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The 5-Cent RFID Tag

The promise of a 5-cent tag has many manufacturers and retailers dreaming of a truly automated supply chain. But can it really be achieved? And if so, how long will it take until you can actually buy one? RFID Journal reports.
By Bob Violino
Jan 01, 2004—Back in 2001, the Auto-ID Center, a nonprofit research organization established at MIT, said it would create a prototype for an RFID tag that would cost 5 cents when manufactured in high volumes. That claim has been a source of great controversy within the RFID industry. Some analysts said the goal was unrealistic. Some established vendors said it was impossible.

Now that Wal-Mart and the U.S. Department of Defense (DOD) have announced plans to require RFID tags on pallets and cases shipped by suppliers beginning in January 2005, manufacturers who have to bear the cost of tagging their products are clamoring to know: Are 5-cent RFID tags really feasible? And, if so, when will they be available?

To answer these burning questions, rfid journal conducted a careful analysis of tag prices based on a detailed study of the RFID manufacturing industry conducted at MIT, the estimated number of cases handled by retailers likely to require tagging, and manufacturing innovations ready to come on-stream.

Of course, it’s important to understand that any price forecast, no matter how well grounded in fact, is by nature speculative. Many factors could influence tag prices. But our analysis will enable companies to make their own assessment of the market as they prepare a business case for investing in RFID. By understanding the likely future cost of tags, companies can design a phased-in approach: gradually moving from tracking pallets and reusable containers to tracking cases and high-value items to one day tracking millions of individual items.

It’s also important to note up front that the price of the tag is not critical to the success of an RFID deployment. Many applications will deliver a return on investment with tags that cost $1 or more. And there are many other critical cost issues to look at, including the cost of purchasing and installing RFID readers, integration with back-end systems and upgrading software applications. Companies need to consider all of these issues as they plan a deployment.

To achieve the goal of a 5-cent tag, the Auto-ID Center worked with a number of hardware vendors, including Alien Technology and Matrics, to design simple, read-only microchips that carry just a serial number. Earlier this year, Sanjay Sarma, who was then the Auto-ID Center’s research director, and Gitanjali Swamy, a research consultant at the center, wrote a white paper that examined all of the costs manufacturers incur in making RFID tags. They took a microchip manufacturing simulation model created by Sematech International Consortium, an international group of chipmakers, and adapted it to the production of a complete RFID tag. They considered not only the cost of producing the microchip, attaching it to an antenna and creating a tag but also the utilization of floor space, depreciation rates, power consumption, the cost of raw materials and so on.

Based on the assumption that an antenna printed with conductive inks would cost 1 cent, the authors concluded: “Overall tag costs—silicon [microchip] plus assembly—could be brought as low as 4.35 cents using a traditional assembly process and 3.31 cents using innovative flip-chip manufacturing processes.”
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