Regulation
In some industries, government regulators might step in and require all players in the supply chain to adopt RFID simultaneously. This is most likely to occur in the pharmaceutical industry. Several U.S. congressmen introduced legislation on March 1 that, if enacted, would compel the U.S. Food and Drug Administration (FDA) to require drug companies to integrate "RFID tagging technology, or similar track-and-trace technologies that have an equivalent function" into their packaging.

The FDA plans to release a report in May on the obstacles to faster adoption and measures that might be taken to overcome these obstacles. Pressure from Congress could cause the FDA to require the industry to use track-and-trace technologies. During the year, the FDA will also announce whether provisions of the Prescription Drug Marketing Act of 1988 requiring wholesalers to provide drug pedigrees should go into effect in December. (The industry got a stay of these provisions because of concerns about how they would be implemented.) If the FDA requires the pedigrees, that could push the industry to adopt RFID simultaneously.

Customer Mandates
Just as Wal-Mart solved the first chicken-and-egg issue, the item-level problem could be resolved if a powerful industry player issues an item-level tagging mandate. Wal-Mart or a group of retailers, for example, could require item-level tagging for certain categories of goods, such as apparel.

Boeing and Airbus are already trying to do this in the aerospace industry. They have agreed on a tag standard and will require their suppliers to put the tags on parts and subassemblies. Any company that makes airplane parts will need to comply with these mandates.

CVS and Walgreen Co., which dominate the U.S. pharmaceutical retail market, could get together and require RFID tagging. Best Buy and Circuit City could insist that suppliers tag DVDs and computer games. The combined clout of these companies could drive adoption at the item level.

Voluntary Tagging
If manufacturers find enough benefits to justify tagging at the item level, that could drive adoption. DVD manufacturers, for example, are exploring ways to reduce diversion by embedding RFID tags in DVDs and using them to activate the product. DVDs shipped from the manufacturer would not work without a special code that would be sent to the RFID tag at the point of sale. Any DVDs stolen or diverted from the legitimate supply chain would not work without the code. Retailers would be forced to purchase interrogators to activate the DVDs; otherwise, they would not be able to sell them.

It's likely that different industries will move to item-level tagging at different rates, driven by different forces. Some technologically sophisticated retailers are already tagging certain items likely to become out of stock, counterfeited or stolen. But item-level tagging won't be widely adopted until tag and interrogator prices fall further, applications become more mature or manufacturers tag items when they are produced. In other words, it will take time for the chicken to lay the egg.