Commentary: RFID tags--you're it?

By Christine Spivey Overby, Analyst

Gillette's high-profile order of 500 million radio frequency ID tags from Alien Technology, at a reported cost of less than 10 cents each, is a critical step toward cheap tags that use the electronic product code and broad adoption for consumer packaged goods.

Even so, the consumer goods industry is at the beginning of a long and complex adoption curve. The revolutionary nature of RFID is the very reason that adoption in consumer packaged goods will take place over a number of decades. To make the case for broader take-up, early adopters must publicly share returns, process implications and lessons learned--now.

Based on our comparison of RFID to bar-code adoption and our analysis of RFID accelerators, Forrester does not expect item-level tagging to occur regularly in consumer packaged goods until 2008 and beyond.

Forrester recently hosted a workshop to discuss how the radio frequency tags will affect business and IT operations in the near term. Attendees, including manufacturers of consumer packaged goods, business service providers and software vendors, were eager to move beyond the basics and discuss near-term applicability and return on investment, as well as the implications of RFID on diverse areas of the business such as supply chain visibility, labor relations and enterprise data warehousing.

During the workshop, we surfaced four key questions about radio frequency tagging that the Auto-ID Center and early adopters like Gillette, Procter & Gamble and CHEP must address the following:

• Where does RFID fit? Companies such as Marks & Spencer and Figleaves.com have shown that RFID use improves warehouse operations. Early adopters must now catalog the key supply chain activities where the technology offers the greatest return, as opposed to activities where existing bar-code systems cover most needs.

• What is the total cost? Manufacturers of consumer packaged goods that use the technology for cases and

		Related story Major retailers to test "smart shelves" Wal-Mart, Tesco and Gillette plan to take stock of new product-tagging technology.

• How are employees affected? As the West Coast ports debacle demonstrates, labor unions can throw a significant wrench into the adoption of new technologies. Retailers and manufacturers like Safeway and Kraft Foods with employees belonging to the Teamsters and United Food and Commercial Workers unions must factor unions' response to RFID into their cost/benefit analysis. And even more important, early adopters must codify the best practices for training employees how to use the radio frequency systems.

• How do enterprise data strategies change? RFID requires a new approach to product serialization, data security and exception management. Companies that are building out the software to support RFID data, such as Accenture and Savi Technology, should describe the evolution of enterprise data strategies in the form of public white papers, Web seminars and industry trade shows.

For RFID applications that use EPC, 2003 is the make-or-break year as companies such as Gillette, CHEP, Procter & Gamble, Wal-Mart and Allied Domecq draw conclusions from their pilots--and share those with the market. In the next six months, watch for research from Forrester that will flesh out the return on investment for the new technology and analyze it in action.

© 2003, Forrester Research, Inc. All rights reserved. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change.