Analysts at Allied Business Intelligence of Oyster Bay, N.Y., a well-known technology think tank, are predicting that the market for radio-frequency identification (RFID) devices will experience a sharp increase in sales over the next five years as companies look to deploy that technology in the supply chain.

RFID equipment includes transponders and related hardware and systems. Transponders, often simply called "tags," basically consist of an integrated circuit and an antenna. "Passive" tags rely on an outside power source to read the signal, while "active" tags have their own batteries. Because transponders transmit signals to a reader that notes their location, this technology is being adopted as a means of marking and tracking trailers and containers throughout the supply chain.

Because RFID holds such promise for supply chain applications, Allied Business analysts expect that supply chain and asset management applications together will account for two-thirds of all transponder shipments over the next five years. Nineteen percent of the transponders shipped this past year were bought for supply chain applications alone. Supply chain-related sales will account for 46 percent of the market in 2007, they predict.

According to the company's forecasts, transponder manufacturers will ship 323 million units in 2002, and that number will jump to 1.6 billion in 2007. Total sales of RFID equipment are forecast to double from about $500 million today to about $1.1 billion by 2007.

Edward Rerisi, author of a recent report on RFID applications for the think tank, says it's clear why RFID technology is so well suited to supply chain monitoring. "Supply chain applications can tap into the value proposition by providing status updates and real-time tracking—in other words, which trucks have left a distribution facility and come into another facility or retail center," he says.

Rerisi notes that today passive tags sell for about $1 but says that the cost of an individual tag should drop as the volume of production goes up. "The goal is a five-cent tag," he adds, "although that won't happen by 2007."

RFID's potential role in supply chain management is so promising that a group of consumer-goods manufacturers and technology companies has announced that it will establish an RFID Center of Excellence. The center will be a forum for developing applications for RFID technology in the consumer-goods supply chain.

Participants include Unilever, Georgia-Pacific and Kimberly-Clark, along with RFID technology providers Marconi InfoChain, RedPrairie (formerly McHugh Software) and Intermec. CHEP, a container and pallet pooling specialist, will also participate. Initial research on inventory visibility and tracking is being conducted at distribution centers that support Sam's Club and Wal-Mart stores in collaboration with the Massachusetts Institute of Technology's Auto-ID Center.

"We are looking at how RFID can streamline collaborative planning, forecasting and replenishment (CPFR)," explained Paul Witt, Marconi InfoChain's vice president of business development, in announcing the project. "The Center of Excellence will help drive this process to establish a benchmark in productivity."