E-TECHNOLOGIES

Radio Frequency Identification : A Novel Technology in the Field of Retail Industry

-- Amit Verma

Today, there are many challenges confronting the retail industry. The industry players are facing competition from both domestic and international companies. To provide maximum satisfaction to the consumers, more and more retailing companies have started adopting modern technologies and made their operations efficient. Technologies like Radio Frequency Identification (RFID) are playing an important role in today's highly competitive world. This article examines different aspects of RFID, the opportunities and challenges it offers.

Today, the retailing industry is facing many challenges in achieving its objectives, the major reason being the competition stemming from both domestic and international companies. Besides, changing buyer behavior, multiplicity of choices, higher level of consumer awareness and higher expectations are also posing unprecedented challenges to the retail industry.

In pursuit of achieving organizational goals by providing maximum satisfaction to consumers, more and more retailing enterprises have started adopting modern technologies. Similarly, technological advancements, particularly in the areas of day-to-day business operations, inventory management, order processing, etc., are posing serious challenges for the retail industry. Owing to modern technology adoption, organizational design and somewhat trained personnel, the conventional orientation of retail industry has started changing its face on modern lines.

Modern technologies, like bar coding, smart card, e-cash, multimedia kiosks, people counting & reporting system, etc., are being used in the organized retail sector and sporadically in others. Every technology has its own role to play in management and operation of retail enterprises. When compared to the above-mentioned technologies, Radio-Frequency Identification (RFID) occupies a unique position.

What is RFID?

RFID is a form of advanced technology that is used in retail industries to perform various tasks. It is different from bar coding. Bar coding is a line-of-sight technology, i.e., the scanner has to `see' the bar code to read it, whereas, RFID is not a line-of-sight technology. In other words, the product to which an RFID tag is attached can be read as long as it is within the range of the reader. RFID technology is mostly used in business. Bar code can contain only a limited information like the product's price, lot number, country code, etc., whereas, an RFID tag can contain more information for all the parties involved in business transactions.

Why RFID?

Though the application of RFID is at a nascent stage in India, it has gained much popularity because of the various advantages that come with it. Table 1 clearly explains why RFID is more beneficial than bar coding.

Genesis of RFID Technology

The development of RFID had begun with the birth of radar system since the 1920s. It is believed that RFID was invented by the UK military in 1939 to identify enemy aircraft during the Second World War. It was known as Identification: Friend or Foe system (IFF). Later, in 1946, Leon Theremin developed IFF system as an espionage tool for Soviet Union. In 1948, Henry Stockman presented a report on `Communication by means of reflected power' which proved to be a milestone in the development of RFID as an identification and tracking system. However, its commercial usage began only during the early 1980s. After its commercialization, its use spread to various other areas and countries. In the US, Italy, France, Portugal, and Norway, it was used for collecting tolls on highways and bridges, tracing livestock movements, tracking and controlling of nuclear inventories, tracking air freights and car manufacturing.

Figure 1 shows the operational design of RFID. In RFID, a small tag is attached to the product. It is then connected with RF antenna via radio waves and this antenna is attached with the network server. When a shopper touches or picks the product/s, it automatically disseminates the information to terminals and also activates LCDs at the point of sale and displays the several programs regarding the products.

RFID has the following major components:

• RF Reader (also known as the base station or interrogator).
• RF Tag (transponder).

RF Reader

It is also known as an RFID interrogator. It basically has a radio frequency transmitter and receiver controlled by a microprocessor. It has an antenna, which captures signals from the tags and sends the same to the RF reader. RF reader, in turn, sends these signals to the network server for further processing.

Table 1: Comparison between RFID and Bar Coding
RFID	Bar Coding
Memory of RFID may be upto 128 kb.	It has no memory, but only has alpha-numeric characters in printed coded form. It contains 7 and 12 numeric digits in case of UPC-A and UPC-E respectively.( In retail, UPC is used)
For identification or reading, scanner is not necessary.	Scanner is a must to read coding.
RFID has scope for in store promotion.	Bar Code has no scope for promotion.
It is useful to suppliers, retailers and customers.	It is only useful for manufactures and retailers.
It assists in theft prevention.	It does nothing in theft prevention.
The size of RFID tag can range from that of a postage stamp to that of a book. Its aspect ratio is not a significant factor for the reader.	The size of Bar Codes can be too little as RFID tag but scanner cannot read little Bar Code, it needs in standard aspect ratio.
RFID tag has a long lasting life because it has no moving parts and embedded in protective material.RFID tag can be performed in harsh or rough weather.	It has unlimited shelf-life but the same gets limited when it is moved from place to place. Bar code cannot be read, if damaged.
Tags are produced with a unique identity code by manufacturer and it is embedded in micro chips. Therefore, it is difficult to duplicate them.	Bar Codes can be duplicated easily.
Tags can be overwritten with additional information along with the previous information.	Bar Codes cannot be overwritten.
Tags can be overwritten with additional information along with the previous information.	Bar Codes cannot be overwritten.
RFID tags are reusable.	It is not reusable.
Several tags can be read at a time.	At one time, only one Bar Code can be read.
RFID can be read without line of sight.	It requires line of sight to be read.
RFID identifies human errors and removes them automatically.	It does not trace human errors.
Compiled from various sources.

