RFID Rollout

The Economist writes that smart tags are indeed happening:

In 2002, the Auto-ID centre, a partnership between academic researchers and business based in Cambridge, Massachusetts, came up with a standard for a new, stripped-down RFID chip that stores just 96 bits of informationenough to give every object in the world a unique number. With tag readers plugged into a computer network, this number can be used to look up detailed information about the object, such as its origin, age and expiry date. At the same time, the Auto-ID centre also challenged manufacturers to produce a five-cent tag. Several start-ups, including Alien Technology and Matrics, said they could do so. Suddenly, there was huge interest and talk of a potential mass market.

Last June, Wal-Mart, the world’s biggest retailer, said it would require its 100 top suppliers to put tags on pallets and cases of products for shipment to a cluster of its supercentres in northern Texas. (Those press-ganged suppliers were later joined by 37 volunteers.) Tesco, Britain’s biggest retailer, also decided to introduce the technology. This year Metro, a German retailer, and Target and Albertsons, two other American ones, announced tag mandates for their suppliers. On June 17th, Wal-Mart said it would extend its RFID roll-out to its top 300 suppliers and to more shops.

The American government is becoming a big user of the new tags, too. Last October, the Pentagon said it would require its suppliers to put tags on cases and pallets shipped to its warehouses. It expects suppliers to have the technology working by January. The Food and Drug Administration wants drug manufacturers, distributors and retailers to adopt the new RFID technology to combat counterfeiting.

Alien Technology says that its current production line can assemble 2m chips a month. By the end of this year, it will have a second-generation line, able to assemble 2 billion chips a year. By 2006, it plans to introduce two third-generation production lines, each able to assemble ten billion chips a year. For orders of 1m, Alien Technology now sells its tags for 20 cents each. When the third-generation arrives, says Tom Pound of Alien Technology, we believe that our best customers will be able to order finished tags for prices approaching five cents. Established manufacturers, such as Texas Instruments and Philips, are also entering the market.

So why all the gloom? Much of it stems from suppliers who feel they are being forced to pay for an investment that saves retailers money. Wal-Mart, for instance, is using tags to track goods from when they leave suppliers, through its warehouses, docking doors and supercentre stock rooms, to when they leave the back rooms for the supermarket shelves. Even more gallingly, the only time suppliers are likely to hear from Wal-Mart is when they make mistakes. At least the Pentagon, which last year sent a delegation to Wal-Mart’s headquarters in Bentonville, Arkansas, to learn about RFID, plans to pay for its own tags.

Another problem is that the industry does not yet have a single hardware standard. The work of the Auto-ID centre produced two competing tag standards. EPCglobal, one of the successor bodies to the Auto-ID centre, is now working on a single superseding second-generation standard. Within EPCglobal four warring factions of manufacturers recently shrank to two. EPCglobal has promised to deliver the new standard by the end of this month, which should spur investment.

As investment rises, prices should fall further. Meanwhile, many firms hope that item-level tagging will soon make sense, particularly in Europe, where more efficient supply chains mean that there is less scope to reduce costs by other means.

News.com writes about Microsoft’s RFID plans.

Published by

Rajesh Jain

An Entrepreneur based in Mumbai, India.