RFID expense may hold back market growth

Related tags Rfid

Despite the protestations of suppliers, the cost of passive tags
used for radio frequency identification (RFID) will not fall as low
as 5 cents per unit, and is more likely to be at the 16 cent level,
according to a recently published report by ARC Advisory Group.

If true, this price point could alter the dynamics of the emerging RFID marketplace and act as a brake on its wholesale adoption by manufacturing industries, despite the benefits it affords in terms of supply chain management.

And while the likes of Wal-Mart have initiated mandates requiring the use of RFID tagging by the beginning of 2005, ARC does not believe significant growth in the market will be seen for three to four years.

The 'gold rush' fever that is surrounding RFID has left manufacturers of packaged goods struggling to justify the use of RFID on their products at a time when the average cost of a high-frequency (HF) passive tag is still measured in the tens of cents per unit.

From an average price of 91 cents in 2003, the report​ estimates, the cost of an HF tag could fall as low as 30 cents in 2008, while ultra high frequency (UHF) tags could dip from over 50 cents to about the same price level. This is clearly far above the much vaunted 5 cent prediction, although ARC concedes that "individual suppliers may be able to reach there through the combination of high-volume contracts and low-cost form factors".

As a result, there has been a fair degree of resistance from suppliers and manufacturers who see RFID as an expensive obligation without much benefit for themselves. Research group Forrester​, which interviewed supply chain executives at $1 billion-plus companies, found that many firms do not expect RFID mandates to enhance supply chain visibility.

"Within our own firewall, there are enough warehouse information systems in place that we don't really lose things of great enough value that RFID would make sense,"​ said one CPG manufacturer. "What is important for us is to use RFID to tag containers for inventory visibility or to enable direct-to-store delivery."

In fact, some manufacturers believe that supply chain RFID projects can distract from efforts to match supply to demand. "RFID is forcing us to take our eyes off major efforts to minimise shocks to our supply chain,"​ said another manufacturer interviewed by Forrester. "My perspective is that we need to focus on events that exaggerate supply/demand shocks. Then the extra RFID data can be helpful."

Major label producers such as Avery Dennison, which recently took aim at the RFID sector, claim that its economies of scale will make it possible to supply RFID pressure-sensitive labels at the 5 cent price point. But smaller players will struggle to meet this objective.

Nevertheless, by around 2008, "the combination of maturing customer mandates and available, interoperable standard products will combine to create a burst of growth in the marketplace,"​ predicts the ARC report.

RFID tags are tiny computer chips connected to miniature antennae that can be affixed to physical objects. The most commonly application of RFID contains an Electronic Product Code (EPC) with sufficient capacity to provide unique identifiers for all items produced worldwide.

When an RFID reader emits a radio signal, tags in the vicinity respond by transmitting their stored data to the reader. Passive (battery-less) RFID tags, read-range can vary from less than an inch to 20-30 feet, while active (self-powered) tags can have a much longer read range. The data is then sent to a distributed computing system involved in supply chain management or inventory control.

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