John Smith PRESIDENT - TYCO RETAIL SOLUTIONS GROUP

CHRISTCHURCH 24TH SEPTEMBER 2003

John Smith PRESIDENT - TYCO RETAIL SOLUTIONS GROUP

CHRISTCHURCH 24TH SEPTEMBER 2003

RFID

MYTH VERSUS REALITY

RFID

MYTH VERSUS REALITY

“NOW IS THE TIME, IT’S NOT TOO

LATE”

WHO SAID THAT?1. YOUR TEACHER AT COLLEGE WHEN

STUDYING FOR EXAMINATIONS

2. YOUR LAWYER URGING YOU TO WRITE YOUR WILL

3. UCC’S COO AT A RECENT RFID CONFERENCE

“NOW IS THE TIME, IT’S NOT TOO

LATE”

WHO SAID THAT?1. YOUR TEACHER AT COLLEGE WHEN

STUDYING FOR EXAMINATIONS

2. YOUR LAWYER URGING YOU TO WRITE YOUR WILL

3. UCC’S COO AT A RECENT RFID CONFERENCE

OverviewOverview

• Myth versus Reality

• The Value Proposition

• Real Paybacks

• Case and Pallet RFID here now

• How far away is item level tagging?

• Why Tyco for RFID?

• Privacy Concerns

• Getting started

• Myth versus Reality

• The Value Proposition

• Real Paybacks

• Case and Pallet RFID here now

• How far away is item level tagging?

• Why Tyco for RFID?

• Privacy Concerns

• Getting started

RFID — the RealityRFID — the Reality

RFID — the PromiseRFID — the Promise• RFID will replace the bar code and

EAS systems within a few years• RFID will replace the bar code and

EAS systems within a few years

• RFID complements bar codes, EAS and other auto-id technologies and they will co-exist for a long time

• RFID complements bar codes, EAS and other auto-id technologies and they will co-exist for a long time

RFID Is a Different BusinessRFID Is a Different Business

• Not about tagging and item security, but about providing data and item visibility

• Re-engineers the user’s core business

– That will take time to implement

• Not about tagging and item security, but about providing data and item visibility

• Re-engineers the user’s core business

– That will take time to implement

RFID and EAS SimilaritiesRFID and EAS Similarities

RFID and EAS are technological cousins

– Short-range radio devices

– Passive tags on tracked items

– The same or nearby frequency bands

– Experience in implementing one directly applies to the other

RFID and EAS are technological cousins

– Short-range radio devices

– Passive tags on tracked items

– The same or nearby frequency bands

– Experience in implementing one directly applies to the other

The Co-Existence ModelThe Co-Existence Model

• RFID gets the product to the store

• EAS keeps it in the store until sold

• RFID can be seen as a

theft predictor

• EAS is clearly a superior

theft preventer

• RFID gets the product to the store

• EAS keeps it in the store until sold

• RFID can be seen as a

theft predictor

• EAS is clearly a superior

theft preventer

Why Co-existence Is Needed ?Why Co-existence Is Needed ?

• RFID enables a complex read in a collaborative environment – Label placement & materials optimized

• EAS communicates a simple message in a hostile environment– Booster bags, foils, mechanical defeats

• RFID enables a complex read in a collaborative environment – Label placement & materials optimized

• EAS communicates a simple message in a hostile environment– Booster bags, foils, mechanical defeats

RFID…Myths versus Reality

RFID…Myths versus Reality

Tags will cost a $0.05 or less

Readers will cost a $1.00

Everything will be tagged

It is cheap, easy and simple

Tag prices around $0.50 cents heading towards $0.10 cents

Readers prices are $500 to $1,000 and will move to $250.00

Tagging will be applied based on value

The applications are innovative and it takes global partners to execute

Myths Reality

RFID is an ‘information’ business

The Impact of RFID on Shareholder Value*

The Impact of RFID on Shareholder Value*

INCREASESHAREHOLDER

VALUE

INCREASEOPERATING

INCOME

INCREASECAPITAL

EFFICIENCY

INCREASEREVENUE

INCREASE MARKETINTELLIGENCE

INCREASE MARKETSHARE

INCREASE VOLUME

REDUCE COST OFGOODS SOLD

REDUCEOPERATING COSTS

INCREASE FIXEDCAPITAL TURNOVER

INCREASE WORKINGCAPITAL TURNOVER

POTENTIAL / EXAMPLE BENEFITS

• Increased promotion effectiveness• Improved available retail inventory• Reduce losses from theft

