The Introduction of Passive and Active Radio Frequency Identification - Essay Example

The RFID Dilemma The introduction of passive and active Radio Frequency Identification (RFID) tags in the distribution process poses serious issues for management in the retail sector concerning ethics and privacy. The use of such technology enables an entirely new level of surveillance of consumers. The next generation of product identification, RFID has the potential to revolutionize distribution and merchandising by enabling instantaneous tracking of huge volumes of inventory. This will lead to higher sales volume, reduced inventories, more efficient product recalls, and more effective and targeted personal-level marketing. That same ability raises the specter of nightmarish Orwellian scenarios in which consumer purchasing behavior is captured in databases that are manipulated by corporations and government as a tool for spying. RFID Technology RFID utilizes a tag containing a computer chip that stores data relating to the tagged item, such as color, size, brand, warranty information, etc. Tags can also be affixed to pallets and cartons to identify contents of shipments during the distribution process. An antenna in the tag transmits and receives data through radio waves, which are picked up by a reader (Carlson 2006). In one type of RFID system known as passive, a signal is sent out by the reader creating a magnetic field, which is broadcast by its antenna to create a sensitive detection zone. When a RFID tag enters this zone it picks up the reader’s signals, which turn on the microchip’s transmitter, thus informing the reader of its presence. Passive RFID is a short range system in which the reader must range from one inch to a few feet from the tag in order to engage a signal (Kasavana 2006). Another type of RFID technology is known as active. This is a longer range system because both the tag and reader have power supply units and are capable of sending and receiving signals. The transmission range may be up to one hundred feet due to this mutual transmission. The data on active RFID microchips can also be rewritten (Kasavana 2006). Active tags are far more expensive than passive tags (up to $40 as compared to 15 cents for passive tags) and are therefore less attractive and appropriate in a commercial retail environment (Carlson 2006). Nevertheless, given their long range scanning potential, active RFID has a broader range of potential applications. It also drives greater concerns regarding potential abuse. RFID is considered to be more effective at inventory tracking than traditional bar codes for several reasons. First, it is capable of scanning a large volume of items nearly simultaneously, whereas bar codes are only capable of scanning items individually. Second, items being tracked with RFID do not need to be within the scanner’s line of sight, while those being tracked by bar code must be visually perceptible. Finally, bar codes must be clean and intact in order to be read, making it difficult to register products that may be soiled or mutilated. This is not an issue for RFID so long as the tag has not been removed or destroyed (Pethokoukis 2005). Further, the accuracy of RFID readers has improved dramatically over time. Boeing recently noted a 99.8% accuracy rate on its application of RFID, with a failure to ready 21 of over 18,000 tags (Mallozzi 2005). Given these advantages over traditional tracking approaches, it is clear to see why the technology is so attractive. That being said, there certainly are some difficult challenges faced by companies seeking to take advantage of RFID. “To realize benefits from RFID, companies must change their processes. If technology goes without changing processes or integrating the data into [the] existing system then the company won’t reap the benefits from RFID” (Affirming RFID Realities 2006). Additional challenges exist in designing systems to manage false read rates, and finding “ways to manage and use the mounds of data that will come from RFID tags.” Moreover, there are practical difficulties for manufacturers seeking to embed RFID in products going to certain retailers, requiring a separation of inventory for those who mandate the technology from those who do not (Pethokoukis 2005). Finally, “any RFID infrastructure installed now will most likely need to be ripped out when the next generation of RFID tags comes along” (Pethokoukis 2005). Of course, the latter challenge is one that has become commonplace with most technology. Obsolescence and its associated costs have been and will continue to be an obstacle to the adoption of technology. For the companies that can meet these challenges, the potential rewards are enormous. Pethokoukis (2005) asserts “RFID will help retailers get the right goods on their shelves at the right time for consumers but also give all companies deeper insights into consumer behavior.” Utilizing RFID to determine the demand for specific products at specific locations enables “advertising and marketing strategies [to] be tweaked in response.” He goes on to note that “analysts also expect the radio tags to cut theft and make products safer.” In addition, “because RFID enables a retailer to know exactly where a particular pallet of goods is in its distribution network, stock availability is dramatically improved, and labor costs and stock holdings can be reduced, along with the levels of stock loss” (Dickinson 2005). All of these advantages should translate into an improved bottom line for retail and other businesses. There are also potential advantages for consumers. Discovering that an item one needs or wants to purchase is out of stock should become increasingly rare. Claiming warranties will be vastly simplified as products will simply need to be scanned