FID is one of many technologies that will extend the Internet to the physical world. Unfortunately, the focus on the electronic product code (EPC) overshadows the broader context-and power-of RFID. Smart companies will test EPC now and link pilots to process change and other extended Internet technologies.

There's been a lot of talk about radio frequency identification (RFID). Case in point: A recent Google search on the term RFID returns 620,000 documents-75 percent of which have been published in the past 12 months. But what exactly is RFID (see Figure 1)?

RFID is a data collection technology that uses electronic tags to store identification data and a wireless transmitter or reader to capture it.

In 2004, many companies will need to adopt RFID

Retailers like Wal-Mart and Tesco and organizations like the Department of Defense (DOD) and the Food and Drug Administration (FDA) are asking companies to use RFID to track assets, products, and materials. Some high-profile mandates and initiatives originate from firms and organizations like:

• Wal-Mart. The retailer has mandated that its top 100 suppliers tag pallets and cases with electronic product code (EPC) tags by 2005. It requires the use of a UHF tag that holds a 96-bit EPC tag containing a Global Trade Identification Number. As soon as the specification is solidified, Wal-Mart will require suppliers to move to Class 1 version 2 of the EPC, a tag that will carry a 96-bit serial number and be field programmable. Additionally, Wal-Mart has asked pharmaceutical manufacturers to tag bulk containers of class 2 drugs like OxyContin by March 2004.

• Department of Defense. The DOD has required its suppliers to put RFID tags on freight containers, pallets, cases, and big-ticket items by 2005. Using active and passive tags, it plans to leverage the EPC but will also comply with ISO standards.

• Tesco. Beginning in April 2004, the UK retail giant will put RFID tags on cases of nonfood items at its distribution centers and track them through to stores. Some of its suppliers will begin putting tags on cases of products delivered to Tesco distribution centers in September 2004.

• Healthcare Distribution Management Association (HDMA). The nonprofit organization for healthcare distributors recommended that manufacturers and wholesalers of pharmaceutical drugs and other healthcare products begin putting RFID tags carrying EPCs on cases beginning in 2005. It also expects the adoption of EPC tags at the selling-unit level by 2007.

Is RFID ready for adoption?

Since these requests are new, companies fear that they must adopt an immature technology. But RFID is mature: The U.S. military and companies like Scottish & Newcastle have used radio frequency technology for years (see Figure 2). What's new are widely adopted data standards like the electronic product code (EPC). EPC will track and trace products as they pass between partners in a supply chain and across borders. To work, EPC requires:

• Agreement on what is stored on the tag. EPCglobal-a subsidiary of the Uniform Code Council and EAN International-is locking down a specification for the size and content of EPC tags, which typically use a 96-bit numbering scheme to identify individual objects throughout all parts of the supply chain (see Figure 3). This specification is getting broad support-the DOD is poised to extend the EPC tag, not compete with it. This alignment should make companies like Pfizer and Johnson & Johnson, which sell to Wal-Mart and the government, less anxious. Flexible readers are already being designed to handle EPC tags as well as longer DOD tags that include its unique code.

• New RFID hardware and software. Country-specific frequency and power regulations prevent a global tag standard that would provide instant economies of scale for production. Manufacturers like Alien Technologies are using low-cost methods that they hope will position them to fill massive orders. Hardware manufacturers like Thing Magic and Symbol are racing to introduce readers that support multiple protocols and frequencies, read both bar codes and RFID tags, and provide accurate readings in various physical environments. Also, software vendors like SAP and RedPrairie are turning their applications, building middleware, and aligning with service partners like IBM Global Services to do implementations.

So what should you do about RFID in 2004?

With high profile EPC mandates, most companies need to pay attention to RFID in 2004. Here are some must-dos for the year ahead:

• Pilot EPC now. Companies that will be affected by these mandates need to test the technology immediately. Why? The competition is taking these mandates seriously. For example: Companies like Intel and Procter & Gamble now have VPs of RFID research and development. IT decision-makers at firms that have run pilots say they've already determined ways to improve their operations. Even those companies not directly affected by these mandates should begin pilots to gain advantage over their competitors. For example, Michelin was one of the first firms to develop RFID-tagged tires. Its pilot gave it insight into how radio waves travel through rubber. This knowledge will allow it to be one of the first companies to offer innovative services like roadside assistance for flat tires.

• Explore other uses of RFID and X-Internet technologies. Companies need innovation centers to evaluate RFID within the context of a larger trend: The extended Internet, a set of technologies that connect firms' information systems to physical assets, products, and devices (see the May 2001 Forrester Report "The X Internet"). The reason: Many benefits-such as supply chain visibility-can happen only when RFID works with complementary technologies like Bluetooth and GPS. Case in point: Third-party logistics provider DHL used both RFID tags and existing satellite tracking systems to monitor the movement of Nokia phones throughout the distribution chain.

• Use pilots to model implementation costs based on process change. Studies have measured the costs of RFID deployments based on requirements like billions of tags, new network equipment, readers, printers, and storage hardware-and with some suppliers still quoting more than $1,000 per reader, technology costs add up quickly (see the August 2002 Forrester Report "RFID: The Smart Product Revolution"). But Forrester believes that companies will spend much more on training, analyzing data, and optimizing processes than they will on technology. Companies should use pilots to plot where processes will change. In the end, this technology is a bigger boom for re-engineering consultants like Accenture and IBM Global Services than for tag manufacturers like Philips Semiconductor and Texas Instruments.