• Reduced inventory handling cost• Reduced warehouse, distribution

and transportation costs• Improved customer service;

real time ATP• Reduce write-offs; reduce waste

• Improved inventory turns• Improved cash flow management• Reduced slow moving/obs. SKUs• Reduced inventory/back stock

*Source – PWC(IBM) Retail White Paper

Problem RFID Impact ReturnOut of Stocks RFID-based systems report

store inventory in real time to drive restocking

3% to 5% more sales

Inventory Visibility Real time inventory visibility drives unified supply and demand model and improves yield

.5% to 1% higher margin

Data accuracy Reduce processing and audit expenses

Lower Expense

Theft Costs 5-7% of world sales,including counterfeiting

Reduced Shrink

Returns Fraud Stolen/counterfeit merchandise is identified and rejected

.5% to 1% higher margin

RFID Value Proposition*(*Source - EDS)

RFID Value Proposition*(*Source - EDS)

•Eliminate lost sales due to out-of-stocks.

•Pallet, case, and unit level visibility throughout Supply Chain

•Immediate identification of exceptions at check points

•Visibility to replenish right product to right place at right time

•Identify defective merchandise and responsible vendors

•Elimination of errors on time sensitive products

•Faster and more accurate inventory visibility

•Satisfy customer request immediately by locating products on sales floor and in the backroom

•Speed up store receiving, processing, replenishment and POS & return processing

•Notification of units needed on sales floor upon store receipt

*Source - EDS

RFID - Money Makers*RFID - Money Makers*

Impact - Efficiencies Impact - Visibility

A best fit for RFIDA best fit for RFID

Reduce Out-of-Stocks

How do they occur:• Product does not get to the store• Product gets to the store but not to the

shelf• Product gets to the shelf, but is not

registered as a sale

Reduce Out-of-Stocks

How do they occur:• Product does not get to the store• Product gets to the store but not to the

shelf• Product gets to the shelf, but is not

registered as a sale

Root Causes of OOSRoot Causes of OOS

Product did not get to store Shipping / packing error Transportation error Theft

Product did not get to store Shipping / packing error Transportation error Theft

Need RFID label receiving Need RFID label receiving data to confirm product data to confirm product receiptreceipt

RFID can automatically RFID can automatically separate back stock from separate back stock from floor merchandisefloor merchandise

RFID for frequent floor checks RFID for frequent floor checks of inventory and tighter POS of inventory and tighter POS accuracyaccuracy

Product got to store, but not to shelf In accurate back stock inventory Receiving or back stock theft Misplaced back stock

Product got to store, but not to shelf In accurate back stock inventory Receiving or back stock theft Misplaced back stock

The product got to the shelf, but was not recognized as a sale POS error RTV error Misplaced in store Internal / external theft

The product got to the shelf, but was not recognized as a sale POS error RTV error Misplaced in store Internal / external theft

Standards Maturation

Costof

Tags

$0.05

High

Low

Supply Chain CustomerFacing

Implementing RFID will be an Evolution*

Implementing RFID will be an Evolution*

Evolution, not revolution

Today

DC

Will not completelyreplace bar codes

Pallet

2004 2008

CaseBack room

2010

Shelf

2012

Item

*Source - Gartner Group/ G2 2003

At What Level Do You Anticipate Tagging Products By the End of 2004?

At What Level Do You Anticipate Tagging Products By the End of 2004?

MfrMfr

PalletPallet

RetailerRetailer

0%0% 10%10% 20%20% 30%30% 40%40% 50%50% 60%60% 70%70% 80%80%

3333%

0%0%

CaseCase 48%48%

71%71%

ItemItem 19%19%

29%29%

Source:

-EPC Forum survey

-IBM Consulting services

Case and Pallet is NOWCase and Pallet is NOW

Five reasons why item level will take a long time

Five reasons why item level will take a long time

• Standards must harmonize

• Costs must come down

• Patent issues must be resolved

• Exit technology must improve

• IS integration is arduous

• Standards must harmonize

• Costs must come down

• Patent issues must be resolved

• Exit technology must improve

• IS integration is arduous

Potential Solution Components

Potential Solution Components

• Readily available • Proven technology• Multiple instances of use• Read/write• Limited anti-collision

properties• Short range

• Readily available • Proven technology• Multiple instances of use• Read/write• Limited anti-collision

properties• Short range

• Excellent anti-collision• Higher read range• Next generation low cost

tags• Read-only• Frequency and power

regulations• Materials issues (water and

metal)

