Compliance Deadlines Loom
Supply-Chain Giants Drive Early Adoption of RFID

Prime Movers. Two supply-chain behemoths — Wal-Mart and the U.S Department of Defense — are driving technology development and pilot testing activity with their respective mandates requiring their massive supply bases to begin phasing in use of RFID for inventory tracking at the beginning of 2005 (and as early as March 2004 for Wal-Mart's top pharmaceutical suppliers). Beyond Wal-Mart and the DoD, RFID development activity is gaining momentum in the health care, transportation, and manufacturing verticals, creating new market opportunities for application and integration software vendors, hardware suppliers, and systems integrators and consultants.

Preparing for the Ramp. Initially, our view is that most suppliers will be primarily focused on becoming compliant with the mandates — as opposed to utilizing RFID within their own enterprise — given the relative infancy of low-cost RFID for inventory tracking applications. Near term, we expect increased piloting and consulting services activity more so than material hardware and software purchases as compliance deadlines loom.

What This Means for the Enterprise . Longer term — beyond initial compliance — we believe that early adopters will begin to utilize RFID within their four walls and in their extended supply chains. This, in our view, is likely to drive supply-chain application upgrades and the integration of vast amounts of new data, which should result in reengineered supply chains and significantly improved inventory management. We believe supply-chain software vendor Manhattan Associates (rated Outperform) and enterprise application integration (EAI) provider TIBCO Software (Not Rated) are best positioned in their respective areas to capitalize on the broader adoption of RFID.