As more and more businesses adopt radio frequency identification (RFID) technology, hardware and software spending will accelerate in 2006 and 2007. According to a recent study conducted by Gartner Inc. (Stamford, CT), worldwide RFID spending will reach $751 million by the end of this year. By 2010, Gartner predicts worldwide RFID spending will surpass $3 billion.

"Businesses are beginning to discover business value in places where they cannot use bar coding, which will be the force that moves RFID forward," says Jeff Woods, research vice president. "As the innovators' trials become public, broader deployments across emerging sectors, not just consumer goods and retail, will become evident in 2006 and 2007."

According to Woods, companies should not think of RFID tags as a replacement for bar codes. "The two technologies will coexist with users applying the right data collection technology for the right process situation," he points out.

"For the most part, bar codes are better at collecting data in highly structured and engineered processes, such as warehouses, and this will likely continue for the next 5 to 7 years," explains Woods. "However, RFID tags will be used for data collection of mobile assets and in largely chaotic or unstructured business processes, ranging from retail environments to hospitals, enabling these environments that lack sophisticated process engineering or controls to be systematically managed."

"In many cases, RFID will be used in areas where the process is not controlled by an incumbent business application," adds Woods. "Contrary to the notion that companies will need to integrate RFID data into established transactional applications, companies will likely need to develop new business applications if they want to put RFID at the center of a process. In this, the opportunity for real process innovation exists."

Aside from asset tracking, Woods says each industry will have specialized applications of RFID that cannot be generalized. Industries with the greatest opportunities to use RFID include retail, aerospace and defense. However Woods believes that the healthcare, logistics and pharmaceutical industries will adopt RFID the fastest.

"There is a significant focus on using RFID in pharmaceutical manufacturing because of the U.S. Food and Drug Administration's interest in using RFID tags to help combat diverting and counterfeiting," Woods points out. "If regulatory activity proceeds, we'll likely see the beginnings of widespread tagging around 2007."

In addition to the ongoing RFID initiative at Wal-Mart Stores Inc. (Bentonville, AR), the nation's largest drugstore chain, Walgreen Co. (Deerfield, IL), recently announced that it will begin installing display-tracking systems in more than 5,000 stores. Promotional displays will be embedded with RF tags, with readers positioned at various locations in the ceiling.

The system is expected to be a boon to the consumer goods industry, which spends billions of dollars annually on in-store promotional displays and signage. Traditionally, tracking has been a manual process that is expensive, time-consuming and prone to human error.