Time Is on RFIDs Side

The wireless technology may not pay real economic dividends for at least two years. Read why.

The RFID bandwagon is shifting into overdrive, but not everyone in manufacturing is jumping aboard.

Radio-frequency identification technology involves tags and readers that track goods through the supply chain, enabling tighter inventory control and real-time product routing to meet ever-changing consumer demands. The tags are tiny radio transponders attached to pallets and cases of packaged goods. Each tag has a unique tracking number (known as an electronic product code, or EPC). The readers receive radio signals from the tags and, if instructed, pass the information to computer networks.

Most manufacturers had moderate to limited interest in RFID until Wal-Mart Stores Inc. early last year bet its supply chain on the emerging technology. Under a mandate from the $244 billion retail chain, Wal-Mart expects its top 100 suppliers to deliver RFID-tagged products by next year.

At first glance, thats good news for manufacturers. In the CPG (consumer packaged goods) manufacturing sector, RFID can improve demand forecasts by 10 to 20 percent, slash inventory levels by 10 to 30 percent and increase sales by 1 to 2 percent, according to Accenture Ltd., the New York-based management consultancy.

"RFID systems that are implemented correctly will deliver enormous cost savings," said Steve Halliday, president of High Tech Aid, a Gibsonia, Pa., consulting company that specializes in RFID solutions. "We have seen some recent cases where the return on investment has been four to six months for some fairly large systems."

Still, the road to RFID has plenty of potholes. Much like the PC industry in the mid-1980s, todays RFID involves a hodgepodge of hardware, software and network connectivity that must be configured on a case-by-case basis. Even proponents like Accenture concede RFIDs weak points.

"Each project practically requires a custom solution," says Lyle Ginsburg, managing partner of technology innovation in Accentures Global Products Operating Group. "The big lesson for those who are just getting into this space is very clear: RFID is far from a turnkey solution."