to verify their warranty status. Improved marketing will provide greater product knowledge and opportunities to make useful purchases that otherwise may not have even been considered. Owners of RFID tagged items likely also have a much better chance of recovering those items when they are lost or stolen. Finally, it is a very real possibility that one day “consumers will no longer wait for a checkout counter” as “they breeze past readers that scan their purchases in less than 100 milliseconds” (Pethokoukis 2005). Adoption of RFID in Retail Many large scale retailers have adopted RFID technology and plan to leverage its potential to drive revenue through improved inventory management efficiency and a new wealth of marketing data. Mega-retailer Wal-Mart has pioneered the wide-scale use of the technology, requiring hundreds of its top suppliers to implement RFID on their shipments, thereby causing a ripple effect of adoption of the technology throughout the retail distribution network. “Wal-Mart sees RFID as a means to an end – driving down all inventory. Reducing shelf out-of-stocks is just the beginning as the retailer aims to reduce inventory through its entire supply chain” (Morton 2006). A Wal-Mart commissioned study through the University of Arkansas found that “out-of-stock items with [RFID] are replenished three times faster than those with just standard bar codes (Morton 2006). Tesco PLC, the largest supermarket chain in the UK, has also begun looking at RFID as a way of selectively targeting high margin products to “reap immediate financial impact for the business” (Top 2006). They decided to tag high demand DVDs because the overwhelming majority of their lifetime sales occur within the first week of release. The theory goes that “if a particular DVD sells out in that first week and a shelf remains empty, retailers may suffer in unclaimed sales. With the use of RFID, Tesco’s pilot projects were showing a 50% improvement in stock availability” (Top 2006). Marks & Spencer is currently expanding a trial by stocking over 17 million RFID tagged documents for sale during spring of 2006. They are “researching other uses of the technology, such as offering users of in-store kiosks accessories to match RFID-tagged garments they pick up (Hadfield 2006). Dreams of leveraging the power of RFID for this sort of creative marketing appear to be the catalyst for continued growth and adoption of the technology. To the extent that retailers can precisely target strategic marketing of related products to individuals based on the items in their carts, there is enormous potential to boost sales. Other major retailers such as Target, Best Buy, and Home Depot have also begun RFID implementation projects (Blanchard 2004). While most of these initiatives, including Wal-Mart’s, have largely been tied to large scale shipping from distributors by affixing RFID tags to cases and pallets, Levi Strauss & Co. has raised some eyebrows by recently launching a test of tagged men’s jeans at an anonymous retail location in the US (Levi Ships RFID-Tagged Jeans, Dockers 2006). Should this individual product approach be adopted on a wide scale, and that seems to the logical progression of RFID implementation, it will fuel the major consumer privacy concerns that have already been percolating over the initial adoption of this technology. Privacy Considerations Katherine Albrecht is a leader in sounding the warning about the potential abuses of RFID technology by business and government. She is founder and director of Consumers against Supermarket Privacy Invasion and Numbering, and co-author of the book Spychips. She claims to “have uncovered information on surveillance in retail stores that the public needs to know” (Privacy and RFID 2005). While acknowledging the advantages of the technology for improved business results, she maintains that “the benefits of having shelves better stocked in stores or faster and efficient product recalls . . . pale in comparison to the potential threats to civil liberties and privacy at the notion of having a world where everything is seen by global corporations and powerful governments.” Albrecht is not alone in her alarm over the growing use of RFID technology. There is a growing chorus of organizations protesting about the privacy implications of product tagging. “Their main concerns relate to the potential for people to be tracked when wearing clothing with tagged labels and for knowledge to be accumulated on individuals as they purchase products that have tags embedded” (Dickinson 2005). Geoff Olson asserts that “civil rights experts are concerned about an Orwellian merging of retail data-mining and government surveillance, rationalized by a vaporous and endless ‘war on terror’” (Olson 2006). Privacy concerns have not been confined to just activist groups. End consumers themselves seem to be quite uncomfortable with the technology, and are likely to protest consciously or subconsciously with their pocketbooks. An empirical study of German retail consumer attitudes toward RFID technology conducted about a year ago revealed widespread distrust of the technology, even when it was constrained by privacy enhancing technology (Gunther & Spiekermann 2005). In the study, 73% of retail customers preferred the RFID tag to be deactivated immediately upon checkout, even after being informed about potential consumer advantages of not doing so (such as ease of claiming a warranty) and even after being offered various privacy-enhancing technologies. They seemed to perceive a loss of privacy based on a fear that their personal behavior and movements could be tracked without notice. Their concerns are not without warrant, as RFID tagging of individual products enables “a degree of personal attribution and surveillance never before