There was a time not so long ago when, in manufacturing circles, the words "radio frequency identification" (or RFID) were synonymous with retail giant Wal-Mart's RFID initiatives. That's no longer the case today, points out Lora Cecere, vice president, consumer products with analyst firm AMR Research.

RFID has the notoriety of being both a mature technology (military applications date back to World War II) and an emerging technology (most of the current interest among manufacturers dates back only about five years). It wasn't until Wal-Mart and other big-box retailers (e.g., Home Depot, Target, Best Buy), as well as the U.S. Department of Defense, began mandating the placement of RFID tags on cases and pallets being shipped from a manufacturer to a retail distribution center (DC) that companies started paying attention to the costs and potential benefits of RFID.

The modern era of RFID began in June 2003, when Wal-Mart concluded that the technology had far more potential than what was then being realized (end uses at the time were typically at toll booths, libraries and security checkpoints). Wal-Mart notified its top suppliers that they were expected to begin testing and ultimately implementing RFID tags on every shipment to a Wal-Mart distribution center (to date, the mandates have centered mainly on DCs in the Dallas region).

Boeing uses RFID technology to track its assets at the International Space Station Processing Facility.

For most of those suppliers (a few, such as Procter & Gamble and Unilever, had actually helped develop the current generation of RFID technology), the Wal-Mart mandate led to various reactions remarkably similar to the classic stages of grief. First came denial ("This has got to be a joke!"), then anger ("How dare they try to force-feed us this untested gimmick!"), then bargaining ("OK, we'll do the very bare minimum amount of investigation into this RFID test"), then depression ("We're gonna go broke paying for all these tags and readers"). It remains to be seen how many manufacturers will eventually reach the final stage, acceptance ("We're actually able to run a lot leaner thanks to RFID").

RFID has become a significant business, with the global market currently worth $5.29 billion, according to analyst firm IDTechEx, which includes tags, readers, labels, and software and services. The tagging of pallets and cases as mandated by retailers in 2008 amounted to 325 million RFID labels, based on IDTechEx estimates.

In Search of ROI

Today, consumer goods manufacturers are implementing or evaluating RFID "to track assets, gain better visibility of manufacturing and supply chain operations, and improve product and service quality," AMR's Cecere explains (see table below, "How Consumer Goods Manufacturers Use RFID"). "Most of the RFID projects underway today in the consumer products industry may seem simplistic and, well, dull, when compared to the excitement and controversy raised by the Wal-Mart mandate. In the aggregate, though, these same projects represent why we can confidently say the industry has formed a base of expertise from which further growth will come."

Consumer goods companies, Cecere notes, have found it "virtually impossible to find a return on investment using disposable RFID tags on low-cost products, particularly at item level." While industry pundits have long predicted an ROI delivery when tags fall below the price of 10 cents per tag, the price is still in the range of 10 cents to 12 cents when bought in volume, she points out, and there is little chance that the price point will shrink significantly any time soon.

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