RFID Adoption Is Lagging

It turns out 2006 wasnt the banner year for radio-frequency identification adoption that some analysts had predicted, particularly in the retail and consumer packaged goods sectors, where fast growth was expected. And it looks like 2007 wont be much different.

Analysts are predicting some pockets of growth—asset tracking and contactless smart cards, for example—while other areas will still struggle to find a business case for RFID.

This year is going to be about effectively finding ways to leverage RFID data, and software and services will play critical roles in that effort, according to ABI Research analyst Michael Liard.

"Companies are stuck in compliance modes with manual slap-and-ship [RFID implementations], but as people look to RFID in the enterprise, youre going to need software to handle that," Liard said.

He predicted increasing activity around asset tracking that spans industry sectors such as health care and retail.

"The returnable asset space is a hot market to watch in 2007," Liard said. "[Companies] can use Gen 2 [RFID technology] in that area, with returnable plastic pallets or totes and bins that are used outside the supply chain. Its about assets that leave your building and come back—a pooling concept."

The challenge in 2007, according to Liard, will be in getting more validation from users around RFID. "No users are talking about it," he said. "We need more customer use cases and validation."

While there will be healthy spending on RFID in the coming year, 2007 is not going to be noted for major steps forward with RFID, said ChainLink Research analyst Bill McBeath, who tracks manufacturers use of RFID.

"There is going to be no Year of RFID; there is a Decade of RFID. Thats the one were in right now," said McBeath. "[We anticipate] gradual but healthy growth for RFID. Ten years from now, people will look around and be surprised how much RFID has proliferated."

In his report, "RFID for Manufacturers," McBeath predicts a healthy increase in spending on RFID—more than doubling between 2005 and 2007, with the biggest percentage increase from 2006 to 2007. In 2005, manufacturers spent about $600,000 on RFID pilots and implementations, and they spent about $810,000 in 2006. That number is expected to jump to more than $1.3 million in 2007.

The pattern of mandate--driven activity—led by RFID tagging edicts from Wal-Mart and the Department of Defense—is slowly changing, according to McBeath, with small and large businesses looking to process improvements as a driver for RFID in the coming year. Of 275 manufacturers surveyed by ChainLink in 2006, 34 percent were adopting RFID because of mandates, while just over 41 percent were looking for process improvements. About one-quarter of the respondents were implementing RFID because of a mandate, but they were also looking for process improvements.

"When vendors complain that the market is not meeting their expectations, it is due to unrealistic expectations, not a weak market," McBeath wrote, pointing to plummeting tag prices as a sign that RFID adoption will increase in the coming year.

McBeath found that of the manufacturers surveyed, 10 percent already had implemented RFID, 16 percent were in the process of implementing it and 41 percent were planning to implement RFID. However, just over 32 percent of respondents had no plans to implement RFID at all.

Raghu Das, CEO of research company IDTechEx, suggested that much like 2006, 2007 will be a year of extremes, with RFID suppliers licking their wounds while, for others, RFID business is booming.

In a preview of an upcoming report, "RFID Forecasts, Players & Opportunities 2007-2017," to be released in January, Das summarized some of his RFID research findings. His main supposition: While IDTechEx forecasts that, eventually, retail will be the biggest market by far for RFID, consumer goods companies are yet to see sustainable payback.