While radio frequency identification, or RFID, technology continues to make steady progress into supply-chain management, a UHF Generation 2 RFID — or Gen 2 — worldwide standard won't come into widespread use until 2006 at the earliest, according to analysts, vendors and enterprise users.

The Gen 2 standard was ratified in December 2004 by the EPCglobal international standards organization and currently is being reviewed by the International Organization for Standards, with certification expected sometime next year, according to Jack Grasso, senior director of the Uniform Code Council, EPCglobal's parent organization.

Grasso said the first group of eight to 12 vendors delivering products certified to the Gen 2 standard would be formally announced in mid-September in conjunction with the 2005 EPCglobal conference in Atlanta. In addition, EPCglobal will announce the process for certifying Gen 2 testing labs at the event.

While recognizing that much work still must be done, analysts hail the advent of the standard. “Gen 2 allows pioneers to move forward while welcoming large technology organizations into the market,” said Erik Michielsen, director of ABI Research. “Standards are important. They get everyone on a level playing field and reinforce that the technology is here to stay and won't be fragmented.”

According to Michielsen, the introduction of Gen 2 ensures the interoperability of tag reader hardware and RFID tags so that customers have multiple sources for both items, which will drive down prices and encourage suppliers to add new features to maintain a competitive edge.

However, interoperability isn't the only key to RFID adoption. “Prices are coming down, but it's not the issue anymore as [supply-chain] data is being used to drive profitable RFID investment,” Michielsen said. “Companies need to think through RFID from an operational solution perspective: from the tag, the reader, the software, middleware and the enterprise application. Components don't do customers any good; it's solutions that work. Folks get caught up on technology and services, but without partnerships and longer-term endeavors to provide solutions, the market momentum will be constrained.”

Michielsen predicted the real driver for RFID adoption would be the ability to analyze supply-chain interoperability and efficiency, which would enable vendors to weed out inefficiencies from third-party logistics providers, distribution centers and other providers. Already, larger IT vendors such as Sun Microsystems are selling business intelligence software geared to the RFID market designed to gather and make sense of collected data and to hand it off to packages developed by IBM, Microsoft, Oracle and SAP.

Early corporate RFID adopters also are taking the Gen 2 standard in stride, continuing with their existing projects.

“It won't make a difference in the first phase of our pilot with Viagra,” said Peggy Staver, director of product integrity at Pfizer Pharmaceuticals. “Our goal is to implement [RFID] tagging by end of year and ship [tagged] product by the end of year.”

The company has devoted 2005 to implementing RFID tagging across its supply chain and collecting metrics that will be used to assess the system in 2006.

Pfizer's trial will place RFID tags on each case of Viagra and individual RFID tags on each bottle.

“The pallet is less important,” Staver said. “We're primarily focused on unit-level tagging.” The company doesn't expect to see cost savings any time in the future. “Our goal is patient safety. This is clearly a product-integrity issue to us. RFID gives us an electronic ‘pedigree’ capability to secure the supply chain from counterfeit or diverted drugs.”

Staver cited a number of challenges in implementing RFID tagging for pharmaceuticals. “The cost is still high,” she said. “You have to build an infrastructure to cover wholesale distribution centers and individual pharmacies.”

While tag readability has improved after some initial concerns — and Gen 2 provides guidance for both radio frequencies and the tags themselves — what happens to the information collected by RFID tracking remains a large issue, Staver said.

“To get the most benefit out of RFID, you need to integrate the data in your legacy systems, as well as get process modifications among your trading partners,” she said. “The biggest challenge yet to be addressed is data sharing. Who will have access to the information?”

While Pfizer's main concern is ensuring that its drugs aren't tampered with, the company also wants to ensure that the information collected helps local pharmacies better manage their inventory.

Symbol Technologies, a major manufacturer of RFID equipment, also has a sedate view of the new standard. “Gen 2 is a natural evolution of RFID from the first set of technology that worked well, but obviously could be improved upon over time,” said Alan Melling, Symbol's senior director of business development. “Gen 2 isn't something that is going to happen with the snap of the fingers. It's going to happen along the same course as Wi-Fi did, where you work out glitches and interoperability issues.”

Melling added that while the majority of suppliers will be using Gen 1 at the end of 2005, “the transition process will start in 2006. Most people will be using Gen 2 in 2006.”

Interoperability also is a big concern for current Symbol customers. “We built into all our RFID readers the ability to transition to Gen 2. It's a firmware upgrade,” said Melling, who added that Symbol's equipment would retain the ability to read both Gen 1 and Gen 2 RFID technology. Though the company currently is testing Gen 2 compatibility, it won't be generally releasing the capability until later in the year, Melling said.

He predicted that Gen 2 ultimately would help the RFID market by creating a perception that the technology has become more stable. “It creates the expectation that there's a single standard in customers' minds,” he said. “They can count on everyone making the same thing. There'll be more choices in readers, more people producing tags.”

But Gen 2 won't solve all the hurdles associated with RFID, including reading accuracy and scalability. “If you're expecting to read [tags] 100 percent of the time, it won't do that,” Melling said. “Read rates vary substantially depending on the packaging and where you place a tag. People now realize you don't need to do 100 percent. If you get 99 percent, that's good enough for most applications. It's not perfect, but no technology is.”

According to Melling, the largest hurtle to be crossed is the size of RFID deployments. “I've made it work in my pilot, I've made it work in 10 stores, but is it ready to be deployed in 10,000 stores?” he asked. “We've shown we can do it, now we're showing we can do it big.”

One area of diminishing concern is the price of RFID tags. Melling said only “hundreds of millions” of tags are being produced in total today, but when the industry moves to billions and tens of billions of tags, the price per tag will be significantly driven down as economies of scale develop. “As volumes grow, people will use [new] technologies to produce lower-cost products,” he said.