possible.” Gunther and Spiekermann assert that “retailers worldwide must address these concerns if RFID is to succeed.” IBM has already begun thinking about this problem, and has proposed at least a partial solution. They have developed a “Clipped Tag” that enables customers to deactivate the tag after purchase while still enabling retailers to “use the information on the tag to identify product returns or recalls” (IBM RFID Tag May Ease Privacy Concerns 2006). This new privacy-enhancing technology would enable customers to disable the long range signal by tearing off a small portion of the tag’s antenna, rendering it useless unless it is with one-inch of a reader. IBM has a patent pending on this technology, which would work on any type of RFID tag. This type of privacy-enhancing technology is a step in the direction of facilitating consumer acceptance of RFID technology. Given the results of the German study, however, it is not clear whether a partial deactivation of the tags would be sufficient to boost consumer confidence. Clearly RFID is not going away, regardless of consumer attitudes. Adoption of the technology by business and government has exploded over the past few years, and seems poised for continued strong growth as colossal public and private interests such as the U.S. Department of Defense and Wal-Mart require thousands of their suppliers to utilize the technology. A grudging consumer acceptance may come to pass, as people acknowledge the reality that modern surveillance technology has become so pervasive that it simply cannot be resisted. Much as people today expect to be video-taped when shopping in malls and supermarkets, they arguably will eventually just expect the items they purchase to transmit a signature. Conclusion The need to balance the interests of business in leveraging technology to maximize profits against the interests of private citizens to be free from unwarranted surveillance and privacy intrusion is clear. The convenience of technology has made it easier than ever for businesses to compile data about individual habits, tastes, preferences and socio-economic circumstances. RFID is merely one manifestation of this problem, combining with video surveillance, phone and address list sharing, and other potentially insidious practices that could compromise people’s privacy and anonymity in the name of increased profits. In a capitalist society, the risks to individual privacy posed by business are at least as great as those risks posed by government. Businesses have an ethical, if not legal, responsibility to safeguard their customers’ privacy by refraining from collecting such information when doing so would be crossing an intuitive line of privacy invasion. When they do collect such information, they should be held accountable and responsible, at the very least by those who patronize them, for safeguarding the information. At a minimum, consumers should be fully informed about the use of such technology in every specific case where it applies, so they may make an informed decision about whether to subject themselves to the privacy risks involved. That being said, it will likely become increasingly difficult to make that decision as adoption of RFID becomes ubiquitous in retail establishments. Thus, the need for government intervention to regulate the application of RFID to safeguard personal privacy will very likely be necessary in the not too distant future. Certainly, the promise of RFID technology is great. It offers tremendous benefits not only for businesses, but also for consumers, that are worthy of embracing. Just as with virtually all technology, there is a possibility of abuse. The shunning of technology based on this possibility is arguably not a sound course of action. Rather, the benefits should be pursued so long as there is a clear understanding in both the public and private sectors of potential pitfalls, so that they can be avoided and protected against to the extent possible. After all, the economic benefits of keeping customers feeling comfortable and secure with regard to their purchases will likely outweigh any economic benefit from compromising that sense of security to try and sell a couple of related gadgets. Works Cited ‘Affirming RFID realities; debunking myths’, TechWeb, March 1, 2006, p. 1. Blanchard, D. 2004, ‘Countdown to RFID-Day’, Logistics Today, vol. 45, no. 12, pp. 1-2. Carlson, J. 2006, ‘RFID is revolutionizing many business sectors’, Wisconsin State Journal, May 1, 2006, p. 36. Dickinson, H. 2005, ‘Your shopping hasn’t started watching you yet’, Marketing, January 25, 2005, p.11. Gunther, O. & Spiekermann, S. 2005, ‘RFID and the perception of control: the consumer’s view’, Communications of the ACM, vol. 48, no. 9, pp. 73 – 76. Hadfield, W. 2006, ‘Marks & Spencer expands RFID trial as it moves closer to decision over full roll-out’, Computer Weekly, April 4, 2006, p. 8. ‘IBM RFID tag may ease privacy concerns’, TechWeb, May 2, 2006, p. 1. Kasavana, M. 2006, ‘Contactless pay technology opens up a new frontier’, Automatic Merchandiser, vol. 48, no. 3, pp. 72 – 79. ‘Levi ships RFID-tagged jeans, Dockers’, TechWeb, April 28, 2006, p. 1. Mallozzi, J. 2005, ‘RFID goes more mainstream’, R&D, vol. 47, no. 12, pp. 18-19. Morton, R. 2006, ‘RFID compliance: Year Two’, Logistics Today, vol. 47, no.1, pp. 1, 8. Olson, G. 2006, ‘Retail tracking device a chip off the Orwellian block’, Vancouver Courier, February 3, 2006, p. 11. Pethokoukis, J. 2005, ‘Big box meets big brother; Wal-Mart spearheads push on radio-frequency tags, but some suppliers balk’, U.S. News & World Report, vol. 138, no. 3, p. 46. ‘Privacy and RFID: Are the tags spychips?’, TechWeb, November 3, 2005, p. 1. Top, D. 2006, ‘Satisfying the Retail Customer’, Optimize, vol. 5, no.1, pp. 52-53. Read More