Some call them bar codes on steroids. For others, it’s a technology that will revolutionize the retail business. Either way, Radio Frequency Id (RFID) technology is now, all of a sudden, the focus of attention of the global IT industry–second only to Wi-Fi in the hype generated.

All this hype is not without reason. The technology has witnessed large-scale testing and adoption by some of the largest enterprises including the world’s largest retail chain, defense establishment and razor manufacturer.

Gillette has ordered 500 million radio-frequency identification tags from Alien Technology Corp. to use in trial programs, including one with retailer Wal-Mart. Last October the United States Department of Defense (DoD) made it mandatory that its suppliers attach RFID tags to the lowest-possible level of products by January 2005. Wal Mart has directed its top 100 retailers to have all their cases and pallets to be RFID "chipped" by January 1, 2005. That would mean up to 8 billion tags used every year by the Wal-Mart top 100 retailers.

Beating Bar Codes
"RFID technology is not rocket science. It’s a very simple technology that has been around for over three decades," says Sanjay Sarma, a professor of Mechanical Engineering at Massachusetts Institute of Technology and former chairman of research and co-founder of the Auto-ID Center at MIT.

RFID is a technology that involves tags that emit radio signals and devices called readers that pick up the signal. (see box– How RFIDs work?) To put it simply, RFID tags consist of silicon chips and an antenna that can transmit data to a wireless receiver.

The question is–if they are so simple, then how are they any different or better than bar codes? And will they replace bar codes?

"Unlike bar codes, which need to be scanned manually and read piece by piece, RFID tags do not require line-of-sight for reading. Within the field of a reading device, it is possible to automatically read literally hundreds of ID tags," says Sarma. In other words, bar codes need to be physically placed in front of a scanning device.

Since RFID tags use radio waves and are not optical devices and can be placed inside boxes or pallets, it is not only easier to take stock of inventory in a retail outlet but also the store is automatically alerted when products are in short supply on the shop floor.

"The idea that one can track much more precisely the movement of goods in the supply chain and that you can automatically read what is coming from the supplier to the customer is something very exciting. The key here is automation instead of a lot of manual scanning in the case of bar codes," says Peter Zencke, executive board member of SAP.

The German Giant plans to release, sometime this year, a technology that enables users to expose RFID-associated data to the Internet as a Web service.

So, if the technology is so exciting, what is stopping retail outlets across the world to rush in and adopt the technology?

The Hitch
The answer is straightforward – cost. Today, an RFID chip costs 15 cents and upwards. And experts reckon that till that touches the 5-cent mark, large-scale adoption of the technology will continue to be a mirage.

But this does not dissuade die-hard proponents of the technology like Sanjay Sarma. "A couple of years ago when chips used to cost more than a dollar, people thought that we were crazy when we told people them that RFID tags would cost just about few cents in the years to come. But they are not laughing anymore," he says. Sarma believes that the 5-cent dream is not far away especially considering the fact that the technology’s adoption was growing in leaps and bounds.

SAP’s Zencke agrees that the prices are likely to come down even more. " When we started working on the technology in our Japan labs about six years ago, they used to cost above two dollars. Today, we have vendors saying that the price is going down to 10 cents someday in the near future. Right now, the technology is ready for a high-value product," says Zencke.

"Perhaps, where you could start today is with marking pallets. If you go down to the cases, and then to individual products, it is not cost beneficial today. A nice way to start now would be to begin with the most obvious thing and try to get returns on the very high level- say the pallets, and then go on to the next level (individual units) as the prices go down," adds Zencke.

Another major concern with the technology is the privacy issues raised by consumer protection groups in the US who fear a "Minority Report kind of world" where a tagged article can still be monitored once the consumer leaves the store.

Experts like Sarma believe that most of these fears are fanned by lack of awareness about the technology. Others like Zencke believe that the issue needs to be handled with care. "We must use RFID to enable a more effective and efficient supply chain but avoid using it as something that interacts with the consumers because that will raise privacy issues," says Zencke.

The Opportunity
For Indian companies, the opportunity is immense. And industry leaders like Wipro and Infosys have already ventured into this space. Infosys began looking at moving into this domain in March 2003 and has developed a framework to help its clients quickly examine the potential impact and business value of RIFD investments. The big opportunity however, lies in the amount of software development required to link RFID networks to enterprise systems.

Developing that software offshore can dramatically cut costs and such savings will provide customers with a lower TCO for RFID network deployments, says Pravin Rao, senior vice president, Head Retail Integrated Business Units IBU at Infosys. Infosys has also has become a member of the Electronic Product Code (EPC) global Network, a joint venture between EAN International and the Uniform Code Council (UCC). EPC global is spearheading the development of industry-driven standards for the EPC network to support the use of RFID. Wipro too has joined up the EPC global network.

Despite the spurt of enthusiasm, some industry watchers advise caution. Says Zencke, "Today, RFID is a hot topic and we need to be a little careful about it. Two to three years ago, people said that the Internet is everything and if you were not on the Internet you were dead. Then it was mobility and now it is RFID. Even though in principle it’s a great idea, I would advise caution."

Mahalingam TV in Bangalore