The See-It-All Chip

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In 1999, with the help of P&G and Gillette, the three men co-founded the Auto-ID Center at M.I.T. to pursue RFID uses. Today 103 companies are members, including consumer giants like Johnson & Johnson, Kimberly-Clark, Kraft Foods and Unilever. Ashton estimates that U.S. retail giants alone lose up to $70 billion a year in potential revenue because of their labyrinthine backroom networks. Half of that loss results from failure to restock popular items. The rest comes from lost or stolen items (shrinkage, in the parlance), particularly stuff like Gillette's Mach 3 razor blades and Duracell batteries — possibly the two most frequently stolen items in the world. (If you doubt it, look at all the Mach 3 blades selling on eBay, says Ashton.) What if a retailer could always know the whereabouts of every razor blade? The Accenture consulting firm, an Auto-ID member, says such a system — Auto-ID's holy grail — could increase sales 1% to 2%, decrease inventory 10% to 30%, and reduce labor costs between 5% and 40%. Those are huge numbers in the $3.6 trillion retail industry.

Manufacturers and retailers are moving forward with RFID for backroom logistics. In June Wal-Mart CIO Linda Dillman gave the firm's 100 top suppliers — which provide half the goods on its shelves — a veiled ultimatum about the stuff flowing into its 103 U.S. distribution centers. Vendors who don't use EPC codes on pallets and cases by 2005 could risk losing business. "By 2006, we'd like to roll it out with all our suppliers," says spokesman Tom Williams. Wal-Mart, which did much the same with the bar code, has admitted there is no timeline for RFID-tagging each product — reassuring news for privacy wonks.

On the other hand, DHL Worldwide Express, which handles 160 million packages a year, plans to go global soon with RFID tracking. Earlier this year DHL's RFID program manager Trevor Peirce stood next to a conveyor belt at its Helsinki gateway, watching computerized RFID scanners identify packages inside passing cargo containers at the rate of 300 items per second. "This is amazing technology when you see it working, and it's all fine-tuned," says Peirce. For customers, the payoff is later posting times and earlier deliveries, says the company's CIO, Steve Bandrowczak. "RFID clearly can help customers by reducing inventory cycles, reducing lead times."

The biggest user of RFID today is probably the U.S. military, which has plowed $272 million into RFID asset tracking — a system that has been battle tested in Iraq. The Army Materiel Command required all air pallets and commercial shipments for Gulf War II to be digitally tagged so commanders like General Tommy Franks — a big supporter of the technology — knew when and where critical cargo like tanks would arrive. One unit told software developer Savi Technology of California that taking inventory, normally a two-or three-day job, was completed in just 22 minutes — highly convenient when you're under fire. (The system also proved handy one night for hungry soldiers, who used the RFID reader to hunt down milk for their cereal.) In all, RFID technology helps the military track 300,000 containers in 40 countries every day.

The Department of Defense (DOD) also tracks humans with RFID. For the first time in a war zone, the Navy's Fleet Hospital 3 kept tabs on wounded soldiers, civilians and POWS at its 116-bed facility in the Iraqi desert by using wristbands with RFID chips. By scanning the wristbands, medical personnel could access treatment and track patients in a central database. "In Iraq the real challenge was tracking noncombatants, but ultimately we hope every soldier will have an RFID tag," says Lisa Mantock, president of Texas-based ScenPro, which developed the software. Using similar technology, Calipatria State Prison in California became the nation's first such facility to monitor guards and inmates alike with TSI PRISM, a tracking technology using RFID wristbands that look like large diver's watches. The surveillance curtails violence.

At Texas Instruments these days, RFID is the workhorse behind applications like access control, baggage handling, sports ticketing and product authentication. In Plano, Texas, vice president David Slinger traces the genesis of the revolution to 1993, when companies like TI collaborated with carmakers to deter theft. TI, working with the Ford Motor Co., came up with a key that literally talks to a car. Use the wrong key, and the car is immobilized. "RFID transponders are now in 7 out of 10 cars," says Slinger, and car theft is down — as much as 75% for Ford's often-targeted Mustang.

Today TI is turning its efforts to consumer applications like wireless transactions, helping American Express launch ExpressPay, an alternative to cash for purchases where speed and convenience are important, such as at fast-food restaurants, gas stations and dry cleaners. In July Amex set up a real-world RFID test in Phoenix, Ariz., allowing card users and employees to charge at 200 merchants with an RFID-ready fob attached to a key chain. Amex vice president David Bonalle says RFID pilots have cut transaction time 30% to 50% and average sales have gone up 20% to 30%.