet is driven through a scanning facility for loading onto a truck, or being backed out for unloading. Density of packaging has also been a headache, and when there are several readers in a confined space, each one can pick up incorrect signals from each other, making the whole scanning process worthless, according to Energizer's logistics director, Dick Pocek.

Despite these difficulties, Wal-Mart plans to have all its suppliers squared away on RFID chips, rather than bar-codes, by 2007. Specifically it wants all cartons, rather than individual items, tagged in an effort to stop theft, reduce the risk of items being out of stock before reorders are issued and cut time out of the supply chain. Other major retailers, such as Tesco in the UK and international French supermarket chain Carrefour, are embarking on similar projects.

However, anecdotal evidence suggests that many of Wal-Mart's suppliers are struggling to get a business case together for spending millions of dollars on RFID tags. Besides having to supply Wal-Mart, the return on investment just isn't there. While big retail names, such as Gillette, Kimberly-Clark and Campbell Soup, have all experimented with RFID, a global study by ABI Research of some of the world's largest companies - none with less than $US500 million in revenue - found the lack of ROI remained the most significant impediment to adoption.

Analyst house Gartner is sober about RFID adoption even by its own standards. Gartner says it does not expect RFID to reach the ubiquity of barcodes until around 2020. To rub further doubt into a potential RFID project, Gartner says that a company of any significant size needs to put several million dollars aside just for a pilot, and even then you can expect 50 percent to be spectacular failures. [Then again, maybe not. See "Fresh Produce", on page 74 for local fruit and veg supplier Moraitis's foray into RFID. - ED]

Nevertheless, there are some strong reasons to begin the RFID journey for many organizations.

Driving efficiency to deflect the ever-increasing costs of the supply chain is essential. The Massachusetts Institute of Technology (MIT) estimates that 75 percent of the cost of some goods lies in the transportation from factory, to warehouse and then to the retailer. Some 20 percent of the food is discarded because of spoilage in the supply chain - a criminal statistic that comes from America's FDA.

RFID chips will also enhance protection against counterfeit goods, better prevent shelves running out of stock and even be used in the fight against terror with scanning devices able to check the veracity of ship and truck cargo. The US government just announced it would begin to attach RFID chips to passports, so that they could be scanned to show a pixel photograph of each individual.

Despite all the hoopla, RFID chips are a long-term technology and there is no good reason to jump into the game straight away. If any company fancies its chances as an early adopter, then careful consideration of standards and vendor longevity is essential.

In the meantime, my son can forget about the notion of implanting chips to dodge homework. The only chips he'll see will be served with fish.

Mark Hollands is Asia-Pacific vice president strategy at the research and consultancy firm Gartner

Copyright © 2004 IDG Communications, Inc.

Security vs. innovation: IT's trickiest balancing act