When Wal-Mart talks, suppliers listen. So the retail industry was all ears when the giant retailer announced that it was ordering its top 100 suppliers to place radio frequency (RF) tags, or transponders, on shipping cartons and pallets by January 2005. RF tags emit a radio signal that transmits data to sensors, which then feed the information into computers in order to track a shipment's whereabouts. The RF tags Wal-Mart has in mind would be embedded with Electronic Product Codes (EPC) carrying detailed information about its shipments.

Many think Wal-Mart's decision to support EPC could prove to be a turning point in the application of radio frequency technology in logistics. After all, that company played a decisive role in driving the adoption of bar codes when it issued a similar edict a decade ago. If history repeats itself, then Wal-Mart could do the same for RF tags. RF technology certainly could use a helping hand: Although industry pundits have been predicting success for years, RF has yet to gain real traction in supply chain applications.

From the beginning, radio frequency tags have faced two roadblocks to their widespread adoption. The first was the absence of standards. The Auto-ID Center at the Massachusetts Institute of Technology (MIT), however, has taken on that challenge and now is working with The Uniform Code Council Inc. and EAN International on international norms.

RF tags face another formidable obstacle—cost. Many experts believe the price of transponders would have to fall below a nickel to warrant widespread use in supply chains. Prices may have to fall even farther to justify tagging individual items. Still, many believe that item-level EPC marking—replacing bar codes with more detailed information, in other words—will come soon after tags have successfully been applied to cartons and pallets.

For now, though, tag costs remain high. The market research firm VDC says that passive tags, which activate only in the presence of a reader, are averaging about 50 cents a unit. Prices for "active" tags, which give off continuous signals, run between $5 and $6.

Some industry gurus think those prices will fall as mass production develops. If Wal-Mart's edict forces suppliers to buy tags, that might spur enough production to drop prices.

Wal-Mart apparently believes that EPC tags will provide enough benefits to justify its demands on suppliers. Not only do RF tags promise better inventory turns and real-time visibility of shipments, but that visibility could also lead to smarter product flows throughout Wal-Mart's distribution channel.

It's clearly in Wal-Mart's interest to require suppliers to use RF tags. But it may not be in the suppliers' interest. And there's the rub: The cost of the tags could exceed the benefits suppliers will receive. Unless Wal-Mart compensates them in some fashion, suppliers may balk at paying for a new technology with questionable benefits. They'll need to see that RF tags and Electronic Product Codes will bring as much value to their operations as it will to Wal-Mart's.

That raises a question: Has the retail giant gone too far this time in enforcing its will—and its associated costs—on its partners?