Contactless Identification Technology and Goods
Almost every item sold through retailers and supermarkets around the world today has a barcode printed on it. These codes are used extensively throughout distribution chains and are unique to the general type of item being sold. However, in recent years barcodes have begun to show their limitations, and a replacement approach based on RFID technology is gaining momentum.
RFID technology relies on small computer chips and antennas integrated into a paper or plastic label -- called a tag -- that can be scanned by an electronic reading device. The scan allows automatic collection of data on the chip, which can include information on warranty, where the product was manufactured, or product details such as quantity, size, color, etc. First developed in the 1940’s, RFID technology has proven itself reliable over time, with falling cost structures and further technology refinement allowing it to be used in more common applications today.
Unlike barcodes, RFID tags are insensitive to dirt or scratches and can be scanned from a distance -- from a few inches to upwards of 20-25 feet -- all without requiring direct line of sight. RFID technology also allows multiple tags to be scanned simultaneously, even through external packaging. This presents a significant advantage over barcodes in distribution and retail environments, which is where the new generation of RFID technology is making major inroads.
Adoption of RFID technologies is spearheading revolutionary gains in supply chain management, allowing businesses to improve supply chain logistics and customer service. Major retailers -- including co-panelist Wal-Mart and other organizations such as the Department of Defense -- that manage huge inventories are leading the supply chain transition to RFID technology.
The Wireless Data Research Group predicts that the RFID market for hardware, software, and services is expected to increase by a 23 percent compound annual growth rate worldwide from more than $1 billion in 2003 to about $3 billion in 2007. According to analyst firm IDC, RFID spending for the U.S. retail supply chain will grow from $91.5 million in 2003 to nearly $1.3 billion in 2008. This increase is due in large part to the mandates by leading retailers and the U.S. government to incorporate the technology, and also to increasing RFID adoption in many other application areas.
A recent report by AMR Research on the supply chain results achieved by early adopters of RFID technology in the retail and consumer packaged goods arena showed cost savings of 5 percent of sales. This included savings of 1 percent of sales due to reductions in product loss. The retailers also reduced their expenses by 65 percent in the receipt of goods arena and 25 percent in stocking.
RFID tracking of pallets and shipping cases -- from the manufacturer, to the warehouse, to the distribution center, to the final destination -- is expected to deliver increased efficiency, more timely and accurate management of inventory, greater responsiveness to product recalls, and reductions in theft and counterfeit goods entering the retail arena. Pharmaceutical companies are also planning to use RFID systems to ensure the quality of their goods. Recent headlines about the need for livestock tracking reports related to disease prevention underscore the need for accurate real time information, which RFID can provide.
In addition to the consumer applications cited earlier, RFID tags are also being considered for item-level identification of goods purchased by consumers once the cost structure is low enough. Many item-level identification benefits can be found in the retail environment following successful implementation within a supply chain. Retailers will be able to pass on the savings to their customers and also provide consumers with greater convenience, value, choice, and protection. Co-panelists Wal-Mart and Procter and Gamble can provide more information on plans for item-level identification.
Contactless Identification Technology and People
Contactless identification technology is also used for personal identification, including in so-called "smart cards." Smart cards typically come in a credit card form factor and carry sensitive, personally identifiable data. American consumers are likely to encounter smart cards and similar RF-enabled personal identification devices in their daily lives through applications such as secure access cards for building entry, speedy gasoline purchasing such as the Exxon Speedpass, vehicle anti-theft systems, and in transportation systems all over the world, including in the Minneapolis, San Francisco, Seattle, San Diego (in Subcommittee member Congressman Issa’s district), Houston, and other systems.
Smart cards are essentially RFID systems with advanced computing power, storage, and strong encryption accelerators, offering advanced services with enhanced security and privacy protection.
In fact, smart cards are so powerful that the Department of Defense (DoD) and other government agencies are adopting the technology to secure access to their facilities and computer networks, even storing a picture and fingerprint of the cardholder on the card for enhanced security control. The DoD makes worst case scenario assumptions about the cards falling into the wrong hands and having large resources at their disposal to crack the card -- standards that advanced smart cards have met through the use of encryption, secure design, and other measures.
The United States and leading countries all over the world are presently working on the specification and deployment of contactless smart card technology for the use in passports. Like the DoD’s Common Access Card, these passports will carry biometric credentials such as fingerprints, pictures and/ or iris-scans to securely identify and authenticate the passport holder.
Privacy
Philips is aware of some of the privacy concerns raised by consumers over the use of RFID technology. For consumers, for whom item-level identification benefits are perhaps several years away, there has already been concern expressed regarding the ways in which the information on the tag will be used. Manufacturers have responded with a feature that can destroy the tag at checkout, and have increasingly recognized the need for education on the technical capabilities of the technology and privacy implications. This includes communicating the safeguards built in to the chips to protect against unauthorized scanning and tampering, as well as explaining how the limits of the technology prevent such impossible scenarios as satellite tracking of an RFID-tagged item.
Philips is working with privacy organizations and government officials to ensure a responsible rollout of RFID in the retail environment. Philips Semiconductors co-hosted with the National Retail Federation a well-attended RFID privacy roundtable in Washington, D.C. on April 27, featuring industry, privacy advocates, and state legislative officials discussing privacy issues and RFID technology. Last year, Philips presented its views on privacy issues of RFID technology to the 25th International Conference of Data Protection and Privacy Commissioners in Sydney, Australia and fully supports the Conference’s resolution on RFID and privacy. When the MIT hosted an RFID Privacy Workshop in November 2003, Philips presented the 101 of RFID Technology and its Applications. Philips also participated in the recent Smart Tags Workshop of the European Commission in Brussels, where it renewed its offer to help (privacy) authorities understand RFID-technology. Most recently, Philips served as a panelist in a RFID workshop hosted by the Federal Trade Commission, offering an overview of the technology.
Conclusion
Mr. Chairman, thank you again for this opportunity to provide an overview of contactless identification technologies to the Committee. As the world’s leader in the design and manufacturing of chips used in contactless smart cards and RFID tags, Philips is committed to the responsible rollout of RFID technology across a wide spectrum of retail and personal identification applications, and stands ready to provide you with any assistance you may need as the US Congress further studies this revolutionary technology.
