Defense Department taps IBM for RFID help

IDG News Service - IBM will advise the U.S. Department of Defense on how it should use radio frequency identification tags to track shipments, the company said yesterday.
The Defense Department said last year that it wants its suppliers to start attaching RFID tags to their goods by Jan. 1, 2005. The tags work in a fashion similar to the UPC labels that companies use to keep tabs on goods, but the RFID tags can hold more data.
IBM said that under the three-year consulting contract, it will help the department develop by June 30 a strategy for using the technology to improve its supply system and inventory management. IBM will oversee pilots of products during the next few months and help to implement the RFID technology after the June deadline. It will also help the department determine funding needs.
Terms of the agreement weren't disclosed.
"In order for them to get funding for RFID, they are going to have to show a demonstrable business need," said AMR Research Inc. analyst Bob Parker. The pilot projects will help them do that by tracking performance, he said.
It is still unclear how much the department will put toward the new technology and how much suppliers will cover, he said.
RFID technology is in its early stages, but some analysts say it will make supply and distribution cheaper. Unlike UPCs, the tags are based on a tiny microchip that can gather information and send it to a computer for monitoring or analysis, increasing the ability to track and replace inventories.
Other analysts have criticized the technology as being prohibitively expensive for the suppliers because of the price of the tags, which cost about 20 cents apiece, and the changes that will be needed in manufacturing and packaging goods.
Still, RFID has become a mandate of sorts for some large organizations. In addition to the Pentagon, Wal-Mart Stores Inc., the world's largest retailer, has said that it will require its largest suppliers to start using the tags by Jan. 1.
The Defense Department, which has 43,000 suppliers, has indicated that it may phase in use of the technology with its major suppliers first. For instance, its top 100 suppliers account for 80% of the dollar value of its supplies.
William Phillips, who runs IBM's defense industry consulting business, said part of the company's role will be determining how the program should roll out. "One of the things that we're going to be doing is helping the government figure out what makes the most sense for that Januarytarget," Phillips said.
Phillips said the Defense Department has been in touch with Wal-Mart and other key players in the RFID industry to help it figure out what its strategy should be.