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IDC: Look before making the RFID leap

At IDC's Directions 2004 event, an analyst told attendees that before implementing RFID, it's critical to understand the technological and financial repercussions, instead of just bowing to Wal-Mart.

BOSTON -- A technology expert says it's a bad idea for a company to stick radio frequency identification (RFID) tags on its products just because its biggest customer wants it that way. A company must first understand the specifics of how RFID can provide technological and financial gains.

This was the advice offered by International Data Corp. analyst Christopher Boone during an RFID presentation at IDC's Directions 2004 conference last week. RFID tags are an emerging technology for tracking the flow of products through the supply chain, and could one day displace bar codes.

Large organizations, like Wal-Mart Stores Inc. and the U.S. Department of Defense, both of which receive a tremendous amount of goods, are spurring an increased interest in the technology. The DoD has mandated that all its suppliers use RFID tags on the cases and pallets they deliver to its various branches by January 2005. Wal-Mart issued a similar directive earlier last year, requiring all its suppliers to use the technology by 2006.

"There are a number of suppliers who simply want to comply with what Wal-Mart told them to do," said Boone, who serves as the Framingham Mass.-based analysis firm's program manager for U.S. vertical industry research. "If you look at [RFID] that way, it's always added cost. It's not driving additional benefits."

Boone said it's important to figure out how the business will use more real-time supply chain data, how the tags would alter the business processes, and what RFID will mean for enterprise applications currently in use.

Though the technology has been around for some time, RFID has only recently become an alternative to the bar code. RFID systems consist of an antenna and transceiver, which are often combined into one reader, and transponders or tags.

The antenna uses radio frequency waves to transmit a signal that activates the transponder. When activated, the tag transmits information back to the antenna. However, some technologists have expressed concerns about other radio waves or some metals interfering with the tags.

To make an RFID implementation successful, Boone said the first step is just getting the technology to work within one four-walled area. The next step is to go beyond those walls and make a connection to another point in the company, such as from a warehouse to a distribution center.

Step three, which is where many suppliers are today, involves using RFID with business partners who are part of the supply chain. Next come the theoretical steps of sharing RFID data with everyone in the supply chain, and being able to identify any object at any time.

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Check out our webcast on the IT impact of Wal-Mart's RFID mandate.

"Companies will be going from stage one to three, and then stopping because they can't build the business case to move beyond that," Boone said.

Bobby Sy, systems and technology manager for Citizens Watch Co. of America, said his Torrance Calif.-based company has been looking at the possibility of implementing RFID technology.

Sy said that if his company does choose to go with RFID, the tags will most likely be placed only on large pallets, as opposed to the case- or item-level, and then only to satisfy its large customers. "I'm sure a lot of us are just [RFID] spectators right now," he said.

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