The buzz surrounding radio frequency identification (RFID) died down somewhat when the consulting firm A.T. Kearney released a study that for the first time quantified the full cost of implementing that technology. The consulting firm estimated compliance costs for individual companies will exceed half a million dollars. Even so, companies under pressure to implement RFID aren't likely to drop their plans to incorporate it into their operations.

The Kearney study based its predictions on Wal-Mart's dictum that its top 100 suppliers be RFID-ready by the end of 2004, with the lion's share of suppliers in line by 2005. The consultants estimated that the cost for those suppliers to acquire and implement electronic product code (EPC) and RFID capabilities that meet the retail giant's expectations will reach $400,000 per distribution center and an additional $100,000 per store. Additional costs for integrating the systems could range from $35 million to $40 million dollars. On the upside, the study notes, much of those expenditures will be fixed costs.

Larger companies might not flinch at dropping that much money to comply with the demands of a single—albeit huge—retail customer, but a small company might balk at such an outlay. At some point, small businesses will have to ask: Is it worth it?

The answer, it seems, is yes—and not just for those laboring in the shadow of Wal-Mart, but also for the industry in general. With RFID widely accepted as a coming necessity, the cost will be largely unavoidable. But the impact can be lessened, says Harry Forbes, senior analyst with Automation Research Corp. (ARC) in Dedham, Mass. "We're telling people not to budget for deployment, but to budget for a pilot program," he says. "We see 2004 as a time of rapid learning for this because it's the manufacturers that have most of the learning to do. What they need to know is what their cost is to implement the Wal-Mart compliance."

Forbes says that ARC will soon be coming out with its own figures on the cost of RFID—figures that are higher than those in the Kearney report. Even so, he says, adoption of the technology will continue, but cautiously. "I think you'll [initially] see a wholesale rollout of pilot projects, not a rollout of deployment projects," he says.

The Kearney report suggests several ways suppliers could lessen the financial blow when it comes to outlays for RFID. For example, RFID-tagging pallets but using EPC barcodes on individual cases could reduce the number of tags 60-fold compared to putting RFID tags on every case. Delaying implementation could also save companies money as the price of tags is expected to drop as the technology becomes more prevalent. Although these and other recommendations in the report may not fully apply to companies that must follow Wal-Mart's guidelines, they may be effective for others should the technology become more widely implemented.