UPS readies for RFID

FRAMINGHAM (12/19/2003) - United Parcel Service Inc. is working with supply chain customers to help them and it meet plans by Wal-Mart Stores Inc. and the Defense Department to require passive RFID tags on all pallets and cases by January 2005, according to Bob Nonneman, a UPS industrial engineer who works on RFID systems.

At the same time, New York-based American Express Co. has seen an increase in merchant and customer use of its RFID-based ExpressPay pilot program at more than 350 fast-food outlets and gas stations in Phoenix, said David Bonalle, vice president and general manager of advanced payments. Bonalle pointed to "significant" growth in the number of customers using a key-fob-based RFID tag to pay for purchases of less than US$100 and in the number of merchants signing up for the test system since it was launched in July.

As for UPS, Nonneman said the shipping company operates distribution centers for firms that will need to meet the Wal-Mart and Pentagon RFID requirements and is working to develop a business case to incorporate RFID tags into its global distribution system. He didn't say which companies UPS is working with.

Nonneman said UPS is participating in RFID pilot tests with customers to determine the best approach to take at the distribution centers it operates. While UPS will continue to use bar code scanning systems in its low-margin small-package business for years to come, Nonneman said the company is also working with Wal-Mart to determine how to handle small packages delivered to that company's stores after January 2005.

Mike Liard, an analyst at Venture Development Corp. in Natick, Mass., said UPS has little choice but to incorporate RFID into its supply chain business, since that is a requirement for anyone who does business with Wal-Mart, the Pentagon and their top 100 suppliers. But "there are a lot of question marks" about RFID standards and technology that could push the initiative to use 900-MHz, passive RFID tags beyond January 2005, he said.

Nonneman said he sees real utility in using RFID to track high-value shipments and hazardous material and combining the tags with temperature sensors to track perishable goods. The Defense Department plans to test RFID tags equipped with temperature sensors to track field ration MREs next fall.

Bonalle said American Express' ExpressPay system, which is based on 1356-MHz tags, has cut transaction times from an average of 16.6 seconds with a credit card to 8.6 seconds with an RFID ExpressPay key fob.

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