RFID spending set to soar

Wireless identification tag technology is tipped to lurch towards the mainstream this year, with spending in 2008 expected to surpass $1bn

Radiofrequency identification (RFID) may have its controversial aspects, but the technology is on a steady path towards the mainstream of supply-chain technology, research firm IDC said on Wednesday.

Wireless identification chips are seen by many as the key to a far more efficient supply chain than is achievable today, although some say RFID is still too expensive and unproven. However, Wal-Mart and the US Department of Defense have mandated that their suppliers must start to incorporate RFID, with these two huge organisations set to have a significant impact on spurring RFID spending, IDC said.

"With manufacturers and distributors scrambling to meet the requirements of these mandates, IDC expects RFID spending for the US retail supply chain to grow from $91.5m (£50m) in 2003 to nearly $1.3bn in 2008," the company said in a statement.

The majority of spending will come from the hardware side, which covers RFID tags, infrastructure and systems integration. This will reach $875m in 2007, mostly coming out of the pockets of manufacturers and distributors. RFID-related services will grow to about $270m in 2007 before levelling off, IDC projected, while software spending will not begin to grow until about 2006, when more companies will start to need RFID middleware.

RFID tagging is currently aimed at cases and pallets, rather than individual items, although IDC predicts this will happen later. Wal-Mart and other companies have roused the ire of consumers with RFID trials in which individual items were tagged, creating potential privacy concerns.

IDC cautioned that some companies are currently being pushed into the RFID world without a clear business case. "Changes to business processes to take advantage of data from RFID tags should determine which enterprise applications will need to be modified, and ultimately how the RFID layer should be designed and deployed," said Christopher Boone, an IDC vertical industry research analyst, in a statement. "Today, the RFID layer is driving the business decisions, and this is backwards."

And while in the short term many suppliers will be adopting RFID, this will fall short of an industry-wide shift, IDC said in a report last month. "By year-end, it will be obvious that it will take more than mandates from Wal-Mart or the Department of Defense to drive the kind of money and time investment necessary to deploy the tagging infrastructure, the sensor technology, the operating procedures to use the sensor, and the applications to make sense of the data," the company said.

Other companies to have thrown their weight behind RFID recently include Indian services giant Infosys and Sun Microsystems, which announced last month that it would open an RFID test centre in Scotland.