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Lack Of Cheap Tags Is No Reason To Ignore RFID

ABI Research says lower-priced tags are a component for RFID's success, but that other elements are more important.
Much of the clamor around radio-frequency identification has centered around demands for the chip-equipped tags to come down in price to 5 cents apiece--but that's shortsighted, a research firm said Wednesday.

"Five-cent tags are a component to the overall success of RFID, but they're not one of the top five most important elements," said Erik Michielsen, a senior analyst at ABI Research who covers the RFID market. "Without proper commitment, planning, and partnering, cheap RFID hardware is not sufficient to make a sustainable long-term difference with consumer packaged goods suppliers looking to benefit from RFID."

RFID has been a hot topic in business circles mostly because of Wal-Mart's demand that its top 100 suppliers meet a Jan. 1, 2005 deadline to implement the technology on all products shipped to the retailer. But Michielsen sees the problem with RFID as more complex and complicated than just meeting Wal-Mart's deadline.

"Non-RFID compliance with Wal-Mart's Jan. 1, 2005, deadline is not a win-lose scenario," he said. "RFID is not Y2K."

Instead, companies need to look beyond the deadline, and beyond the brouhaha over cheap tags. "It's so much more complex than just five-cent tags," Michielsen said. "Even if tags were just five cents apiece, companies couldn't order billions of them, nor are they ready with an infrastructure to support RFID."

The RFID picture may be confusing--"even companies like IBM are perplexed," said Michielsen--but if businesses look at the big picture and stay on top of the technology, they'll have a better chance of getting a return on their investment.

Businesses are still trying to figure out such mundane, but necessary, details as where to apply the RFID-equipped labels on pallets and products, said Michielsen. Nor have they built the industrial backbones--conveyor belts in warehouses and distribution centers, for instance--that are required to move products through the process.

"Companies have to take a dual approach," he recommended. "They need to trial the technology, and then and scale up the trials."

And they need to take a long-term approach to RFID to really see the benefit of this sea change in supply-chain technology. "Tags are now in the 35- to 40-cent range," he said, "so if I do a back-of-the-book calculation, tag costs might be prohibitive. At that price, they're not going to generate payback and a solid ROI. But companies need to take one for the team on this one. As the industry scales up, then tag costs will come down."

Companies that make excuses for not implementing RFID, Michielsen said, may pay a price down the road. "This technology is going to be around for a long time," he noted, "and when all the pieces click together--and they'll do that soon--it will explode. You don't want to be left behind.

"To ignore RFID is bad; to wait to implement RFID is bad. But to rush in isn't good, either."

Puzzled? So is Michielsen. "This is confusing and complex," he said. But, he added, "to make it as simple as five-cent tags is missing the point."