The U.S. Department of Defense will get advice from IBM on how it should use radio-frequency identification tags to track suppliers' shipments.

The department last year said it wants its suppliers to attach RFID tags to its goods by Jan. 1, 2005. IBM said the three-year consulting contract is aimed at helping the department develop by June 30 a strategy for using the technology to improve its supply system and inventory management. IBM will help to determine a budget and funding, as well as oversee the pilots during the next few months and help implement the RFID technology after the deadline passes. Terms of the agreement were not disclosed.

"The Defense Department is seeking to take advantage of the inherent capabilities of RFID technology to improve business functions and all aspects of the defense supply chain," William Phillips, an IBM Business Consulting Services partner and a defense industry leader, said in a statement. "We are pleased to be able to provide the management services that can help the department achieve its goals."

RFID technology is in its infancy, but proponents say it will bring higher returns on investment once companies understand how to leverage the mound of information stored in the tags, bringing new efficiencies and making supply-chain business processes more affordable.

The Defense Department has more than 43,000 suppliers, with its top 100 accounting for 80% of the dollar value of its supplies, according to Meta Group analysts.

IBM's Phillips said the DOD has been in touch with Wal-Mart Stores Inc. and other key players in the RFID industry over the months as it has worked on figuring out its strategy.

IBM will also provide the technical expertise to ensure that RFID deployments will be synchronized with Defense policies and compatible with standards to protect and secure data contained in RFID tags.