 

RF Tag

The two components of the RF tag are small Silicon Chip or integrated circuit, which contains a unique Identification Number (ID) and an antenna, which sends and receives radio waves. Both these components are very small in size.

The butterfly shape shown in Figure 2 is the antenna while integrated chip is positioned at the center. The memory of tag can be 16 bytes to 1 kilobyte, depending on the nature of the tag.

Benefits

RFID provides a hassle free check-out to customers as there are no obstructions like walls, metals, racks between tagged products and the reader. It makes the process of communication checking more easy and convenient. As a result, the store can reduce the number of payment counters with the implementation of RFID.

RFID can prove to be advantageous when used in businesses. For instance, it helps in calculating inventory level as and when a sale takes place; it informs retailers and suppliers when a product's expiry date is over, it calculates and identifies the products via radio waves even without having to open the pallets or big boxes. So this technology, not only speeds up the logistic operations, but also protects the retailer if a stock-out situation arises. Thus, it provides competitive advantage to the company using it.

Shrinkages give rise to severe problems to the retailers. Shrinkages refer to loss of merchandise by the means of theft, shoplifting, official error, fraud, etc.

The breakdown of shrinkage categories is given in Figure 3.

RFID provides the scope for `in- store' (inside the store) promotion that helps in attracting customers to visit the store frequently. With the application of RFID, stores can handle the work with less number of personnel. This, in turn, helps in reducing labor costs. The technology helps, not only in boosting the sales, but also in reducing the operational expenses that result in increased operating profit.

RFID can help in overcoming the problem of returned goods in e-commerce which are usually the hurdles in generating effective sales through online. The main reasons are: late shipment, damaged goods, wrong merchandise, etc. But, if RFID technology is in place, the company can easily minimize these type of problems. When an order is placed by the customer, it informs the same via computer terminals to all the concerned parties, like product department, packaging department, shipment company/department. There is no chance of placing wrong merchandise because RFID technology knows the requirement.

According to experts, RFID will very soon contain varied and valued information regarding merchandise and instructions for use which will be beneficial, not only to the retailers, but also to the customers. All the products will be manufactured according to the specifications of RFID. For example, when users put their clothes for washing into washing machine, the embedded RFID tag in jeans will give the instructions to the washing machine like spin speed, etc.

Major Thrust Areas and Opportunities

The uses of RFID technology largely depend on the development of organized retail in the country. Though the share of total organized retail sector, which is around 4% appears to be small, it is currently growing at a rate of 45-50% per annum in India. The big players of the sector from across the world are eagerly waiting to enter the Indian market; however, multinationals are entering through franchise, joint venture routes. As a result, the face and pattern of Indian retail market is expected to change drastically.

With the prevailing cut-throat competition, it is certain that the complexities and loopholes in systems will increase in case of domestic and multinational companies. This will, in turn, pose serious challenges to the companies within the sector. They must make all efforts, not only to come out unscathed, but also to increase their market share. In such a situation, RFID can prove to be a major strategic tool, especially when applied in the following areas:

• In store promotion and display.
• Quick billing system.
• Logistic operation.
• Maintaining data warehouse.
• Managing stock.
• Theft prevention system.

Challenges of RFID

Each technology has brought with it opportunities, as well as challenges. Now, let us look into some of the challenges that would surface if RFID technology is implemented.

CAP

Customer Acceptance and Privacy (CAP) is certainly a major issue in RFID technology. This issue cropped up in countries that implemented this technology. When a tag is attached to the product, it can be traced easily along with the person picking it up. But some of the customers are not comfortable with the idea of being traced when shopping. They are not appreciating this idea as they feel that their privacy is being intruded. However, retailers claim that customers cannot be traced as the frequency of tag is limited.

Managerial Challenges

Managers, may not always easily adopt a novel technology. They take their own time to understand the working of any new software. Sometimes, even a small mistake might cost a lot to the company and hence they are hesitant to experiment with any latest technology. These kind of issues also are the barriers that obstruct the process of adoption of RFID technology.

Skilled Human Resources

To operate high technology software, the presence of skilled labor is a must. Insufficient number of skilled labor is another barrier obstructing the entire process of RFID adoption in India.

Financial Challenges

Installation of RFID technology requires a huge sum. Due to this, small and medium enterprises are finding it difficult to go in for this technology.

Challenges Ahead

RFID technology demands security, as well as maintenance. If it is not properly secured, it might lead to more problems.

Recommendations

RFID technology is a new concept as far as Indian retail sector is concerned. Hence, companies have to do more ground work before adopting it. There are some recommendations for the betterment of RFID Technology:

• A retailer must gather complete information before adopting the technology. To understand its adoption, a model known as, Technology Acceptance Model (TAM), has been given by Davis et al. (1989) (Refer Figure 4). As per TAM, any adoption of novel technology by customers depends upon three factors, namely, security concerns (privacy of data), perceived usefulness, and perceived ease of use.
• A separate law has to be in place that guides the practice of RFID technology.
• Retailers must see to it that the personal data of customers is safeguarded.
• Both retailers and customers have to be educated before actually putting the technology into practice.
• RFID technology providers should make serious effort in the direction of reducing the cost of adopting this technology. This calls for paying more attention towards R&D so that production of this technology can be increased and thereby cost brought down.

About the Author

Amit Verma is a Research Scholar - Faculty of Commerce at the Banaras Hindu University, Varanasi. The author can be reached at amitverma7@sify.com.