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RFID Offers Industrial Distributors a Potentially Huge Profit Center

July 1, 2006
Based on electrical wholesalers' slow pace to implement radio-frequency (RF) scanning of bar-coded products, it will be years maybe even decades before

Based on electrical wholesalers' slow pace to implement radio-frequency (RF) scanning of bar-coded products, it will be years — maybe even decades — before more than a handful of electrical distributors even think about implementing RFID, a much more complex and expensive technology, into their distribution centers. Indeed, of the 146 electrical distributors that provided information about their warehouse strategies for Electrical Wholesaling's Top 200 survey this year, 35 percent scan bar codes with RF scanners to perform inventory counts. Even fewer, 32 percent, employ RF scanning of bar-coded items for picking.

Although it may be years before electrical distributors use RFID in their own warehouses, savvy electrical distributors catering to the industrial market recognize RFID as a profit center on the verge of tremendous growth as tag prices come down and big-box retailers move forward with their adoption of RFID technology.

“We've been selling RFID for a number of years,” said Jim Lass, vice president advanced technology, Van Meter Industrial (VMI), Cedar Rapids, Iowa. Although VMI carries RFID tags and readers made by Escort Memory Systems, Scott Valley, Calif., longtime electrical-industry vendors are getting into the RFID game, too.

Last year, Siemens Energy & Automation, Alpharetta, Ga., unveiled its Simatic RF300 RFID system, which includes a read/write device (reader) and data carriers (tags) for production applications, including assembly production lines and conveyor systems.

Production-line use has been the mainstay of VMI's RFID sales. Its manufacturing-facility customers use the technology to track parts or ingredients through production lines.

For a decade now, Van Meter has supplied a major cereal manufacturer with RFID products to track tubs filled with various ingredients for cereals and other products. “Before they actually let that tub dump over into a blending system, they verify (with RFID) that it's the exact tub that's supposed to be there,” Lass said.

The RFID tags are populated with various pieces of identifying data and adhered to the item to be tracked. RFID readers then gather that information. “When they're near each other, they have a conversation,” said Lass.

Another VMI customer, a tractor maker, employs RFID technology to help meet ISO registration, which requires certain tools be calibrated to specific torque rates. The tractor manufacturer tags tools' handles with RFID tags. “In the case of that tool, it gets the identity of that tool back to the reader, which sends that on to a torque-calibration unit,” said Lass. “There's a recording device that's keeping track of exactly what tool and what the torque rating is on a particular date.”

A large ice cream maker's need for VMI-supplied RFID products is more basic: Wal-Mart requires cases of the ice cream going to a Wal-Mart distribution center be tagged with RFID labels. For electrical distributors supplying Wal-Mart vendors with RFID products, there's the potential for an exponential increase in RFID sales as the mammoth retailer continues to move forward with its RFID initiative.

According to a recent report by, more than 300 Wal-Mart suppliers now ship RFID-tagged goods to 500 Wal-Mart facilities. “By January 2007, the company expects 600 of its suppliers to be using RFID technology, with the number of Wal-Mart stores capable of handling RFID-tagged items doubling to about 1,000,” said the report.

Last year, Van Meter supplied the ice cream company about 300,000 RFID tags, Lass estimated, but the projected volume in coming years is near 20 million tags for the ice-cream maker. More retailers will follow in Wal-Mart's RFID footsteps as RFID tag prices come down and data-flow reliability improves.

The price for RFID tags has already come down dramatically. Last year, Van Meter bought the labels that were put on the cases of ice cream for between 35 cents and 40 cents each. Today, those labels are quoted at 15 cents to 20 cents. “Price has dropped in half,” said Lass.

“There's going to be a big sweep here in a couple years where that volume is going to take off like a rocket,” Lass said.

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