IDC to RFID: Tags, you're it

Radio frequency identification may be bound up in controversy today, but it's on a steady path toward the mainstream of supply-chain technology, research firm IDC said Wednesday.

Wireless RFID chips--essentially high-tech bar codes that can be scanned from a distance and even through the walls of boxes and other containers--are seen by many as the key to a far more efficient supply chain than is achievable today.

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While some say RFID is still too expensive and unproven, Wal-Mart and the U.S. Department of Defense have mandated that their suppliers must start to incorporate the technology. The weight of these two huge organizations is set to have a significant impact in spurring RFID spending, IDC said.

With manufacturers and distributors scrambling to meet those retail and military mandates, IDC said it expects RFID spending for the U.S. retail supply chain to grow from $91.5 million last year to nearly $1.3 billion in 2008.

The majority of spending will come from the hardware side, which covers RFID tags, infrastructure and systems integration. This will reach $875 million in 2007, mostly coming out of the pockets of manufacturers and distributors. RFID-related services will grow to about $270 million in 2007 before leveling off, IDC projected, while software spending will not begin to grow until about 2006, when more companies will start to need RFID middleware.

RFID tagging is currently aimed at cases and pallets, rather than individual items, although IDC predicts the tagging of separate products will happen later. Wal-Mart and other companies have roused the ire of consumers with RFID trials in which individual items were tagged, creating potential privacy concerns.

IDC cautioned that some companies are currently being pushed into the RFID world without a clear business case.

"Changes to business processes to take advantage of data from RFID tags should determine which enterprise applications will need to be modified, and ultimately how the RFID layer should be designed and deployed," Christopher Boone, an IDC vertical industry research analyst, said in a statement. "Today, the RFID layer is driving the business decisions, and this is backwards."

And while in the short term many suppliers will be adopting RFID, this will fall short of an industrywide shift, IDC said in a report last month.

"By year-end, it will be obvious that it will take more than mandates from Wal-Mart or the Department of Defense to drive the kind of money and time investment necessary to deploy the tagging infrastructure, the sensor technology, the operating procedures to use the sensor, and the applications to make sense of the data," the company said.

Among the other companies that have thrown their weight behind RFID recently are Indian services giant Infosys and Sun Microsystems, which announced last month that it would open an RFID test center in Scotland.