RFID Ramp-Up

An RFID hardware manufacturer recently confided to me that new product orders were tracking as expected, but repeat orders were slower than anticipated. (I'll let you guess whether we're talking about RFID readers or printers.)

"We expected to see an increase in sales to first-time users � tier-two suppliers with a January 2006 deadline. And, that's happened," he explained. "What hasn't materialized at this point is an influx of repeat orders from the tier-one suppliers. They minimally complied in January 2005 and haven't done much more."

Because of two factors � UHF Gen 2 and business cases � you should prepare for a wave of activity, starting in the last few months of 2005.

GEN 2, BUSINESS CASES DRIVE RFID
Since its initial ratification at the end of 2004, almost all parties have collectively pointed at the UHF Gen 2 standard as a catalyst to drive rapid RFID adoption. And while it's not a panacea for all the ills of RFID, it's the closest thing the industry has to offer. Suppliers don't necessarily care about intellectual property battles and cross-licensing agreements between vendors, but the UHF Gen 2 standard is another matter altogether. This is an issue that suppliers � both tier-one and tier-two � are following closely. Both sets of suppliers know that using UHF Gen 2-based hardware and tags is clearly the best course of action. So, end user investment in RFID will be slow until compliant hardware and tags reach the market in quantities that make sense. (At this point, all the vendor partnership, product testing, and Gen 2 demonstration press releases are just necessary window dressing.) Expect hardware and tag vendors to deliver the goods starting late Q3 and into Q4 of 2005. If that happens, then keeping up with end user demand could be a legitimate concern.

Coinciding with the release of Gen 2 products later this year will be a flood of business cases being made for RFID technology. Up until this point, much of the coverage has focused on what amounts to "faith-based" business cases with nonexistent ROI. That will change as tier-one suppliers � having spent more than a year working with RFID � internalize the technology and streamline business processes. Additionally, these suppliers will be able to talk about the impact of RFID data in their back end systems and improved visibility. In front of this backdrop, suppliers and retailers will also be introducing new business cases for RFID that will further impact how business is conducted. For example, serialized invoice reconciliation and in-store merchandising management applications will be part of these discussions.

All of this will be happening as Wal-Mart continues to expand its current RFID initiative to encompass additional stores and distribution centers. This activity does not mean that there are no more bumps in the road for RFID in the supply chain. (There will be more hurdles for years to come. You can bet on that.) But don't think for a minute that the march toward RFID inevitability is slowing down. In fact, the opposite is true.