This article originally published in Self-Service World magazine, Sep 2007.
In a world where bigger is better, radio frequency identification (RFID) chip manufacturers are taking the opposite tack to gain attention. Feb. 13 Hitachi fired the opening volley in the how-small-can-they-go wars by unveiling a chip measuring .05 x .05 millimeters. The "powdered" chips are 64 times smaller than the company's currently available mu-chips (used in anti-counterfeit measures on admission tickets) and are expected to be on the market within two to three years.
Right on Hitachi's heels came Malaysia Microchip Project's announcement Feb. 24 that its $50 million, two-year investment has paid off: MMP now boasts the world's smallest RFID microchip with a built-in antenna. Experts appraising it like the fact this chip works on three radio frequency bands, which means its adoption encompasses global possibilities.
Neither press release answers the real question: Will smaller chips prove to be the catalyst retailers need to get off the fence? The answer from Ann Grackin, CEO of Cambridge, Mass.-based Chain Link Research, is a resounding yes, particularly for self-service applications.
"The idea is that you can put this hot Hitachi chip, which everyone is saying is cool, on everything and develop a good self-service model," she said. Take, for instance, a $30 carton of cigarettes at a local convenience store. An entire display means the store has thousands of dollars in inventory on hand. Tag those cartons with a grain-of-powder-sized chip embedded on the inside of the package, and patrons can use their debit cards to pay for smokes in a quick, cashless transaction. As a result, the clerk avoids attracting thieves' attention by having large amounts of cash in the register.
"Tiny tags represent that kind of power. Now we can tag everything — we can achieve another level of security and intelligence," Grackin said. "The smaller the better."
Mark Roberti, founder and editor of RFID Journal in Melville, N.Y., shares Grackin's enthusiasm for the possibilities. He applauds the fact that Hitachi's move to the miniscule should favorably impact pricing. After all, if silicon costs approximately $10,000 per wafer and a manufacturer gets only two chips from it, each chip costs $5,000. But if a manufacturer can cut a wafer into 2 million chips, that drives down the cost per powder fleck to $.005.
But Roberti's not on board with the idea that size alone is RFID's savior. This chip merely is one ingredient in the process — the current system also needs an antenna and a reader. Small chips, he said, mean small antennas, which means the tagged item essentially has to touch the reader before the two can interact. Practically speaking, that combination won't make the consumer's experience any smoother.
"I don't think anyone is totally concerned with being able to get the chip size down," he said. "Right now, end-users want more functionality on the chip — for instance, being able to kill it to protect customers' privacy when needed. And that makes the chip a little bit more expensive.
"It's a question of driving enough volume to get the economies of scale," Roberti noted. Not to mention that even if chips did cost a half-penny today, that doesn't mean the software is in place and business processes are worked out. The entire RFID industry is moving in fits and starts, so one element's progress won't trigger a flood of adoption, in his opinion.
"The big question will be if the Hitachi chip actually works," said engineer Michael Daily, senior managing partner for Hickory, N.C.-based Freedom Shopping. Face it: If retailers want that chip read within a meter, the law of physics dictates that it needs a bigger antenna trying to attach to that powder fleck. That set-up seemingly kills any advantage manufacturers are racing for in this space. On the other hand, who said an antenna has to stick out like a tree branch?
"The antennas may be an inch or two, but they might be coiled around these little chips so they're still tiny," Grackin pointed out. And for front-of-the-house retail applications, that should be good enough, she said. At a mega chain's dock facilities or when selling patio furniture from an outdoor venue, powder chips' range still is a limitation. 
But that's not the end of the line for the minute movement, thanks to companies such as Paralec in Rocky Hill, N.J., which is perfecting techniques to print packaging with an electronic ink. That development would allow toothpaste manufacturers, for example, to embed the Hitachi powdered chip right into the electronic-ink-printed logo, which could double as that all-important antenna. Bingo! Problem solved, again.
Beware the hype
Not so fast, cautioned Rob Simmons, a managing partner with Freedom Shopping. Hitachi's timetable indicates the miracle chip will be ready for widespread adoption somewhere between 2009 and 2010. Without consumer demand on its side, Daily considers that an ambitious statement. "I think it may be a bit slower — maybe a five-year time frame, " he said.
"The biggest thing that amuses us is this chicken-and-the-egg syndrome. The supply side is waiting for mandated demand from the end-users. The end-users are waiting until it's available before they launch into it. And the naysayers are loving it."
Some would consider Wal-Mart a victim of early adoption. The Wall Street Journal reported in February that the retail giant is not yet seeing the expected savings from implementing RFID in its supply chain. And that is another hype Grackin cautions retailers to take with a grain of salt. RFID's jerky forward movement at this time isn't due to poor ROIs. Instead, Wal-Mart's 61,000 suppliers are being asked to upgrade several million pieces of equipment to accommodate RFID, "and that doesn't include the tags," she said. Mid-year, just 600 of those vendors were participating in the program, and Wal-Mart spokespeople said the technology's real impact lies in reducing out-of-stock situations.
Roberti can vouch for that. Despite massive efforts to find a solution to out-of-stock rates, the retail industry's needle has remained stuck at 8 percent for decades. Roberti said Wal-Mart's limited RFID adoption has brought that category down 16 percent across the board, and by as much as 60 percent on fast-moving items. "Each retailer now is saying, ‘Let's see where it makes sense,'" he said. "If you can bring down the out-of-stock rate, you can increase your sales very cost effectively. But it's based on the value of the goods and the volume of goods."
For instance, increasing sales by 10 percent on a $20 pair of jeans equals ROI in less than a year. High-volume, low-value goods can't say that, as that model requires paying for a lot of tags, too. Yet Roberti stands solid on his assertion that cheap chips, like tiny ones, don't signal mass adoption.
| What Good is RFID Anyway? |
| As retailers search for compelling business reasons to embrace RFID, experts in the industry have a long list of possibilities to consider. Here are just a few: |
| Off the shelf. RFID's strength lies in its ability to market to the consumer in the store, traditionally a difficult |
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moment to reach consumers, said RFID Journal's Mark Roberti. Take, for instance, the smart shopping cart currently being tested. The reader on the handle detects RFID tags on foods as they are placed in the cart, and uses that data to suggest accompaniments on a screen. Buying two porterhouse steaks? A nice red wine, in aisle 10, would make a special meal, the screen announces. Shoppers also could choose to keep a running cost total for the items in their basket. "It's a very different scenario that we've ever seen before. The potential is very exciting," Roberti said.
Would you like fries with that? Germany-based ATM manufacturer Wincor Nixdorf International rolled out an eye-opener at this year's Wincor World. In a mock cafeteria, plates embedded with RFID chips record diners' menu selections, reducing the payment process to a nod at the cashier. The plates' chip reports the final cost to the reader, which deducts that amount from the patron's account.
