National Journal, March 10, 2001
In the 1930s, the U.S. military needed to transport millions of tons of stuff to bases across the Pacific, so logistics wizards piled materiel on wooden platforms, known as pallets. Forklifts, and not people, could then do the lifting and the stacking. From that day to this, the stalwart wooden pallet has been the foundation, literally, of the world's supply chain. Hundreds of millions of pallets circulate through the economy like red blood cells bearing oxygen; the fast-modernizing economy could not have modernized without them. But in more than half a century, the pallet itself has remained what it was at the beginning: a lump of wood with slots in the side. Until now.
This summer, a company called CHEP will begin installing radio-activated microchips in all its newly manufactured pallets. CHEP is a multinational company that owns more than 140 million pallets and rents them to companies in 38 countries. At CHEP, people speak of the addition of microchips to shipping pallets in breathless terms. "This is the most exciting thing by far that this industry has seen," Brian Beattie, CHEP's senior vice president for new business development, told me recently. Edwin J. Birnbaum, a company vice president, said, simply: "Everything changes."
A radio-frequency identification tag—an RFID tag, for short—is basically a little chip with a small antenna attached. Each tag contains its own combination of numbers, with enough possible combinations available to tag, more or less, everything. The chips are as small as a millimeter square, and they may soon be no bigger than the period ending this sentence; the antennae typically look like patterns of printed metallic lines. The chip does nothing until it is exposed to a reader, whose magnetic field energizes it and causes it to announce its identity by broadcasting its number via very low-power radio. There may be one in your pocket right now, embedded in that little card that you wave in front of a reader to open your office building on a Sunday.
The ubiquitous bar code, a 1970s technology, already identifies all kinds of objects, of course. But bar codes need to be visible and must be scanned one at a time. RFID tags can be buried out of sight, and dozens of them at a time can be read as they pass a reader. You can fill a truck with RFID-tagged pallets, drive it past a reader, and know the identity of every pallet on the truck. AmeriPride Services, a Minneapolis-based company that rents out commercial uniforms, is sewing chips into its garments, so that each incoming pile of dirty laundry can declare its exact contents on demand. As for the reader, it can look like a reader. But it can also look like a gate, a doorway, a wall, or a shelf.
"When we go into a retail outlet and we pick up 100 pallets," says CHEP's Birnbaum, "we don't know if these pallets were issued by Coca-Cola or Procter & Gamble." Radio tags will change that, which means less paperwork, better customer service, and fewer losses.
More important, Birnbaum says, is that 1 percent of pallets in North America and Europe are shipped to the wrong place, where some harried agent has to get on the phone and figure out whose consignment has arrived and where the expected one went instead. "That 1 percent creates the vast majority of work by the retailers," Birnbaum says. Once their pallets were tagged, shippers could trace their goods through the supply chain and tell their computers to flash red and ring chimes whenever a San Diego consignment is accidentally loaded on a truck to Santa Fe. In a test in Britain, CHEP found that using tags to track shipments yielded savings equivalent to about 2 percent of shelf prices, which, says Birnbaum, is "pretty astronomical," given that the typical retailing margin is 1 percent.
If you can tag shipping pallets, why not tag the boxes on them? For that matter, why not tag the items in the boxes? You can't quite yet, but only because tags are still expensive—50 cents or more, which is cheap enough for pallets but too expensive for shampoo bottles. Everyone expects the price to come down, however. One of these days, when tags drop to a penny or so, they can achieve what RFID visionaries call "ubiquity." Then, in principle, any loaf of bread or bottle of Coke could be tagged. Every item in the supply chain could tell you where it is.
Already, Procter & Gamble, the consumer-products giant, is testing tags on bottles of Liquid Tide. "You're trying to build a system where, if the consumer buys one, you replace one," says Larry Kellam, Procter & Gamble's director of business-to-business supply-chain innovation. "The tag needs to be in the 1-cent-to-3- cent range" to be viable for cheap consumer products, Kellam says. "But I believe we ought to easily be able to take 5 percent of the costs out of the supply system," which for P&G alone would translate to savings well in excess of $1 billion. And P&G, he notes, accounts for only 1 percent of the grocery business.
When is a shelf not a shelf? When it is a radio-tag reader that happens to be shaped like a shelf. International Paper, a big packaging company, is planning to go commercial later this year with smart-shelf technology. "You can tell if the shelf is stocked," says Steve Van Fleet, the company's program director for smart packaging. You can even tell if items on the shelf are in the wrong places. When the consumer plucks a bottle of cologne (say) from the shelf, the shelf tells a computer to order another. The computer could then tell the factory to make another.
International Paper, according to Van Fleet, is already producing small quantities of radio-tagged cardboard boxes, and it is beginning to convert factories for larger-scale production later this year. At the Massachusetts Institute of Technology, an industry-sponsored research consortium called the Auto-ID Center is testing tags for shampoo bottles, potato chip bags, pharmaceuticals, nuclear missiles, and auto parts. How long until tags break out of the laboratory and proliferate in daily life? "Everything we've seen has come quicker than we anticipated," says Kevin Ashton, the center's executive director. "I'd put 10 years as the upper limit of what I'd expect. If it doesn't happen within 10 years, there's some reason why it's not going to happen."
You can see where this could lead. Warehouses might know what is in them. Your refrigerator might know when it's running low on beer and could go online to order more. Your frozen dinner might come in a package that tells the microwave how long to cook it; then, when you throw the packaging away, it could tell the recycler which pile to put it in. The amounts of time that humans spend counting things, sorting things, finding things, reporting to each other on the whereabouts of things—large amounts of time, when you think about it—could shrivel, as more and more things talk to computers.
"We accept without question that computers don't know anything about the world around them," Ashton says. "But we are physical beings, and both the human race and the human economy depend on the movement of physical objects around the world. The next stage of development for computer technology is integration with the real world: computers and devices that can detect things directly." The B-to-B (business-to-business) Internet is all well and good, says Ashton, but the real revolution may be the T-to-T Internet: thing-to-thing.
Plenty remains to be worked out. In the medium term, there are complex issues that involve allocating the radio spectrum and setting standards. "It's absolutely vital that Coke and Pepsi speak the same language, if your refrigerator is going to know what it contains," says Ashton. Privacy issues are still more daunting, since it seems more than a little creepy to know that your beer bottles and your refrigerator may be telling some company about your drinking habits. Radio tagging may or may not win broad acceptance from consumers (although people think nothing of bar codes, which already tell retailers a lot). In the business-to-business market, though, radio tagging is a matter of when, not whether.
For generations, packages and containers and pallets have been valuable because their contents have been valuable. With radio tagging, the conveyance becomes an information carrier in its own right, a quantum of data. "And from a lot of our studies," says Van Fleet, "the value of that information begins to exceed the value of what's inside a package." So what is a shipping pallet, exactly, once it reports its comings and goings to smart warehouses and loading docks across the country? "You end up with an interesting universe," Ashton says, "that combines bits with atoms."
The real story of the new economy is not its noisy elbowing-aside of the old economy, but its quiet obliteration of the very distinction between old and new, as the universes of things and data converge. Next time you see a scuffed and battered shipping pallet, don't think wood. Think information, with wood attached.