RFID potential being hidden by the hype

Potential adopters of radio frequency identification (RFID) spend too much time speculating about the arrival of cheaper tags when they should be evaluating the business benefits of the technology, Gartner has warned.

"RFID technology holds exciting opportunities for almost every business," said Stephen Smith, research vice president for the analyst firm.

"But rather than ask at what price does RFID become effective, retailers should identify if a specific business case exists for the technology in their business based on today's price."

The use of RFID to improve efficiency of data flow across global supply chains could be one of the most significant developments in business strategy since companies first recognised the importance of information flow, added Smith.

"This means we can expect tremendous change ahead for product-centric organisations," he said.

Companies will go through a two-phase adoption of RFID, predicts Gartner. The first - the creation of RFID-enabled business processes, using RFID within the context of existing business processes - is expected to achieve only "marginal benefits".

However, the second phase, when companies adopt RFID-centric business processes, involving a radical re-engineering of business processes, has the potential to deliver substantial enhancements, according to the analyst.

"RFID technology and the business benefits it promises will not arrive with a big bang," said 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."

According to Gartner, there are conflicting problems with assembling low-cost tags. Vendors are currently unable to resolve the paradox that they must work to reduce the size of the chip to reduce costs, when this process itself actually increases production expenses.

Passive tags today cost from 40 cents to $10. Active tags usually start at $4 to $5, increasing to hundreds of dollars. By 2009 the most competitive RFID tags will cost 20 cents, predicts Gartner.