RFID Tag Shortage: A Blessing in Disguise?

Beleaguered product suppliers are struggling with RFID compliance deadlines on the one hand and shortages of RFID tags on the other. For some, the dearth of tags could serve as a temporary escape hatch from the RFID squeeze.

Havent RFID mandates been imposing enough stress on product suppliers? Now, with the initial deadline for Wal-Mart and Department of Defense RFID compliance still set for January 1, 2005, reports are circulating about shortages and shipment delays on RFID tags. If theres a bright side to any of this, its that only the earliest set of forced adopters stand to get squeezed—and that even then, maybe the dearth of RFID tags will give them a bit more wriggling room.

At a surface glance, suppliers would seem to be caught firmly between a rock and a hard place—unable to comply with RFID dictates for reasons beyond their control, yet expected to conform anyway. Yet for those whove waited until the very last minute to start their implementations, this latest twist in the RFID saga might even turn out to be a blessing in disguise—sort of a temporary escape hatch.

Think back to when you were in school (if you can stand the thought). Did you ever cram for a big exam the night before, hoping youd find out in the morning that the test had been postponed because of a teacher absence, snow day or some other minor miracle? Well, then, just imagine the sighs of relief that some procrastinating product suppliers must be uttering right now.

According to a recent report from ARC Advisory Group, some Wal-Mart suppliers had already been talking their way into smaller initial deployments anyway. Steve Banker, ARCs service director for supply chain management, noted that Wal-Marts mandate has been widely understood as meaning that all cases and pallets sent by top 100 suppliers to three DCs (distribution centers) in Texas would be RFID-enabled by this coming January.

/zimages/6/28571.gifClick here to read more about Wal-Marts RFID pilot.

But in interviews with suppliers, ARC found that many have negotiated with Wal-Mart to ship only limited numbers of SKUs to these three DCs, and further, that Wal-Mart has been willing to make allowances for suppliers who can present "valid reasons" for acting more slowly.

Meanwhile, recent studies have shown RFID costs and standards to be lingering worries for users. For instance, in a survey of attendees at the recent Frontline Solutions show, 60 percent cited costs as a major concern, while 42 percent pointed to a lack of standards.

When it comes to costs, suppliers are looking at expenditures not only for RFID tags, but also for other RFID hardware, middleware and, ultimately, systems integration.

But at the moment, RFID tags still run about 30 to 35 cents each. Only two IT vendors are producing tags that comply with the emerging EPC spec: Alien Technology Corp. and Matrics, which is now owned by Symbol Technologies Inc. If these companies arent making enough tags to go around, prices are bound to stay high for a while. Under some elementary principles of economics, thats what typically happens when demand exceeds supply.

Some of those trying to comply with RFID mandates are smaller players, such as Beaver Street Fisheries, which are volunteering for the Wal-Mart program. But most are huge suppliers anyway. Presumably, they have more resources on hand to afford the costs of early market entry. They also have more negotiating muscle to delay compliance, if desired, particularly when some of the needed tools—in this case, tags—are unavailable.

But most small and midrange suppliers have a lot more time to begin complying with RFID mandates. Banker has predicted that any RFID tag shortage will dissipate by the third quarter of 2005. Also, over the year ahead it looks likely to me that the EPCglobal industry group will finalize its next-generation RFID spec, and that more RFID tag makers will step into the arena, too.

These new circumstances wont solve all the troubles facing RFID. But they should translate into volume production of RFID tags at prices more affordable to companies of all sizes. Moreover, some big suppliers that arent quite prepared yet might be able to bide their time a little bit longer, loosening the otherwise mighty grip of the RFID squeeze.

eWEEK.com Supply Chain Management/Logistics Center Editor Jacqueline Emigh has been writing about computer technology and business for 15 years. She can be reached at jacqueline_emigh@ziffdavis.com.

/zimages/6/28571.gifCheck out eWEEK.coms Supply Chain Management & Logistics Center for the latest news and analysis of enterprise supply chains.