Smart Supply: RFID Tags Appear In Supply ChainsSmart Supply: RFID Tags Appear In Supply Chains

When it comes to real-time supply chains, perhaps nothing's received more attention than radio-frequency ID tags--tiny microchip devices that use radio waves to relay product identification information such as shipping status.

The technology's promise is great: As products move through the supply chain, from production to point of sale, RFID tags communicate the products' exact whereabouts. Such real-time information would provide up-to-the minute inventory details and trigger automatic replenishment if a product is nearly sold out.

While the concept has been around for decades, the buzz has been getting louder since costs for RFID tags, which in the past ranged from just under $1 to $20, have potentially gotten cheaper. The commercially funded Auto-ID Center at MIT has developed technology that lets manufacturers produce RFID tags in quantity for as little as 5 cents each.

In the last year, several companies have begun testing the technology. In January, the Gillette Co. ordered 500 million RFID tags from Alien Technology Corp. to use in several trial programs, including one with retailer Wal-Mart Stores Inc. Gillette is attaching RFID tags to Mach 3 Turbo razor blades that ship to two Wal-Mart stores that are equipped with "smart shelves" capable of reading signals from the chips and tracking the merchandise's location. When supplies on store shelves run low, stock clerks are alerted to refill them; when stockroom shelves run low, the system orders more (see "Gillette Razors Get New Edge: RFID Tags," Jan. 13, p. 22).

Others, including Metro AG, Germany's largest retailer, as well as Procter & Gamble, Target, and Unilever, are all testing the technology.

Still, don't expect RFID to hit a store near you anytime soon. Most experts say it will be several years before RFID takes off. One thing holding the technology back is the lack of packaged applications that can use RFID, says Dwight Klappich, an analyst at Meta Group.

Vendors such as i2 Technologies, Manugistics, Oracle, PeopleSoft, and SAP say it will be one or two years before they release RFID-enabled products. Their existing systems accept data from RFID scanners, but none of the vendors has actually embedded RFID capabilities within their applications to facilitate a full-scale RFID deployment.

Another obstacle to widespread adoption is getting everyone within a supply chain to shell out the money for the scanners and readers RFID requires. Says Mike Dominy, senior analyst at the Yankee Group, "It's yet another capital investment, and the business case isn't clear yet.''