And even though a variety of technical, economic and social issues (see "Retailers to Customers," this page, and "Customers to Retailers," Page 82) are currently inhibiting widespread RFID adoption, CIOs are keeping close tabs on its development. Whether they’re contemplating implementing RFID technology now, in 18 months or in three years, whether they’re thinking at the pallet, case or item level, they realize now’s the time to begin assessing the changes they will need to make to their IT infrastructures. They know that the future success of RFID will hinge upon how well they prepare the ground now.

"RFID has some prerequisites," says Bill Homa, CIO of Hannaford Bros., a New England grocery store chain. "People are getting the impression from reading the trade press that RFID solves all your supply chain problems. If you have a pretty good supply chain now, RFID will make it better. If you’re not able to accept advanced shipping notices electronically and match them with your purchase order, RFID isn’t going to help you."

So executives such as Homa, Morrow, Kathleen Starkoff of Limited Brands, and Saks’s Bill Franks are positioning their companies, through pilots and feasibility studies, to take advantage of the technology, and they’re trying to do so without breaking the bank and without having to overhaul their infrastructures.

RFID Today

The buzz about RFID may make it sound like the new, new thing, but the technology dates back to World War II. According to Bill Allen, marketing manager for Texas Instruments RFid Systems, the technology first was used in the 1940s to identify ships and airplanes as friend or foe. What’s new about it is that it’s becoming cheap enough to put on pallets and cases of merchandise, says John Parkinson, chief technologist for Cap Gemini Ernst & Young. Today, tags cost between 25 and 30 cents, down from 40 cents last year. And as the price falls, more applications are developed.

Even if it’s just applied to pallets, cases and cartons of merchandise, RFID will cut warehouse and distribution costs?some 3 percent to 5 percent of retailers’ revenue?according to management consulting firm Kurt Salmon Associates. Readers placed throughout warehouses will pick up signals from tags without the need for a human to point a scanner at the tag, which is the way it’s currently done with bar codes. This will enable retailers to reduce warehouse and distribution center staff.

RFID’s fans also claim that it will help solve some of the most complex and costly problems in retailing, including loss and theft of merchandise (which Parkinson says cost the industry an estimated $30 billion a year) and out-of-stocks, which cost grocery stores as much as 4 percent of their revenue. Armed with more accurate information about what’s on their shelves, in their stock rooms and on its way from factories or distribution centers, retailers will be able to make out-of-stocks the exception rather than the rule, and that in turn will enable them to sell more, satisfy demand, improve service and increase inventory turns.