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 THE STAT 26Percentage of wireless customers who use their cell phones to take picturesMore Vitals
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FEBRUARY 4, 2004
RFID: On Track for a Rapid Rise Electronic inventory-tracking tags may be a headache for suppliers who have to adopt them -- and a potential goldmine for tech companies Many packaged-products companies got the surprise of their lives last year when Wal-Mart (WMT ), which buys $178 billion worth of such goods annually, said that as of January, 2005, it'll require its top 100 suppliers to adopt radio frequency identification (RFID) tags for shipments to some of its stores. What's more, the Defense Dept., which buys $24 billion worth, announced a similar requirement, also slated to begin early next year. That has businesses rushing to implement real-time tracking of cases and pallets holding everything from bullets to baby wipes. An RFID tag is a chip that, even in its simplest form, is superior to standard bar codes. It can contain information such as a product's expiration date and temperature, and it can be scanned from a distance of up to 30 feet. This makes it a lot easier for a retailer to find products in a warehouse and keep track of what condition they're in -- big advantages when it comes to managing inventory. Suppliers are worried about RFID's costs: They'll have to buy the tags, as well as tag readers that receive or transmit data, plus software that manages the data that are collected. As they've begun pilot-tests, moreover, suppliers to Wal-Mart and Defense have ended up doing a lot more than they planned: redesigning warehouses, packaging, and even business processes to accommodate RFID. RAISING THE BAR. Suppliers will likely have to upgrade their info-tech systems -- servers, storage, wireless infrastructure, and software -- to handle the data that RFID will spit out. So their new headache could be a blessing to tech companies searching for sources of new revenue. Certainly, leaders in the industry sense an opportunity: Software king Microsoft (MSFT ), No. 1 chipmaker Intel (INTC ), server giant Sun Microsystems (SUNW ), big software suppliers such as SAP (SAP ) and Oracle (ORCL ), plus computer-services titan IBM (IBM ) have all recently announced or are expected to announce products or services related to RFID. The involvement of such tech giants should help speed the adoption of an industrywide standard for the version of RFID called UHF (for ultrahigh frequency), which is used to read data on pallet tags. Assuming that the standard is ratified this year by the ISO (International Organization for Standardization) and by EPCglobal (Electronic Product Code), the price of tags such as those made by Texas Instruments (TXN ) should fall from 30 cents a piece to pennies within several years and encourage further adoption of RFID. For now, Wal-Mart mainly expects RFID to make its inventory management more efficient and boost sales. Bar codes can tell the retailer only that a case of toothpaste is somewhere inside a store. But with RFID, it will know the product's exact location -- and eliminate instances when an item is out of stock, says Linda Dillman, Wal-Mart's chief information officer (see "Talking RFID with Wal-Mart's CIO"). HOME ON THE RANGE. In RFID, Wal-Mart is running a little behind some of its international competitors. Britain's largest retailer, Tesco, plans to implement the technology in April, 2004. And suppliers of German retailer Metro, which recorded $52 billion in sales in 2002, will begin using it in November. That may signal the arrival of a long-awaited boom for RFID, a technology born about 15 years ago. Already, some 40 million farm animals worldwide carry an RFID chip that aids in tracking health hazards such as mad cow disease. Auto makers have put chips in the keys of about 100 million cars to prevent theft -- no more stealing cars by copying keys. Even marathon runners carry RFID chips on their shoes for an accurate record of their finish time. Once retailers get involved, the number of tags in use will jump from the millions to billions, predicts Bill Allen, a marketing manager at TI, which has sold RFID chips for 15 years. "The supply chain has long been considered the holy grail for RFID," he says. That explains why the $1 billion market for RFID-specific hardware, software, and services could balloon to $3.2 billion by 2008, says Erik Michielsen, senior analyst at tech consultancy ABI Research in Oyster Bay, N.Y.
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