After nine years of testing, shipping giant DHL is rolling out its first series of pilot RFID projects to improve efficiency and tracking along all points of its pickup and delivery chain.

The first pilot, to be launched in the next few weeks, involves repair and return for consumer electronics products, one of the most time-sensitive and intensively tracked segments of DHL Express's business, according to Bob Berg, the company's global RFID program manager. The pilot will be carried out in partnership with IBM Corp. (NYSE: IBM), as the RFID solutions provider, and with a major consumer electronics manufacturer that DHL declines to identify. The three-month pilot will be limited to the U.S.

When a manufacturer gets a customer service call, it will contact DHL's fulfillment center in Wilmington, Del., and DHL will ship a special box to the customer overnight, pick up the box at the customer's home or office, and ship it overnight to the manufacturer's repair center in Memphis, Tenn. The repair in most cases will be completed in one day and shipped back to the consumer overnight.

At each stage of the process -- pick-up, delivery and retrieval at the repair center, and return to the customer -- the RFID tag accompanying the product will be read, improving DHL's "tracking visibility," i.e., the consumer's ability to check the status of the package along the way.

"For us, when we consolidate and deliver a shipment of devices to the repair center, we can scan an entire container with loads of this material very quickly," explains Berg, reached in Hannover, Germany, after a long day at CeBit, where the DHL Express pilot was unveiled this week. Right now it takes the courier up to an hour to scan in each individual item to the repair center, too long if DHL intends to turn the product around the same day. "With RFID, we can scan an entire load of shipments at once, in a matter of a minute."

If successful, Berg adds, the pilot could lead to full-scale deployment in 2007.

The repair-and-return pilot is part of DHL's larger commitment to rolling out RFID across its business process within the next few years -- a commitment that in turn is part of DHL's "Innovation Initiative," a partnership with IBM, Intel Corp. (Nasdaq: INTC), Royal Philips Electronics N.V. (NYSE: PHG; Amsterdam: PHI) , and SAP AG (NYSE/Frankfurt: SAP) to develop new technologies for the logistics industry, aimed specifically at streamlining supply chains.

"This is not just a straightforward, consumer-driven, supply-chain application," points out Scott Burroughs, IBM's solutions executive for sensors and actuators. "Much of the press around RFID has focused on suppliers and retailers, but the significant trend we're seeing is industries outside that space looking at RFID as an enabler for other capabilities within their business."

The long run-up to actual deployment of RFID in DHL's worldwide shipping business is attributable to the fact that, until recently, the technology wasn't advanced enough for real-world applications. Still remaining, says Berg, is the cost barrier.

"Right now we're paying 18 cents apiece for Generation 2 UHF tags," says Berg. "When you look at the cost of tags on 1.5 billion to 2 billion shipments a year, that has a tremendous impact, so cost is very important to us."

The cost of tags should be driven down by another 25 percent over the next year, according to industry analysts. Also driving the adoption of RFID through the supply chain are the mandates from the U.S. Deptartment of Defense and major retailers like Wal-Mart and Target that require all goods from certain suppliers be RFID-equipped. DHL is already providing suppliers to Metro AG, a European retail chain, with a comprehensive RFID solution out of their fulfillment centers that eliminates the need for suppliers to buy and affix their own tags.

Another barrier is standards: RFID makers and shipping companies have been slow to adopt common standards for tags and readers -- a prerequisite if the technology is to penetrate the supply chain from factory to consumer, as many predict. (See RFID: A Market in Waiting?)

One of the next frontiers for RFID integration is the air freight industry, which includes a mix of dedicated large shippers, such as FedEx, small regional operators, and the passenger airlines. Here, DHL has not been completely successful: An early pilot with a commercial airline failed, says Berg, and the company is looking for ways to partner with the major air cargo shippers to better manage inventories.

At this point, says Berg, the returns from RFID technology are literally incalculable. The upfront investment, for the moment, is relatively minimal: DHL expects to spend around $100,000 on the consumer electronics pilot. If that helps increase the company's $29.4 billion annual revenue even a small percentage, that's a nice win for DHL and its customers.

— Richard Martin, Senior Editor, Unstrung