Charles Hudson's Weblog

I was reading an article earlier today about how retailing giant Wal-Mart plans to mandate that its partner network adopt and deploy RFID tags by 2005. Is the technology ready for prime time?

Radio frequency identification (RFID) has been described in very grandiose terms as the universal panacea for all inventory tracking and shrinkage reduction applications. The technology is fairly simple — RF-enabled chips are able to communicate with readers as they move through a supply chain, giving a company palett (and eventually package) level tracking capabilities. Line 56 has a nice overview of how leading retailers are looking to use the technology.

As with any new technology, there is a lot of friction where reality meets euphoria. Three things really jump out at me as real-world issues:

International standards compliance – In an interesting article, Line 56 details some of the challenges that RFID adoption pioneer Gillette describes some of the problems that they have had in internationalizing their RFID infrastructure. Given the nascent nature of much of this technology, I expect that standards body and international compliance wrangling will continue for the forseeable future.

Price – When you are talking about putting a tag on every box, package, or container, the cost of the infrastructure (namely the tags themselves), has to be sufficiently cheap to enable large-scale rollout. From what I have seen, the tag vendors are pushing hard to drive tag prices below 10 cents per tag. When I think about the number of tags, readers, and associated infrastructure to manage this new system, it is clear that cost will be a major issue.

Business process integration – What I find most daunting when I look at this space is the level of business process integration that has to take place to bring the business benefits of this technology to market. On the internal IT side, companies such as Wal-Mart are going to need to make significant infrastructure investments to collect, process, and act on the data that these systems will generate. On the external side, packaging manufacturers are going to have to figure out how to embed or support RFID tags.

I do believe that the market will solve the price and international/standards compliance issues. However, I am much more skeptical on the business process integration side. Sure, companies such as Wal-Mart and Gillette will spend the dollars to make the technology work and have the muscle to compel their suppliers to participate. Given the business benefits, I have little doubt that major retail companies and consumer goods companies will make this work. But what about the rest of the world? Who is going to help smaller retailers, suppliers, and others figure out the IT and business process issues associated with the move to RFID? If the growing pains that companies have experienced simply moving to IT-based supply chain management solutions are any precursor, this market will take much longer to develop than most people anticipate.