By Jonathan Collins

June 28, 2004—Ever since the U.S. Department of Defense, Wal-Mart and a host of other major retailers, including Target and Albertsons, spelled out their requirements for RFID tagging on pallets and cases, suppliers have been scrambling to meet the mandates. But suppliers aren't the only companies that have to rise to the challenge. Label makers have to prepare meet the huge spike in demand for smart labels the mandates are expected to create, while they face doubts about just how much demand there will actually be and when it will come.

In addition, the combination of a new technology and a tight deadline for its deployment has created a great deal of uncertainty. “This is a brand-new technology, merging electronics and label converting. The compressed timeline is pushing all smart-label converters and inlay providers to develop their products quickly, and the stress is great,” says Karl Hoffman, CEO and president of Plitek, a small smart-label producer based in Des Plaines, Ill. “It is going to be interesting to see how it all turns out."

An RFID label, or "smart" label, is made up of an inlay (the chip and antenna joined together on a substrate), which is sandwiched between a paper label and an adhesive layer. So far, label makers (also known as label converters) and manufacturers of RFID inlays have produced only a relatively small number of smart labels for pilot implementations. (Smart labels can used microchips that communicate with readers using EPC, ISO or proprietary protocols.)

Label makers have to predict the quantity of smart labels that suppliers to the DOD, Wal-Mart and other retailers will need and then determine the manufacturing capacity that will be required to meet that need. The rate at which Wal-Mart and other retailers expand their RFID requirements next year will have enormous implications on the demand for smart labels. Wal-Mart estimates that it receives about 1 billion pallets and cases annually from its top 100 suppliers.