RFID: Not Ready For Prime Time, Says Study

RFID deployment budgets are small, but more than two-thirds of respondents to an AMR Research survey said they plan to evaluate, pilot, or implement RFID this year.

Laurie Sullivan, Contributor

July 22, 2005

3 Min Read

Radio frequency identification remains an emerging technology, not ready for prime time, and not likely to change during the next two to five years, according to a survey released this week by AMR Research.

The 500-company survey suggests modest growth in spending for RFID during the next few years. The survey suggests modest growth in spending: a 16% increase from 2005 to 2006, jumping 20% from 2006 to 2007. Market acceleration, however, for mainstream adoption will not occur until at least 2008. Although these are good growth rates for an emerging technology in a mature supply chain management market of 3% to 4%, AMR suggests they do not support the market hype or over-inflated expectations of many investors.

Perhaps it's because RFID deployment budgets will remain small and uncertain. Large companies with more than 5,000 employees this year have budgets just under $1 million, up to approximately $1.2 million in 2007. On a promising note, 42% of respondents say they have given RFID its own budget line item. On average, RFID represents 9.1% of the overall IT budget for 2005, AMR says.

Still, AMR found that 69% of the respondents plan to evaluate, pilot or implement RFID this year. Many say, however, they are doing so to comply with customer requirements. Business-to-business customer mandates are the number one reason for deploying RFID during the next year based on the survey data. Mandates from companies such as Albertsons, Metro AG, Target, Tesco, and Wal-Mart are accelerating the adoption of RFID. In addition, the Department of Defense has a similar mandate for its supplier community.

Clearly, RFID technology alone doesn't create value. The value comes from how the information derived from RFID tags and systems is applied to enterprise applications that control key processes in an organization. Inventory management, supply chain management, warehouse tracking, and location control applications are key application areas that will be the first to leverage RFID data, AMR says.

This is leading manufacturers to look for guidance on how to leverage the insight that RFID can provide through IT systems, enterprise applications, middleware and software from companies such as IBM, i2, Oracle, SAP, and Microsoft. And it's leading businesses to somewhat shift the focus away from RFID compliance deployment to item level for promotional materials and new product introductions. It enables manufacturers to gain more visibility into the effectiveness of promotions and managing new product introductions.

So, what's the major challenge in adoption? The survey sites a lack of maturity in standards as a challenge, especially for process manufacturing such as consumer products. Overall, 44% of the respondents believe that the maturity of today's RFID standards is enough to deliver a return on investment. However, only 29% of process manufacturers believe the standards have reached an "appropriate level" of maturity. The standards issue is more relevant for larger organizations that have to deploy the technology on a broader, global scale. Only 35% of the large companies with more than 5,000 employees believe standards are mature enough to deliver their investment returns.

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