With the cooperation of the world's largest retailers and manufacturers, radio frequency identification technology--automatic data capture technology that uses tiny tracking chips affixed to products--aims to more effectively track the wants and needs of consumers and revolutionize the means in which goods are tracked and sold.

Gillette, Kraft, Coke, Wal-Mart and Proctor & Gamble are among a consortium of companies that invested $20 million to form the Auto-ID Center about six years ago to create this technology at affordable prices to replace an established bar code system. Why?

• Inventory mistakes still remain that eventually lead to spoilage and loss

• New insights into consumer preferences

• More control over pricing

• More focused in-store promotions

The key pieces to make this technology work are a radio transmitter and receiver and a tag (the microchip with a tag). The chip is inert until the energy from a radio transmitter from a reader hits it, shooting the tag enough power to emit a 96-bit digital signature or about triple the information that can be included on a bar code. Also, the chip can be read through plastic, cardboard and wood and embedded in some products too. Some readers can sense chips up to 30 feet away.

The advantages are obvious. No more lost shipments. Stores will receive the right amount of items. Experts estimate a retailer the size of Wal-Mart with $250 billion in annual sales could save as much as $7.6 billion alone in labor costs if every pallet of stock came a RFID tag.

Some retailers have experimented with this technology on a limited basis in the U.S. Wal-Mart stores in the Dallas metro area are using RFID tags on Hewlett-Packard, Johnson & Johnson and Proctor & Gamble products. Michelin will start imbedding chips into their tires to minimize costly recalls. Grocery store mega-chain Albertson's has asked its top 100 suppliers to place RFID tags on all boxes and pallets they ship by spring 2005.

A fascinating example of this technology on a much larger scale is the Extra Future Store, a grocery store operated by European retailer Metro in Rheinberg, Germany. Many products carried in the store come with RFID tags that tell retailers how many items are on the shelf. A 2-millimeter pad underneath the product sends an automated message telling workers when the product leaves the shelf so it can be restocked.

Such technology also allows retailers to reduce or raise prices at a moment's notice with the ebb and flow of daily business, a far cry from the days of weekly specials in grocery inserts stuffed in newspapers.

At the Extra Future Store, carts come with identification card readers. Once a shopper swipes the card through the reader mounted on the handle, a console mounted to the cart is equipped to generate a shopping list based on previous purchases and send signals to display tags, kiosks and shelf.

Understandably, retailers are chomping at the bit to recover this kind of precise marketing information that can track the movement of merchandise and consumer preferences. However, some experts are concerned such pervasive technology opens the door wide open into everyday lives of people, lessening their privacy.

The problem isn't the ability of a business to track the sale of its own goods. One privacy advocate argues the ability to monitor RFID tags inexpensively outside businesses in customer's homes is the real concern. As a result, some states have enacted laws requiring retailers to label any products with the RFID tag. Some are concerned high-tech burglars could use cheap RFID scanners to "case" the homes of unsuspecting victims.

Wired July 7, 2004