• Excellent anti-collision• Higher read range• Next generation low cost

tags• Read-only• Frequency and power

regulations• Materials issues (water and

metal)

High Frequency

UHF

The Tyco FamilyThe Tyco Family

Breadth & Depth

>Operates in 100+ countries>2002 Revenues: US $35.6 B>267,000+ employees

Tyco ElectronicsTyco Electronics

Our products are found in millions of computers, handheld devices and automobiles

Tyco HealthcareTyco Healthcare

We manufacture 50,000+ different medical products annually

We manufacture 50,000+ different medical products annually

Tyco Engineered ProductsTyco Engineered Products

We are the world’s largest manufacturer of sprinklers, industrial and waterwork valves and controlsWe are the world’s largest manufacturer of sprinklers, industrial and waterwork valves and controls

Tyco Plastics & Adhesives

Tyco Plastics & Adhesives

We are the world’s leading producer of plastic productsWe are the world’s leading producer of plastic products

Tyco Fire & SecurityTyco Fire & Security

We are the global leader in electronic securityWe are the global leader in electronic security

We serve over 7.5 million customersWorldwideTrade as ADT in many parts of the world

Tyco Fire & Security Layers of protection

Tyco Fire & Security Layers of protection

And we complement all these technologies with the industry’s largest

support organization

And we complement all these technologies with the industry’s largest

support organization

From 950 R&D Engineers

to 33,000 Service Engineers

Markets ServedMarkets ServedRetail

80% of the world’stop 100 retailers

Aviation

300 internationalairports

Fire

More than 26,000fire departments

Marine

80% of commercialvessels

Residential

More than 5m homes worldwide

Commercial

Over 2,000,000commercial enterprise

Defense

The military in 25countries

Transportation

Transportationsystems on 5continents

Government

Thousands of public buildings

Petrochemical

75% of the top 100refineries

Tyco’s Long History in RFIDTyco’s Long History in RFID

1982 RFID solutions for tracking merchandise

1990’s Protected Olympic & Dream Team Athletes

1994 Security industry sponsor—MIT Media Lab

1999 Charter technology sponsor—MIT Auto-ID Centre

2000 First in-store RFID for inventory management

2003 First to offer EPC-compliant RFID readers

1982 RFID solutions for tracking merchandise

1990’s Protected Olympic & Dream Team Athletes

1994 Security industry sponsor—MIT Media Lab

1999 Charter technology sponsor—MIT Auto-ID Centre

2000 First in-store RFID for inventory management

2003 First to offer EPC-compliant RFID readers

Supply Chain InfrastructureSupply Chain Infrastructure

• Over 2.2 billion retail items source- tagged in 2002

• Multi-technology label readers, controllers and applicators in DCs and factories

• 11 tagging certification centers supporting 3,400 manufacturers

• Dedicated source tagging sales and service teams

Massive Presence in RetailMassive Presence in Retail

• 30+ years focused on retail industry

• Broad array of integrated technology solutions (EAS, digital video, access control, and facility protection)

• Worldwide network of dedicated sales and service professionals

• Proven capabilities to handle national and global rollouts

• 80 of the world’s top 100 retailers use our equipment

The Building Blocks

• Solutions

• Commitment to Open Standards

• Solutions which are easy to integrate into the enterprise

• Global Service and support capabilities

• 30 yrs of Engineering design and manufacturing expertise…over the broad range of frequencies

The Agile Reader…A Key component of the supply chain

solution

The Agile Reader…A Key component of the supply chain

solutionDescription Intelligent tag interrogator ,versatile and flexible

Gateway between the RFID tag and the data information system using DSP and network architecture

Applications

Dock / receiving door reading

Conveyor reading

POS & shelf reading

Benefits

Unit, carton, and pallet level visibility throughout supply chain and in the retail store

RFID installations will require both flexible hardware and software that can advance with fast-developing complementary technologies

Designed to meet the reader market requirements

Designed to meet the reader market requirements

1. Operate on more than one Frequency band

2. Supports Multiple Protocols

3. Software radio…Scalable and adaptable

4. Speak Internet protocols natively

5. Be part of a distributed, client-server system

6. Remote diagnostics

Agile Reader Platform Requirements:

Protocol Support - Today Protocol Support - Today

By combining native development and an OEM strategy, TYCO supports the following standards:

• EPC 1

• EPC 0

• ISO 15693

• ISO 18000-6

Our Commitment is to open standards, not technology

Application Software Product…RFID Works!

Application Software Product…RFID Works!

