Analysts at Allied Business Intelligence (www.alliedworld.com), a technology think tank, are predicting that the market for radio frequency identification devices (RFID) will experience a sharp increase in sales over the next five years as more companies deploy that technology to track inventory at key points across their supply chains.

RFID systems consist of transponders and related hardware such as readers. Transponders (also known as tags) carry data about a unit of inventory in an integrated circuit. When the tag passes by a reader, the inventory is identified and its location in the supply chain noted. That information can then be used to make real-time decisions, especially if supply chain adjustments need to be made.

Because RFID holds such promise for supply chain applications, Allied Business analysts expect that supply chain and asset management applications together will account for two-thirds of all transponder shipments over the next five years. Supply chain-related sales alone will account for 46 percent of the market in 2007, they predict.

Edward Rerisi, who authored a recent report on RFID applications for the think tank, says it's clear why RFID technology is so well suited to supply chain monitoring. "Supply chain applications can tap into the value proposition by providing status updates and real-time tracking - in other words, which trucks have left a distribution facility and come into another facility or retail center," he says.

According to the research firm's forecasts, transponder manufacturers will ship 323 million units in 2002, and that number will jump to 1.6 billion in 2007. Total sales for RFID equipment are forecast to double from about $500 million today to about $1.1 billion by 2007.

RFID's potential role in supply chain management is so promising that one group has announced that it will establish an RFID Center of Excellence. The center will be a forum for developing applications for RFID technology in the consumer goods supply chain.

Participants include Unilever, Georgia-Pacific and Kimberly-Clark, along with RFID technology providers Marconi InfoChain (www.marconiinfochain.com), RedPrairie (formerly known as McHugh Software International; www.redprarie.com) and Intermec (www.intermec.com). CHEP (www.chep.com) a pallet and container pool supplier, also will participate. Initial research on inventory visibility and tracking is being conducted at distribution centers that support Sam's Club and Wal-Mart stores in collaboration with the Massachusetts Institute of Technology's Auto-ID Center (www.autoidcenter.org).