Frost: Emerging Economies in Asia, Latin America Hold Promise for Mass RFID Tagging

July 31, 2006

The radio frequency identification (RFID) market has witnessed higher interest levels compared to similar technologies for barcodes and wireless networks, according to Frost & Sullivan.

However, the initial hype that surrounded the technology has declined in the last year, with industry participants adopting a more realistic perspective on the potential benefits of RFID. As a result, analysts said there is an increased focus on integrating RFID technology to work with existing business processes and applications.

New analysis from Frost & Sullivan of the world RFID in retail and supply chain applications estimates market revenues to reach $2,893.8M in 2012.

"The true benefits of RFID technology in the retail supply chain is likely to materialize only in the face of collaborative efforts by all the trading partners," said Frost & Sullivan research analyst Priyanka Gouthaman. "Isolation of RFID projects along the retail value chain would result in information being owned separately by manufacturers, suppliers and retailers with little or no value proposition in sight. Potential benefits to suppliers, including accurate demand forecasts and capacity planning strategies, are directly dependent on information received from the retailer’s end. An information gap at any point of the supply chain would minimize the optimal gains from RFID adoption."

Analysts said the technology presents immediately visible returns to retailers in terms of improved inventory management and demand planning that would result in higher turnover. The value proposition from RFID still remains unclear among most suppliers who are hesitant to invest in full deployments.

"Large retailers such as Walmart enjoy considerable clout over their suppliers on account of their trading volumes," said Gouthaman. "Most suppliers are therefore adopting RFID technology with a narrow focus of maintaining retailer relations. The 'slap and ship' approach being considered by most suppliers is impeding market growth within the RFID industry."

RFID vendors need to establish the potential benefits of the technology and the positive return on investment (ROI) that would accrue to retail suppliers, analysts said. Industry participants need to collaborate among themselves to offer integrated solutions that have had a proven rate of success among the early adopters. Overcoming market apprehensions would prove easier in the face of existing case studies of suppliers who have deployed the technology.

The retail supply chain is increasingly becoming globalized in nature. Manufacturing, assembling, distribution and the ultimate point of sale are no longer confined within a single country or region. Analysts said the Asia Pacific (APAC) region is gaining significant importance as the manufacturing hub of the world. While most retail mandates are confined to specific geographic regions, it is expected that the technology will be employed across global supply chains in the long term.

Source: Frost & Sullivan.