Supporters of the tagging technology said that the military's new rules were the biggest step forward for radio tags since Wal-Mart Stores began requiring its largest suppliers to use them for shipments to three distribution centers last January.
Military to Urge Suppliers to Adopt Radio ID Tags
By BARNABY J. FEDER
Published: November 12, 2005
Further paving the way for a type of inventory tracking technology that Wal-Mart is already turning into a commercial standard, the Defense Department on Monday will begin prodding suppliers to use radio-frequency ID tags on cartons and pallets of goods entering its vast supply system.
The tags, meant to let goods be tracked without the proximity and line of sight required by bar-code scanners, have vast potential for military, homeland security and commercial applications. But just as Wal-Mart is proceeding in steps, starting only with its biggest suppliers, so will the military adopt the radio tags in stages.
The new program will initially apply only to a range of combat-support goods handled by the Defense Department's two largest supply centers: the Susquehanna depot in New Cumberland, Pa., and the San Joaquin depot in Stockton, Calif. And rather than adding the requirement to existing contracts, the military will make it a proviso of new or renewed contracts.
But some of the Defense Department's largest suppliers say they will tag some goods headed to Susquehanna and San Joaquin even before new contracts require them to do so.
"It's a critical part of our effort to support the war fighter and we want to be an industry leader," said George Ellis, who oversees radio-frequency ID at Raytheon, which has also been testing use of the tags to track goods inside its own operations.
While giants like Raytheon are handling the tagging of military goods themselves, many smaller companies are using outside contractors like SimplyRFID, a four-year-old consulting and management company based in Warrenton, Va.
"Our traffic is up significantly in the past two weeks," said Carl Brown, president of SimplyRFID, which charges customers shipping 5,000 items or less to the military roughly $1 a tag.
Alan Estevez, the Defense Department logistics policy specialist who is overseeing the program, emphasized the gradual phase-in of the technology. "I'm not expecting a Big Bang on Nov. 14," he said.
Even so, tens of thousands of the Defense Department's estimated 60,000 suppliers could come under its requirements within a year, Mr. Estevez said. The program calls for adding another 34 supply centers next year and the rest of the military's distribution operations in 2007.
Supporters of the tagging technology said that the military's new rules were the biggest step forward for radio tags since Wal-Mart Stores began requiring its largest suppliers to use them for shipments to three distribution centers last January. Wal-Mart, which also supported the tagging at 150 stores served by the distribution centers, has since expanded its program to more distribution centers and 500 stores, with plans to double that number early next year.
In theory, the tagging will eventually wring billions of dollars in waste out of supply chains, sharply curtail theft and counterfeiting, and reduce the frequency of shoppers' encountering empty shelves instead of the products they want. The tagging may also speed customers through checkout lanes because, unlike bar-code scanners, tag readers can look for numerous products with a single signal.
In practice, though, figuring out where to place the readers and the tags to get data reliably has proved to be an expensive trial-and-error process. Compared with the military supply chain, Wal-Mart's distribution system is in some ways more difficult to manage than the Defense Department's because goods move through the Wal-Mart consumer pipeline so much more rapidly. But the military has far more suppliers, along with a complex mix of new, replacement and repaired goods, and less predictable demands than Wal-Mart's seasonal peaks.
What is more, "the backroom of a Wal-Mart on a Saturday afternoon may be hectic, but it's not like a mobile supply center in the desert that's being shot at," Mr. Estevez said. The military's backing gives other users and investors confidence in radio tags, said Kevin Ashton, vice president of ThingMagic, a manufacturer of tag-reading devices based in Cambridge, Mass. "You have to give people the sense that this is inevitable to have the opportunity to work out the details," he said.
The details have been a challenge. The Defense Department and private-sector trucking and shipping companies have plenty of experience with battery-powered tags able to communicate with satellites to track large containers and expensive equipment.
The microchips in the tags now being introduced by the military and Wal-Mart, however, rely on power emitted from the scanners to provide the energy the tags need to respond. Plans call for applying these "passive" tags to billions of items before the end of the decade.
Researchers at the University of Arkansas reported last month that 12 Wal-Mart stores with radio tag scanners in their storerooms were able to restock shelves at three times the speed of a control group of 12 stores that relied on traditional methods to locate stock. The tag stores were 16 percent less likely to have empty shelves.
Wal-Mart hailed the study as proof of the technology's value. But it did not quantify the actual savings. And AMR Research, a consulting company, concluded from a survey of major Wal-Mart suppliers that it would take them more than nine years to earn a payback on their investments at current tag and reader prices - far beyond the one-to-two-year time horizon that would make the technology financially attractive.
The military may encounter far less resistance. Unlike Wal-Mart, the government expects to shoulder the extra costs the technology imposes on suppliers. And the military's goals seem less likely to stir up opposition from privacy advocates who are opposing use of the tags in commerce.
"The real payback for D.O.D. is to have the soldier on the ground have the part needed to make a tank run or a plane fly," said Mr. Estevez.
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