Apr. 1, 2006—Two or three years ago, it was commonly said that one of the biggest obstacles to using radio frequency identification technology to track cases and pallets in the supply chain was the cost of the tags, which was then a dollar or more apiece. The price wouldn't get down to the point where there was a return on investment until companies were tagging massive numbers of cases, but companies couldn't track massive numbers of cases until the price of the tags got low enough.

The chicken-and-egg problem was resolved, in part, when Wal-Mart required its top suppliers to start tagging pallets and cases in January 2005. By driving up the volume of tags consumed, Wal-Mart helped drive down the cost of the tags. But as companies look to get the benefits of RFID at the item level, they face a new chicken-and-egg problem. Manufacturers have to apply the tags for item-level tagging to take off, but manufacturers won't get the benefits of putting tags on products until RFID is widely adopted at the item level.

The chicken-and-egg problem could be resolved if a powerful industry player issues an item-level tagging mandate.

Take the case of a typical pharmaceutical manufacturer. If it tags all its products at the item level, fewer counterfeit bottles will get into the legitimate supply chain, which will improve patient safety, protect its brand and perhaps improve sales. The company might also achieve internal supply chain efficiencies. But it won't tag its bottles until distributors, wholesalers and pharmacies all install interrogators to read the tags and authenticate drugs by comparing the Electronic Product Codes on them with the EPCs stored in electronic pedigrees. (See E-Pedigree Pioneers for details on a Purdue Pharma pilot with H.D. Smith that shows how this can secure the supply chain.) But distributors, wholesalers and pharmacies will be reluctant to install RFID systems until manufacturers are tagging a significant number of items.

This is going to be an issue not just in the pharmaceutical industry, but in any industry where it makes sense to tag large numbers of items today, including entertainment (tracking DVDs, music CDs and computer games), apparel and footwear.

There are several ways the chicken-and-egg problem might be resolved.