Wal-Mart recently announced that it wants its top 100 suppliers, by 2005, to begin fitting their cases and pallets with radio-frequency-identification (RFID) tags—chips that can automatically transmit to a special scanner all of the information about a container’s contents or about individual products. A number of these suppliers are tempted to do more than just affix chips to the goods they ship to Wal-Mart; they are also looking to implement RFID technology more broadly in their organizations in hopes of cutting their own supply chain costs. Retailers and consumer products manufacturers, aware of Wal-Mart’s interest in RFID, have also begun eyeing it as the next supply chain technology to invest in.
Not so fast. At present, RFID can provide positive returns on investment in certain circumstances. However, our analysis of the current benefits (and costs) of the technology indicates that, for most companies, making substantial investments in it now would be premature.
Certainly, the size of RFID tags belies their potential. About as large as a pinhead, they consist of an antenna and a chip that contains an electronic product code (EPC).1 These tags can store more information about a product than bar codes can—not just what it...