If you need any more proof that radio frequency identification (RFID) technology is about to become the next big thing, then look no further than Wal-Mart. If the massive retailer's enthusiasm for the technology is any indication, the IT community better get ready for that promised RFID revolution.

RFID, the use of radio waves to automatically identify and track items is a technology already widely used. You've probably used it pumping gas, or traveling on a highway speed pass system, without knowing it.

Now Wal-Mart has helped drive the technology into the limelight by demanding that its suppliers attach RFID tags to their merchandise. By the end of 2006, the company wants all of its 25,000 suppliers on board.

Simply put, RFID technology stores product serial numbers using microchips. The microchip transmits identification information to a reader, which converts the radio waves into a form that can be used by computer programs.

RFID tags, which currently are priced too high to allow lots of companies to take advantage of the technology, are designed to eventually replace the universal product code (UPC) as the primary means of identifying and tracking products in the supply chain. Eventually companies will be able to track the movement of individual products. The end goal, of course, is huge costs savings for companies.

"In the past you could get information out of your ERP products, but the problem was that there was no way to share

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that information easily back and forth with your suppliers," said Michael Dominy, a senior analyst on business applications and commerce with Boston-based Yankee Group.

"RFID will change all that dramatically," Dominy said. "Companies could begin to share their information with their suppliers and have a better idea of what's happening upstream and downstream in their supply line."

Still some obstacles

Still, some argue that RFID tags are too expensive to deploy in widespread use. Others complain that the RFID readers are sometimes inaccurate.

"RFID holds a great deal of promise, and could help redeem traditional enterprise software, but there's also human nature involved and ultimately humans could be a barrier to RFID," said Navi Radjou, an analyst with Cambridge, Mass.-based Forrester Research.

The chip prices, having dropped sharply over the last several years, range in price from five cents to $1 per tag, depending mostly on whether they are active, passive, read-only, or memory tags.

Then there are industry-specific challenges.

Campbell Soup Co., which has been placing RFID tags on pallets and cases to track its products from the warehouse to the store, hasn't yet figured out how to track an individual can of soup. It turns out that the radio waves bounce off the cans and move poorly through the liquid.

Despite these initial limitations, many analysts say the market for the technology is expected to break out this year, with some small best-of-breed vendors vying for customers alongside large ERP software vendors like SAP, who has invested heavily in RFID.

"We're talking about the wave of the future and RFID should be part of some of our customer's plans to take a competitive advantage," said SAP executive board member Claus Heinrich, who recently spoke at a technology forum in Boston. "The best-in-class companies are adapting technology to suit their business processes faster then ever before."

Thirty years in the making

First introduced in the 1970s, RFID is widely used in the United States for electronic highway toll collection. One such toll collection system in the Northeast connects seven regional toll agencies through use of an "E-Z Pass," system. Drivers who carry a single RFID tag can avoid waiting in traffic at tolls.

Researchers continue to find ways to improve and use the technology. At the Auto-ID Center, a research facility at the Massachusetts Institute of Technology (MIT), researchers are seeking ways to commercialize international standards for RFID.

MIT's Auto-ID Center, along with nearly 100 partner organizations, has developed RFID tags that are cheaper and smaller than anything on the market today.

"There is enough functionality and enough viability for the technology, and companies should be looking at it today," said Joshua Greenbaum, principal consultant at Enterprise Applications Consulting of Daly City, Calif. "We're really on the cusp of the revolution."


This was first published in January 2004

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