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Pentagon: Rough RFID Ride
Ahead?
Andrew T. Gillies, 07.07.04, 6:00 AM ET

WASHINGTON, D.C. - It's always a little nerve-wracking when big
businesses or government bureaucracies wager on a new technology,
especially when the technology in question involves the fate of thousands
of suppliers and billions in inventory. So Wal-Mart Stores and the U.S.
Department of Defense have no doubt rattled some with their embrace of
radio frequency identification, or RFID, as the next big thing for managing
their supply chains. Both outfits have deadlines this coming January for
significant RFID rollouts.

But between the two RFID efforts, which will likely prove more challenging for the
organization and its suppliers? That's an easy one: the Pentagon's. "Their needs
are probably the most robust and exhaustive of anyone, way more than
whatever Wal-Mart is thinking," says Ann Grackin, chief executive at ChainLink
Research, a Cambridge, Mass.-based logistics consultant that advises both the
U.S. military and its contractors.

Some background on RFID: The technology, around since the 1940s, is the
same used for automated highway toll collection and key chain devices to open
car doors. For years, RFID has been touted as the successor to bar codes as the best
way to keep track of merchandise. Tagged with RFID chips, boxes and cases of
merchandise will automatically transmit information from embedded RFID chips to
"readers" throughout the distribution process. The promise: less work and
better-stocked shelves--or better-equipped soldiers.

In mid-2003, Wal-Mart (nyse: WMT - news - people ) upped the RFID ante by asking
its top 100 suppliers to put tags on cases destined for Wal-Mart and Sam's Club
stores in the Dallas/Fort Worth area by January 2005. By 2006, Wal-Mart expects
all its suppliers to be on board with RFID.

The Pentagon, which had already had success with RFID in certain war
zones, announced in October 2003 that its suppliers, save those in "bulk
commodities," would have to have RFID tags on cases by January 2005.
About 40,000 vendors do regular business with the military.

So what makes the Defense Department's RFID initiative tougher? Beyond
the security difficulties inherent in dealing with combat operations, Grackin
points out some unevenness in the military's facilities; it has some of the
best warehouses and depots in the world but also some of the worst.
That's not the case with Wal-Mart.

Further, Wal-Mart's suppliers, particularly in these early phases, are large,
sophisticated manufacturers like Gillette (nyse: G - news - people ),
Hewlett-Packard (nyse: HPQ - news - people ), Kraft Foods (nyse:
KFT - news - people ) and Procter & Gamble (nyse: PG - news -
people ). All have long histories of staying at the forefront of technology to
manage inventories. Defense Department suppliers are a different and
diverse crowd. "You've got a lot of little guys who are really freaked out
about this," says Grackin.

One thing freaking out the little guys, as detailed here last week (see:
"Shopping For An RFID Play"), is RFID's cost. There are also concerns that
the Pentagon's traditional modus operandi might not lend itself well to a
department-wide rollout of this sort. Unlike Wal-Mart, the military has
several big branches within it, each used to operating relatively
autonomously when it comes to equipment and personnel.

And within those branches, there are weapons programs that have tended
to layer on their own requirements, especially regarding technology. "The
compliance piece of the relationship is really big," explains Grackin. "[The
suppliers] are worried it's going to happen again with RFID."

Granted, getting RFID up and running will take years, and it's not as if
problems with RFID tags in the short term will prevent the troops from
getting equipment. But the Defense Department's ambitious launch
suggests there may be a few stumbles out of the gate.

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