In the 1990s, RFID burst on the scene and was hailed as a new technology that would help reshape the global supply chain. It promised tighter inventory controls, shorter time to market for products, and cost savings for retailers. When Wal-Mart and the U.S. Department of Defense mandated that suppliers use RFID technology, rapid adoption seemed assured. Yet, adoption has not been rapid, and the buzz about RFID has quieted. Has the early fervor for RFID cooled, or has more been going on behind the scenes? Enterpriseleadership.org recently spoke with Reik Read, of Robert W. Baird & Company, about the state of RFID: What's going on now, and what's to come. Here's what he had to say ...

EL: Can you tell us about yourself and about R. W. Baird &  Co.?

RR: Robert W. Baird & Co. is an international financial services firm. We were founded in 1919, and for many years were owned by Northwestern Mutual, a large life insurer also located in Milwaukee. In 2004, Baird actually bought itself out. We're now fully employee-owned, and we've got a nice track record in a number of areas. FORTUNE, for the last four years, has ranked Baird as one of the "100 Best Companies to Work For." The quality of our research also consistently earns Baird top rankings in a number of prestigious surveys including The Wall Street Journal and Forbes. So, we're small, but we've got lots to be proud of. I've been covering the auto-ID space for Baird for about ten years. That includes companies -- historically, Zebra, Intermec, Symbol, when they were public. We've also spent a lot of time studying the RFID space.

EL: Enterpriseleadership.org interviewed some early proponents of RFID who were very enthusiastic about that technology. But it seems that adoption of RFID has not been as fast as was predicted. Why is that?

RR: When you're referring to the Wal-Mart mandates and the associated UHF technology, I think what's happened is that standards needed to be developed. And beyond the standards, equipment needs to be developed, and people need to write software solutions. End users need to learn about the technology, and they need to share implementation plans. Certainly, you need to develop a business case so you can justify the investment in that technology, and along with that, the pricing needs to drop. All of those things together have probably created more of a headwind than people had expected with RFID. There was a belief out there, if you go back to 2003, when Wal-Mart mandated use of the technology, that if Wal-Mart was mandating it, RFID adoption would happen fast.

I  also think that Wal-Mart itself has recognized that they've not been able to put in the infrastructure as rapidly as they had hoped and probably not in quite as many stores as they had hoped. All of those things have accumulated to slow down adoption versus what we were thinking four or five years ago.

EL: Another big entity that was trying to spur adoption of RFID was the Department of Defense. How is the rate of RFID adoption in the government sector?

RR: The DOD has had to deal with many of the same issues I cited about Wal-Mart. But, a lot of those issues, by the way, are being resolved. We've had the Generation 2 standard out there since late 2004, equipment since early 2006. Equipment has been developed for the last couple of years, so now we are really on second or third iterations of Generation 2 equipment. That equipment is starting to work fairly well; the issue's no longer with tags and readers being able to communicate with each other because they communicate with each other effectively. Now, it's a matter of writing the software for certain sets of applications, the ability to tag more and more SKUs, the ability to perform all of the necessary tasks, to understand and generate a better ROI. As a result of all of those factors, I think the DOD has come to believe that RFID will provide some very good things, but, it's very hard for them right now because budget dollars are scarce. We're at war, and those dollars are being diverted elsewhere.

At some point in the future, we will scale back operations in Iraq and in Afghanistan, and at that point, there probably will be better opportunities for RFID deployment within the DOD.

EL: You mentioned that one of the big sticking points for adoption has been a lack of compatible standards for RFID. There are a number of software companies offering competing RFID solutions, but are some standards emerging, and do you see more cooperation developing on standards?

RR: Yes, absolutely. Historically, prior to Wal-Mart's and the DOD's mandates, there really wasn't much in the way of standards development. ISO had a few loose standards with respect to some of the various RFID technologies, but there wasn't a real concerted effort to create them, and the only industry body was the Auto-ID Center at MIT, an academic institution that isn't in a position to really move standards. So, when Wal-Mart and the DOD mandated use of RFID, this, in effect, created enough impetus within the industry to form a body that was specifically designed to create and develop standards: EPCglobal. EPCglobal has done a very good job of getting people within the industry together to foster the standards development process. So, when I talk about the Generation 2 standard at UHF that was developed by EPCglobal, that's now been ISO approved. And they're now trying to create an HF standard with the same protocol as the UHF Gen-2 version so that regardless of what frequency that's used, the protocol will be very similar. By the same token, EPCglobal has done a lot in the way of standardization of how readers work with a network, or different types of software standards. The RFID industry, in general, recognizes that the only way to encourage mass adoption is to have a very clear set of standards that are well developed.

EL: Do you see adoption happening more quickly in Europe or Asia than  in the States?

RR: I do think it matters a little bit by geography, because adoption's being driven by some different things. For example, in Europe, you now have Metro, a large German retailer, which has done a very good job of testing and understanding this technology, and understanding the benefits that it brings to them. They feel comfortable enough now, not only mandating it as Wal-Mart did, but also, their mandate has teeth in it. As of October 1st of this year, when you're a supplier shipping to one of Metro's 229 Cash and Carry or Real stores in Germany, if you fail to put an RFID tag on your pallet, you'll be basically charged by Metro. That's going to induce a lot of suppliers to ensure that they comply with that mandate. There's been some change in some European regulations that have helped also. The other area that's progressing well with RFID adoption outside the States is South Korea. They've embraced RFID technology.

