Thanks to an increasingly popular technology known as RFID tags, it’s becoming a whole lot easier to find wandering cows, errant toothpaste shipments, missing beer barrels, or even misplaced books on library shelves.

Similar to the little metal wafer that James Bond tucked into the heel of his shoe in the movie Goldfinger, today’s RFID (for radio frequency identification) tags are making it relatively easy to track anything, anytime, anywhere.

The tags are conceptually like bar codes but can store far more information—when and where a product was manufactured, where it is being shipped, precisely what a package contains. In additon, tags aren’t there just to be read, like bar codes. Microprocessors in the tags can sense and store information—someone shipping milk could, for instance, have the tags report on the milk’s temperature en route. The tags, which range in size from a baby’s fingernail to a pack of cigarettes, can also be read from a distance, even if something is in the way, because they use low-power radios to transmit their information.

With the price of tags having fallen to as little as less than $1 apiece and with companies focusing hard on cutting costs in their supply chains, many businesses are turning to RFID to be more flexible about moving and storing goods. They are finding that they can cut inventories, reduce theft, and generally be more agile about addressing the problems that inevitably arise as loads of parts and products are moved around the world.

So many businesses are starting to experiment with the RFID technology that Venture Development Corp., a technology market research and strategy firm (www.vdc-corp.com), estimates that global shipments of RFID systems will almost triple from 2000 to 2005, at which point they will total $2.65 billion.

The military blazed the trail on RFID, after finding that the mobility required for Operation Desert Storm in the Persian Gulf War created logistical nightmares. A report estimated that the operation could have saved $2 billion if it had just been better about knowing where all its equipment and spare parts were. Among other wasted efforts, soldiers had to open 25,000 huge containers just to figure out what was in them.

Following the military’s lead, Procter & Gamble Co. (www.pg.com) is testing tagging as a better way to move the $3 billion of products it has warehoused at any one time. The goal is to save $1.6 billion a year in supply-chain costs. Partly because of RFID tags, P&G hopes to “take out 50% of our inventory, 50% of the time we invest in supply management, and 10% of the overall cost,” according to Larry Kellam, P&G’s director of business-to-business supply-chain innovation.

U.K.-based brewer Scottish Courage Ltd. (www.scottish-newcastle.com) has begun using RFID tags to track the two million kegs it ships annually. The tracking reduces theft, which, according to British beer industry statistics, costs brewers more than $25 million a year. Thieves steal 300,000 kegs a year industrywide, equivalent to 1,000 truckloads, then melt the aluminum and sell it as scrap. In addition, the tags can record (and transmit) such valuable data as a keg’s weight when empty, which helps prevent over- or underfilling. Stationary readers installed on conveyor belts at Scottish Courage’s brewery in Edinburgh, Scotland, can read the tags from 250 feet as they speed by. Beer distributors use hand-held readers to track information such as when beer was brewed, which tells them how long they have before a keg goes stale.

Footstar (www.footstar.com) is putting tags in its shoes during manufacturing. It estimates that the tags have reduced theft by $1.2 million during their first five months of use. It also reports that more department stores are interested in carrying its shoes because the inventory is now easier to manage and the threat of theft has diminished.

Binghamton Giant Markets Inc. (www.giantmarkets.com) is installing RFID tags throughout its supermarkets—even though it isn’t trying to track anything. It is installing tags with little screens to replace the paper price tags on the front of shelves. When a price changes, it can be updated via radio signal from a computer, saving about 20 hours a week of labor in each store. Installing all the tags costs about $100,000 per store, but Jim Whittaker, Giant’s director of management-support service, says the system will pay for itself in two years.

While companies initially have focused mostly on using RFID to save costs, some are planning to use the tags to make life easier for customers.

In the Midwest and Southern California, McDonald’s Corp. (www.mcdonalds.com) is experimenting with tags so its customers can pay for its fast food even faster. The company gives customers tags, which they activate by waving them in front of a Speedpass display. The whole process happens faster than you can say “supersize it.” McDonald’s seeks to shorten lines inside its restaurants and reduce drive-through congestion, executives say.

Mobil Oil (www.mobil.com) also uses Speedpass, meaning some six million customers pay for gasoline merely by waving inch-long devices at pumps.

Precision Dynamics Corp. (www.pdcorp.com) has developed a wearable “Smart Band” that can confirm an Alzheimer patient’s identity, as well as control his access to certain parts of hospitals and retirement homes. The bracelets also can carry vital information about a patient’s condition and medication.

The RFID technology still must get cheaper if it is to continue spreading. While some readers run as little as $1,000, others range from $5,400 to $20,000. Certain types of tags can cost $20 each. It’s not uncommon for a company to spend $200,000 on an RFID system for a warehouse, according to Frost & Sullivan, a research firm (www.frost.com).

The technology must also address the fact that, as with cellphones, there are different standards in the U.S. and Europe, preventing one region’s systems from working with the other’s. In addition, there are security issues, given that radio transmissions are easy to intercept.

Still, the tags seem so likely to become ubiquitous that some researchers are putting wafer-thin versions on honeybees, to document their travels. Some ranchers are injecting RFID tags into cattle, to keep better track of them. And the Singapore library system is using tags so it knows where each and every one of its books is.

David Whitehorn-Umphres, a principal with DiamondCluster International Inc., the consulting firm that publishes this magazine (www.diamondcluster.com), says RFID tags may eventually even end a classic type of argument about teenagers’ messiness. When Dad bellows that his son can’t possibly find anything in his wreck of a bedroom, Junior will pull out his personal digital assistant, type in “football cleats,” and wait to hear a ping from under some heap of clothes. That ping will be the cleats’ RFID tag cheerily announcing, in effect, “Here I am.”

WHERE TO BEGIN

Although RFID tags already provide clear benefits when used to track such big-ticket items as rail cars, prices will need to fall by at least a factor of 10 before it becomes practical to put them on inexpensive consumer items such as cereal boxes. That may take five years.

Still, companies should be investigating the technology even now. The tags may provide efficiencies by helping track big shipments of, say, cereal, even if it isn’t yet practical to put the tags on individual boxes.

In addition, companies don’t need to wait until the technology is widespread to start figuring out how they will use all the data they can collect from the tags. One study says that, if you put RFID tags on all the grocery products in stores today, you’d generate more information than exists on the World Wide Web. Figuring out how to turn those data into useful information will be an iterative process.

Starting now will also let companies work with their partners to set standards for the data generated by the RFID tags. It’s one thing to be able to track everything within a company. But to get the full bang for the buck—or, more appropriately, the pennies—the tags need to be usable at every step as they move from the supplier of raw materials to the factory and on to the consumer. There is no need to wait until the technology is in wide use to start negotiating those standards.

—by Thomas Lebamoff and Ingmar Leliveld

Diddlebock, a Denver-based journalist, may soon begin to use RFID tagging to keep track of his two wandering daughters, as well as his straying border collie. He can be reached at diddlebock@pcisys.net. Lebamoff, a partner with DiamondCluster International Inc., can be reached at thomas.lebamoff@diamondcluster.com. Leliveld, a principal with DiamondCluster, can be reached at ingmar.leliveld@diamondcluster.com.