•Provides variety of software programs for inventory control

• User interface allows viewing tags read and Product descriptions. Information stored in a common Microsoft Access® Database for easy extraction by the POS or other system.

•Accepts inputs from all TYCO Auto ID readers

Enable-ware to help customers use RFID data

Why Software / Middleware?Why Software / Middleware?

• RFID technology generates large numbers of tag events.

• RFID implementations, over time, will include multiple readers likely from multiple manufacturers.

• Enterprise systems (inventory control, warehouse management, merchandizing) will need to have devices managed and tag events filtered. … separation of signal from noise.

• RFID technology generates large numbers of tag events.

• RFID implementations, over time, will include multiple readers likely from multiple manufacturers.

• Enterprise systems (inventory control, warehouse management, merchandizing) will need to have devices managed and tag events filtered. … separation of signal from noise.

Middleware Software Middleware Software

RFID

API

Sensor

Device

Client

Sensor

Sensor

Sensor

Sensor

A

P

I

•Device management

•System Management

•Presentation management

•Enterprise data Management

Implementation PhaseRequirements Definition Phase

RFID CommanderRFID Commander

• Acquires, filters, aggregates, stores, associates and communicates high volumes of RFID tagged item data.

• MIT / UCC Compliant– Data Interchange– Device to enterprise system interoperability– Component level compatibility within technologies

(Java vs. C#)

• Retractable / Extensible as required to match the capability of enterprise level RFID Applications.

• Acquires, filters, aggregates, stores, associates and communicates high volumes of RFID tagged item data.

• MIT / UCC Compliant– Data Interchange– Device to enterprise system interoperability– Component level compatibility within technologies

(Java vs. C#)

• Retractable / Extensible as required to match the capability of enterprise level RFID Applications.

Where Do We Add Value?Where Do We Add Value?

Application softwareproviders

Label solutionsproviders

Enterprise system providers

Systems integrators, installers, service providers

Data integrationSystems providers

ReaderMfgrs

End

user

Technology Partners

Technology Partners

TYCO SensorIDDevelopment &Partner Network

TYCO SensorIDDevelopment &Partner Network

Tyco / ADT Enterprise providers3rd party integrators

Tyco / ADT Enterprise providers3rd party integrators

Air InterfaceProtocol providers

IC Fabs

Labels Hardware Software ServiceLabels Hardware Software ServiceKeyElements

KeyElements

Software Strategy

Getting Started

Software Strategy

Getting Started

• API and RFID Works! provide integration toolset for initial installations

• Rollouts require partnership/ subcontracting with ERP/WMS/SCM providers and customer IT groups

• API and RFID Works! provide integration toolset for initial installations

• Rollouts require partnership/ subcontracting with ERP/WMS/SCM providers and customer IT groups

The Vision

We will roll out the “last mile” of information pipeline between your enterprise system and the physical assets requiring better control and visibility

When will RFID be adopted?When will RFID be adopted?

• WalMart has announced – Case and pallet tagging from top 100 suppliers

in U.S. by 1/1/05 – EPC protocol (from MIT, not Euro/ISO standards)– Universal item-level >5 years away– UCC.EAN (barcode) are supporting strongly

• Rest of world– Pilots in many places; rollouts slow– Item-level opportunities in firearms, video rental– Open supply chain apps’ only in infancy

• WalMart has announced – Case and pallet tagging from top 100 suppliers

in U.S. by 1/1/05 – EPC protocol (from MIT, not Euro/ISO standards)– Universal item-level >5 years away– UCC.EAN (barcode) are supporting strongly

• Rest of world– Pilots in many places; rollouts slow– Item-level opportunities in firearms, video rental– Open supply chain apps’ only in infancy

RFID PRIVACY CONCERNS

RFID PRIVACY CONCERNS

• Genuine concerns which must be addressed

• Perception is greater than the reality• The potential issues will not surface until

item level tagging appears• Not easy to read chips in an open

environment• The industry must develop a consistent

approach

• Genuine concerns which must be addressed

• Perception is greater than the reality• The potential issues will not surface until

item level tagging appears• Not easy to read chips in an open

environment• The industry must develop a consistent

approach

RFID TECHNOLOGY IS VIABLE -NOW

RFID TECHNOLOGY IS VIABLE -NOW

• Get educated – it’s complex

• Start a Pilot

• Build your business case

• Roll out and expand

The ROI is there

• Get educated – it’s complex

• Start a Pilot

• Build your business case

• Roll out and expand

The ROI is there

THANK YOUTHANK YOU