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RFID Chips Get Cheaper

Five-cent RFID chip could lead to next supply-chain revolution.

It's heeeere--the 5-cent radio frequency identification chip. At the InformationWeek Fall conference in Tucson, Ariz., Kevin Ashton, executive director of the Auto-ID Center at MIT, on Tuesday publicly showed for the first time one of the tags, a microchip with an antenna that may well lead to the next supply-chain revolution.

"Supply-chain revolutions are few and far between," Ashton said, citing the agrarian revolution, the industrial revolution, the mass-production revolution, and the discovery of the United States, and pointing out that Columbus' exploration was sparked by the desire to find improved supply routes. RFID tags will let companies track products from manufacturer to distributor to retailer at pallet, case, or item levels, helping track movement of products through distribution centers and factories, back rooms of stores, and all the way to the shelf.

The implications for trading partners to have this information in real time are enormous. Retailers experience up to 10% of unused shelf capacity, so being able to understand in real time the movement of products at the shelf level--knowing what needs to be replaced or what isn't selling--could be worth billions of dollars to the industry. "Ultimately, we'll be able to get into consumers' hands what they want, when they want it, conveniently," says Simon Ellis, director of supply-chain strategy and supply-chain futurist at Unilever HPC North America.

The Auto-ID Center was founded in 1999. Then, RFID tags had a pretty high price tag--they cost a few dollars each to produce, making them impractical for widespread use. A goal is to get the cost down to a penny per tag, though that hasn't yet been accomplished. But companies are excited by the idea, even at the tags' current cost. "If we can get a 6-cent benefit by putting a 5-cent chip on a $2.99 product, I'd do it," Ellis said.

The center counts among its sponsors a variety of technology and user companies, including Unilever. It expects to launch the technology at the end of next year. Pallet-level use of the technology could happen in a year or two, and case-level use may be two to three years away. Ashton expects that the revolution will become visible between 2006 and 2010.

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