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Federal RFID Spending to Rise Sharply
A research firm predicts a 120 percent spending increase for RFID applications in the federal government by fiscal year 2009.
Mar 01, 2005—U.S. federal government spending on radio frequency identification technology is expected to grow 120 percent by the end of fiscal year 2009, according to a report released by Reston, Va.-based INPUT, a market research firm that supplies data and analysis about the government marketplace to IT contractors and government agencies. In compiling its report, the firm's analysts studied RFID and RFID-related budget requests by government agencies, as well as contracts that agencies awarded to private contractors.
INPUT expects total reported federal RFID spending—spending reported by both civilian (nonmilitary) and defense agencies—to grow from approximately $51 million in fiscal year 2004 to $112 million in fiscal year 2009 (which ends in November 2009), representing a compound annual growth rate of more than 17 percent. The report notes that while this represents an aggressive compound annual growth rate that is nearly three times INPUT's predictions for overall federal IT spending during the same time period, RFID represents only a very small segment of the defense and civilian federal agencies' IT marketplace. INPUT expects federal IT spending in defense and civilian agencies to grow from approximately $55.5 billion in fiscal year 2004 to $74.6 billion in fiscal year 2009.
Campbell says spending by agencies of the DOD will account for 78 percent of growth in U.S. federal government spending on RFID technology during the next four years, with civilian agencies accounting for the remaining 22 percent. The report notes that the DOD's RFID mandate, which requires suppliers to use RFID to track shipments to the military, has acted as a major driver for defense agency suppliers to invest in RFID technology and that the DOD will remain focused on logistics and supply chain management applications of RFID technology over the next five years. The department's technology investment has already benefited the U.S. Marines through supply chain management in Iraq, where it was used to help coordinate replenishments to the military theater (see RFID Aided Marines in Iraq).
Within civilian federal agencies, the report points to the Department of Homeland Security's use of RFID to aid in tracking people, vehicles and assets, specifically the department's deployment of RFID in its Free and Secure Trade (FAST) program (see RFID Employed Against Terrorism), as the main market driver for RFID spending. INPUT predicts that cost savings or process improvements through RFID applications in DHS deployments will encourage interest in and adoption of RFID within other civilian agencies, despite the fact that agencies outside the DOD have fewer supply chain-driven operations.
While INPUT does not predict significant increases in RFID spending among civilian agencies in the short term, it says substantial growth should begin in fiscal year 2007 as business cases emerge demonstrating similar cost benefits in areas of operation outside of the supply chain.
However, the report also points to market inhibitors that are stalling acceptance of RFID within the government sector. These include the high cost of implementation, questions about how to best process RFID-generated data and concerns over the security and privacy of confidential information. The report also points to a lack of agreement on RFID specifications as an inhibitor, citing as an example the Department of Defense's need to operate at frequencies that will not interfere with its weapons systems. "The need to add systems with no interference may cause one agency to adopt RFID frequencies that could conflict with equipment used by another," says the report.
The INPUT report notes that thus far, the vendors that federal agencies have contracted with are small firms specializing in RFID and supply chain management. It predicts this trend will continue as long as RFID deployments remain limited to specific programs rather than being implemented across entire government agencies. "In the long term, as RFID becomes more widely accepted [by the federal government], contract awards will begin to shift toward the larger IT firms that offer a full suite of professional services," says Campbell, "and will be able to walk federal agencies through the design, integration and training needed to fully integrate RFID systems into the business processes of an agency."
The report, TargetView: Radio Frequency Identification—DOD Drives Emerging Technology at 17% CAGR, is available to subscribers of INPUT's Federal Market Analysis subscription program.
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