Aug 26, 2010Due to an increase in RFID deployments across numerous sectors, following a recession that forced many reader, component and chip manufacturers to reduce production in 2009, integrators and end users are now finding readers, printers and tags harder to come by. In fact, interrogators that typically took four to five weeks to obtain in the past now require twice that amount of time—or as much as 14 weeks after being ordered.
Those numbers can be expected to get worse before they get better, according to Bret Kinsella, who oversees operations, marketing and sales at ODIN, who recently blogged about the issue (see Is there a looming RFID Reader Shortage?). The growing demand, he says, has meant that many RFID hardware manufacturers are ramping up production, but the back orders for readers, printers and tags will require another several quarters before the order time for hardware requested by systems integrators and end users is likely to begin returning to the levels of 2009 and earlier.
The shortage is being felt both on the RFID reader and printer sides, as well as with tags, and means that ODIN and other integrators that install RFID systems are forced to make their customers wait to receive their orders. There are multiple reasons for the shortage, one of which is this year's spike in demand. The most high-profile cause for this spike has been Wal-Mart's effort to begin tagging its apparel, beginning with men's jeans and undergarments (see Wal-Mart Relaunches EPC RFID Effort, Starting With Men's Jeans and Basics).
An even bigger driver behind the increase in orders for RFID hardware, however, has been the multitude of smaller, unannounced deployments that have added up to the largest demand to date for RFID tags and hardware. "There's a broader market adoption that isn't being reported," Kinsella explains, "because, though they spend only a couple million dollars each, they have a combined impact." He cites the military, retail, aerospace and health-care industries as the largest adopters in recent months to put pressure on RFID manufacturers.
One source of the problem, Kinsella notes, is a shortage of components. During the recession, component manufacturers hoarded materials or exhausted existing inventory in order to keep costs down, or opted not to increase their production capacity. Consequently, these companies are currently unable to keep up with the demand. The result is that many RFID hardware manufacturers are now stymied by a lack of components required to make handheld or fixed readers, as well as RFID printers and encoders. In other cases, those components are available, but the sheer number of orders placed in the middle of 2010, following the previous year's slowdown, has forced RFID hardware manufacturers to go into catch-up mode.
"RFID demand has definitely risen dramatically this year," says Scot Stelter, the senior director of product marketing at RFID technology manufacturer Impinj. "We see higher use in specific applications, like apparel inventory tracking, as well as a growing list of new applications coming online." Stelter says his company will provide substantially more RFID chips to customers this year than it did in 2009, adding that "sales for all of our RFID product families are up."
The uptick in RFID adoption, Stelter points out, is occurring at a time when the semiconductor industry, in general, is experiencing the strongest demand in its history. "We anticipated this early on, and have worked hard to minimize the impact on our customers," he states. "On the tag chip side of our business, we have seen increased lead times from our suppliers, but as a well-respected customer, we have been able to negotiate better terms." Impinj has been working closely with foundries, he says, to ensure the greatest possible supply of RFID chips for tags.
"For both of these product families, we have maintained normal lead times and expect to continue to," Stelter says. "Based on historical trends in the semiconductor industry, and forecasts of foundry capacity, we expect that the temporary mismatch in supply and demand for tag chips will ease in the first half of 2011."
Ingram Micro, a distributor of supply chain management products, has also experienced an increased demand for RFID technology product this year, says Justin Scopaz, the general manager and VP of the company's data capture/POS division. Although RFID technology represents only one portion of the firm's business, Scopaz says he's seen RFID demand increase significantly in 2010 in the retail, manufacturing, logistics and federal government sectors. The growing need for various products requiring silicon chips has affected the supply of RFID products, he indicates, and as a result, the company's staff is staying in close communications with RFID hardware vendors—particularly reader manufacturers—to keep the orders filled, by alerting them on a daily and weekly basis in regard to which hardware they need, or will need, in the near future.
Assuming they have the components on hand, Scopaz says, RFID hardware manufacturers have two options regarding how to address the problem: either building out production lines to increase the capacity of manufacturing facilities, or running their existing operations at maximum capacity—which he finds to be the more common response. "The year 2009 wasn't a great one for RFID," he states, "and considering the drop-off in demand, there was a corresponding drop in supply." With the significant uptick in demand, orders for readers (and, to a lesser extent, printers) from integrators and end users are now falling behind. He adds, however, that RFID hardware manufacturers have assured Ingram Micro that orders will be fulfilled by the end of this year. Still, Scopaz notes, depending on the number of RFID hardware orders placed by integrators and end users in the next quarter, the shortage could continue into 2011.
"Everyone's taking this very seriously," Scopaz says. "I wish I could place an order and it would ship two weeks from now, which isn't the case. But manufacturers are crystal clear that this issue is getting their attention."
Kinsella advises allowing extra lead time when placing orders, and that companies plan those orders around expectations of delays until at least mid-2011.
