Wal-Mart has told its top 100 suppliers that they'll need to have radio-frequency ID systems in place for tracking pallets of goods through the supply chain by January, 2005. Wal-Mart has experimented with RFID technology over recent years for several applications, but this deadline sends a clear message about where the country's largest retailer sees the emerging technology first being practically applied.

"We've got to focus on pallets," CIO Linda Dillman said today at the Retail Systems show in Chicago. Dillman believes that given the state of RFID technology, other retailers will consider pallet-level RFID tracking as the logical first step as well, so consumer-goods suppliers won't face competing development agendas. "This shouldn't be juggling initiatives [for suppliers]," Dillman said. "The technology at the item level isn't ready."

RFID involves a chip with a transmitter that, when activated by a reader, can send or receive information. Wal-Mart's tests of the technology have all been in controlled environments to test feasibility, including tracking individual items with the Gillette Co., tracking cases with Coca-Cola, Kraft, Procter & Gamble, and Unilever, and tracking pallets of paper towels.

While the deadline for Wal-Mart compliance is still a ways out, it means companies need to start building their business plans for using RFID now, says AMR Research analyst Peter Abell. "For [those] that haven't started, it's going to take two years," Abell says.

RFID draws comparisons to the introduction of bar-code readers in the late 1970s and early 1980s. But many predict widespread adoption will happen more quickly. One reason is that Wal-Mart is far from the only large company supporting it; in addition to many other businesses, the U.S. government's supporting its development because it sees applications for homeland security (Malaysia already uses RFID tags in its passports) as well as the military. Another is that chip prices don't have to plunge to make a business case for this: for many high-value items, the costs are reasonable today, Abell says. And finally, the industry fears Wal-Mart gaining a significant cost advantage. "We see retailers saying they're going to be fast followers because they don't want Wal-Mart to get too far ahead in supply-chain advantage," Abell says. "They're saying to suppliers 'If you're going to do this for Wal-Mart, better do it for me.' "

RFID raises great hopes for readers automatically collecting far more data than is possible today--not just product information, but even temperature, humidity, or shocks.

But Dillman says the value of RFID doesn't depend on those kind of futuristic uses. And it doesn't depend on having to manage more data, since it will provide a more efficient and timely way of collecting the information Wal-Mart collects today. Says Dillman, "If we don't get one piece of data beyond what we get today, it's a great benefit."