This article was originally published by RFID Update.
May 7, 2008—The US Army is currently accepting requests for proposals (RFP) to guide potentially millions of dollars of spending on passive RFID equipment and services (see yesterday’s US Army Issues RFP for Large RFID Purchase). Despite the dollars, the Army’s biggest impact on the RFID industry could be by validating the technology’s value for improving inventory, material management, and supply chain operations, and pointing the way for companies in the private sector to follow.
In the first three years after the contracts are awarded the Army expects to purchase approximately 5,894 fixed-position readers, 2,199 handheld readers, 646 printer/encoders, 53,642 general-purpose tags, and 3,803 software licenses, according to background documents available with the Army’s official RFP. The contract calls for RFID hardware and software to comply with EPCglobal Gen2 standards when applicable.
“It’s not a huge market,” Louis Bianchin, senior RFID analyst at Boston-area market research firm Venture Development Corp. (VDC), told RFID Update. “Don’t get me wrong, it’s an interesting market, and is very large for a single customer. But it is not going to significantly move the needle for overall RFID industry revenues.”
The Army will purchase about 1,700 readers (handheld and fixed) during the first year of the contract, according to its own estimates. Bianchin said that represents less than five percent VDC’s projected worldwide reader sales for 2008.
Furthermore, the contracts will be on indefinite-quantity, indefinite-delivery terms, which create no minimum purchase requirements.
“The intent of this contract is to provide an easy way for organizations within the Army to purchase RFID. I don’t see anything in it that commits the government to buying,” Pete Poorman, principal RFID analyst at ABI Research in Oyster Bay, NY, told RFID Update. Poorman has experience in military and government contracting from his private-sector career prior to joining ABI. “The contract also doesn’t preclude the Army from issuing new RFPs for specific projects. So in that sense, whoever wins the contract isn’t guaranteed to be on any short list for future purchases.”
However, both analysts think the contract will result in near-term RFID sales and will have a positive effect that exceeds the revenue value.
“It will give the market a boost, but the numbers won’t be big enough to get Wall Street excited,” Bianchin said. “The Army’s contract expectations are a good sign for the RFID industry. It’s very positive, and it’s a good validation of passive EPC Gen2 technology.”
The Army contract initiative is a positive sign that will have a tangible impact on application development and implementation, according to Patrick Sweeney, CEO of RFID vendor ODIN technologies. ODIN has installed passive RFID infrastructure systems at numerous Defense Logistics Agency distribution facilities as part of an unrelated contract (see ODIN Wins $7m RFID Contract from DoD), and plans to pursue the current Army opportunity.
“The value of RFID depends on applications, and applications need an RFID infrastructure in place,” Sweeney said. “By installing RFID readers at its dock doors, the DLA created the infrastructure. That provided a launching pad for applications. That’s where the Army comes in, because their applications will go well beyond material receipt.”
The small amount of tags in the Army’s expected purchase quantity estimate (53,642 over three years) relative to the amount of hardware, software, and services does suggest the Army plans to use tags applied by suppliers and at DLA facilities (which provide logistics services to all military branches) as part of its own applications.
“The Army is only buying about 100 tags for each reader. That shows the vast majority of things they expect to read will be tagged from the outside,” said Poorman. “To me, this is another indication of the RFID ramp-up throughout the DoD. The most significant aspect of this RFP is that it is a very positive and encouraging development for the RFID industry.”
Sweeney said such adoption patterns are common in large organizations.
“When you look at our large global customers, 75 percent of them are using RFID to leverage multiple projects,” said ODIN’s Sweeney. “The contract gives the Army a laundry list to pursue a variety of applications to do the same thing.”
Aircraft manufacturer Airbus serves as a good example of how a large private-sector company is using standardized RFID technology and a common infrastructure to support multiple projects (for examples, see Airbus Sheds Light on Its Ambitious RFID Program). Airbus is also an ODIN customer (see Airbus Taps ODIN, Signals Aerospace RFID Adoption).
The Army’s proposal deadline is May 14, 2008, and it has no deadline to award the contracts. It will likely be years after the deals are announced before the full impact is understood.
“With government projects, a three-year contract is a short time,” said Poorman. “They do things for the long term.”
“Some consider the Army a laggard in RFID adoption, but its leadership, under Lt. Col. Burdon, had the foresight to wait to see where the applications and infrastructure would be. Now I think the Army is going to leapfrog other users,” said Sweeney. “The Army realizes RFID technology is ready for prime time and is not going away.”