RFID Gaining in Popularity

Sep 21, 2005

Jeanette James

Based on a survey of 500 companies, AMR Research expects corporate RFID spending to increase 16% from 2005 to 2006, and 20% from 2006 to 2007, up from the current annual average of just above $500,000.

Indeed, thanks to dropping RFID-tag costs, industry mandates and the drive for greater business efficiency, the use of RFID is expected to skyrocket in the coming half-decade across a variety of sectors including retail, manufacturing, pharmaceuticals, transportation and the military.

Companies such as Intel and Procter & Gamble have even appointed vice-presidents of RFID research and development, according to to Forrester Research. And according to INPUT, a research and analysis firm targeted at government contractors, U.S. government spending on RFID should grow 120% by fiscal 2009.

The Relevance of RFID

Why all the interest? Because RFID lets companies locate and track objects anywhere in the supply chain be they DVDs, automobile parts or prescription drugs that are located in warehouses, delivery trucks or store shelves. Many are hoping for billions of dollars in annual savings through boosted efficiency.

RFID tags are microchips with antennas. Every tag has a unique identification that it then broadcasts. Rather than having to be passed directly next to a reader, as with bar-codes, RFID tags can be read at a distance, such as when a car passes through a toll booth (sound familiar?).

In addition to business efficiency afforded by RFID, declining costs are also boosting RFID’s adoption. Currently, one million RFID tags carry a publicized price of 19 cents per tag, said Peter Regen, vice president of global visible commerce at Unisys Corp.

Lower-volume purchases can cost as much as 40 cents a piece, however, and negotiated volume prices can drop as low as 15 cents per tag, Regen adds. By the end of next year, however, Regen expects tag prices to drop to a dime in volume purchases.

Another factor in RFID’s expanding popularity is industry mandates, such as the calls from Wal-Mart, the Pentagon and the Food and Drug Administration for top suppliers to use RFID tags.

But such demands don’t guarantee RFID simplicity. To be sure, as Forrester points out in RFID: The Complete Guide, “implementing RFID is no small task.”

Getting Rolling with RFID

Regen, whose company guides many firms through the adoption of RFID, recommends that CIOs start by considering their business needs.

“We advocate doing a business case,” said Regen. Some of the key issues to consider include whether or not a company is moving goods with a high enough cost or return to justify the cost of RFID.

Also, companies must ask themselves if there are any holes in supply-chain visibility that are causing business problems. If so, what tagging level could address those problems? Would it be sufficient to tag at the container or palette level? Or do individual items in those palettes need to be tagged?

If the business case holds water, Regen recommends putting a plan together and then testing it, “to be sure you can get the results you want.” It’s at this point that many companies turn to a partner capable of testing, deploying and certifying the physics of the company’s RFID infrastructure.

“Expect to try things rather than expecting to just buy a solution off the shelf and expect it to work,” recommends Regen.

When choosing RFID partners, AMR Research recommends considering younger, RFID-specific firms. “Because this is emerging technology, that tends to be the domain of startups rather than the established vendors,” said Dennis Gaughan, an AMR research director in Boston.

As a CIO gets new partners in place, it’s a good time to get comfortable with an “ecosystem approach” to partnerships, as another key step in getting the most out of an RFID investment.

“CIOs need to realize that much of the RFID data required to run their businesses comes from trading partners,” said Christine Overby, a principal analyst at Forrester. “This means (CIOs) must negotiate for the data in addition to focusing on the physical deployment. These ‘softer’ tasks can’t be overlooked, or the business case is compromised.”

If finding the money to fund an RFID project is a problem, it helps to note that RFID funds can often be found beyond the CIO’s traditional IT budget. “By its very nature, some of the (RFID) budget comes from places outside of IT,” said Overby. “For example, tags are a variable cost that most often comes from a supply chain or operations budget.”

“The best advice to CIOs is to treat this as a business, not IT, project from the get-go,” Overby concludes. “This means multi-functional project teams and a business champion or co-champion.”


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