EL: The Europeans seem to be more sensitive to privacy issues in some respects than Americans, and some people are starting to talk about privacy with regards to RFID technology in Europe. Could the Europeans begin to move towards legislation around RFID as they have in some other areas of data gathering?

RR: Yes, and I would actually argue that the United States have also been doing so as well. There's been a lot of discussion about privacy within the U.S., and there are a number of privacy groups that have raised concerns out there. And legislation around this has been passed at the state level.

For example, in Wisconsin, they've legislated that you cannot put an RFID tag in someone without their knowledge. California has some new legislation moving through its political process. Privacy is an issue that's being looked at by legislators, and I think that the industry really needs to do a better  job of is explaining what RFID is, what it can do, what it can't do, where privacy is not an issue, where it might be an issue, and the steps that they're taking to ensure that privacy exists. In many cases, the technology just doesn't transmit well enough that it could even be read at a far distance. And in a lot of cases, there are safeguards around the technology such as who is, and is not, authorized to read a certain tag. But again, the industry has to do a good job of letting people know that privacy with this type of technology is not an issue.

EL: It sounds like things are being addressed more quickly in the  state legislatures than on the federal level right now.

RR:  That's correct. There's a caucus within the U.S. senate that looks at RFID, but it seems to me that the federal government is a little bit more deliberate in making sure that they understand the issues. They don't want to dampen the technology before the technology has a chance to move forward. By the same token, everybody wants to make sure that end users can be comfortable, because at the end of the day, if end-users aren't comfortable that their privacy's being protected, they're not going to have the incentive to use the technology.

EL: Another factor that might be impeding rapid adoption of RFID is the issue of infrastructure. I mean, buying the readers, getting the systems and the processes in place, and so on. Is that an area of concern?

RR: Yes, you're looking at this from a Generation 2, passive-technology standpoint where a lot of suppliers have systems in place that are working today. They do bar coding, they do it well, and their infrastructure is designed around bar coding.

There are certainly issues around RFID that need to be resolved, but at the end of the day, what a lot of end-users are going to need is a business-case justification to put RFID in place.

Right now, they're saying, if I have all of this technology that's working pretty well, why do I need to change it out with RFID -- which, by the way, is exactly what they did 30 years ago when they started using bar coding.

A lot of little things need to go right in terms of better equipment, lower pricing, more software solutions, more people adopting the technology, more SKUs being tagged -- all of those add up to a better ROI for everyone within the supply chain. The benefits of RFID have to outweigh the costs, so there's a business-case justification. But, RFID does have certain attributes that make it very attractive in some cases: you don't need line-of-sight, so reading it can be much more automated than a bar coding process, for example, and that leads to faster read rates and, in a lot of cases, better read rates.

Also, there's additional information that you can put on these tags, such as routing instructions or identification -- however you decide you want to use that information can be very, very helpful in tracking inventory more accurately, to reduce stock-outs, and so on. These are the types of things that CIOs would be looking at as business case justification.

EL: Even with the challenges to adoption of RFID that we've talked can you give sort of a best guess/forecast about where you see things heading for RFID?

RR: Yes, I think it's appropriate to talk a lot about the supply chain and all of the uses of RFID there because it's potentially a very large market. But I think it's also useful to acknowledge that there are a lot of areas that hold potential for RFID that are not in the supply chain. Another use for RFID that's really catching on is contactless payment, for example, where MasterCard and Visa and American Express are increasingly using RFID chips within their credit cards to make payments, much as Mobil has done with their Speedpass. I think there's some good adoption outside of the supply chain.

When you look at Generation 2 RFID, I think what you're going to see is increased emphasis on a number of closed-loop asset management solutions. So, for utilities, for example, that have large transformers or other equipment that might be sitting in a yard somewhere, it's much easier and faster  for them to identify that with RFID. In closed-loop manufacturing operations where you have, say, totes running on a conveyor belt that are carrying various types of inventory, a lot of times those totes simply get lost in the process. If you can use RFID, and you're constantly rescanning that tag, you're driving the per-scan cost of that tag way down so it becomes a much better ROI proposition. When you talk to vendors out there, they're spending their time and attention in these asset-management, closed-loop areas where there is some good momentum moving forward right now -- still small, but again, good momentum. You are also seeing a good amount of active tag or Real Time Locating System deployments in the asset management area.

From a supply chain standpoint, the things that you continue to need to look forward to are what we talked about in the Metro example. They're moving forward with all pallets as of October 1st into these stores. They're talking about extending that into cases in 2008.

Wal-Mart has been pretty silent in the last six months or so. In part, that's because they've turned their RFID functions off from IT to their operational group. So, there's some digestion going on there. There's still some infrastructure that they have to get in. But I think what happens is that kind of ebb towards the end of the year. You're going to see Wal-Mart get more aggressive and probably start sending out more letters identifying those suppliers that are not in compliance. And so, those are all things will help to continue the momentum going, and you will see more in the way of solution development, and in the way of the channel getting involved. But, in terms of when we really start to see that big inflection point, that probably won't be in the near term; that is well more than a year out. What you will see are indications that things are moving forward, such as, are you seeing more RFID in contactless payment? Are you seeing more closed-loop solutions? Is the channel getting more involved in RFID? These will all indicate that the technology's moving forward.