Radio frequency identification (RFID) has become one of the most discussed retail technologies, spurred by industry speculation that a $0.5 tag will be available in the near future, says Gartner.
"RFID technology holds exciting opportunities for almost every business," says Stephen Smith, a research VP at international research firm Gartner. "But rather than ask at what price RFID becomes effective, retailers should identify if a specific business case exists for the technology in their business, based on today`s price."
Retailers around the world are evaluating RFID technology applications. Last year US retail giant Walmart issued a request for $0.5 tags in order to make the adoption of the technology cost-effective.
South African retail group Woolworths is keeping a close eye on RFID technology, but says the key issue is not the price but identifying the benefits of the technology.
"Woolworths believes there are applications within the retail environment that are ideally suited to the use of RFID and is evaluating these opportunities," says Richard Inskip, Woolworths director of operations.
"The potential applications include product tagging that delivers more accurate inventory information and thus more efficient replenishment. Further, the movement of product through the physical supply chain can be tracked and managed."
Gartner`s Smith says the use of RFID to capitalise on data flow in global supply chains could be one of the most significant developments in business strategy since companies first recognised the importance of information flow.
"This means we can expect tremendous change ahead for product-centric organisations," he says.
According to Gartner, companies will go through a two-phase adoption of RFID. First will be the creation of RFID-enabled business processes, using RFID within the context of existing business processes and thereby achieving marginal benefits from it. The second phase will be when companies adopt "RFID-centric" business processes, involving a radical re-engineering of business processes.
"RFID technology and the business benefits it promises will not arrive with a big bang," says Smith.
"High capital costs, imperfect read-rates, unproven systems and uncertainty around standards will all need to be addressed before retailers can adopt and benefit from the technology. This means that over the next 10 years, retailers will continue to use barcodes and gradually introduce RFID tagging, creating an environment of co-existence."
As for the $0.5 RFID tag myth, Smith says: "There are conflicting problems with assembling low-cost tags. One of the primary things vendors must do to reduce tag cost is reduce the size of the chip. However, reductions in the size of the chip make assembly more expensive. No vendor has been able to get out of this paradox."
Passive tags today cost from $0.40 to $10 (R2.40 to R60). Active tags usually start at $4 to $5 (R24 to R30), increasing to hundreds of dollars. By 2009, the most competitive RFID tags will cost $0.20 (R1.20).
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