Federal RFID Spending Seen Growing 120 Percent over Next Five Years

DoD successes driving additional applications in supply chain; civilian side to seek similar benefits  INPUT report

DoD successes driving additional applications in supply chain; civilian side to seek similar benefits  INPUT report

Reston, VA  February 25, 2005  U.S. federal government spending on radio frequency identification (RFID) technology is expected to grow 120 percent by fiscal year 2009, according to a report released by INPUT, a provider of government market intelligence.

The Department of Defense (DoD) is successfully using RFID technology to improve its supply chain management process with results and costs savings being proven in the current war in Iraq, INPUT said.

In addition, although growth within civilian agencies will start out slow, INPUT expects substantial growth to begin in the 2007 fiscal year as business cases emerge demonstrating similar cost benefits in areas outside of the supply chain process.

Data, Privacy Challenges Ahead

"Perhaps the biggest challenge facing agencies adopting RFID is how to construct a system architecture that will handle substantially increased amounts of data," said Chris Campbell, senior analyst for federal market analysis at INPUT. "RFID technology has also brought the issues of privacy and security to the forefront as government agencies struggle with secure ways to store personal data, especially in light of the growing concern over identity theft."

As a result of realized cost savings from using RFID technology, DoD is examining other ways to further refine the supply chain process, such as tracking the useful life of specific parts and tracking weapons and even soldiers in the field.

On the civilian side, most agencies have decided to hold off on implementing RFID technology until they can better understand the expected cost benefits. "Process improvements, and more importantly cost savings, obtained through the employment of RFID in a limited number of existing programs, such as the Department of Homeland Security's Free and Secure Trade (FAST) program, will encourage greater acceptance within civilian agencies in the future," Campbell said.

Smaller Enablers Benefiting...For Now

To date, the majority of RFID contracts have been awarded to smaller firms specializing in RFID and supply chain management. "We expect this trend to continue in the near-term because adoption of RFID will continue to be at the program level versus agency-wide," said Campbell.

He added: "In the long-term, as RFID becomes more widely accepted, contract awards will begin to shift toward the larger IT firms that offer a full suite of professional services and will be able to walk federal agencies through the design, integration and training needed to fully integrate RFID systems into the business processes of an agency."

INPUT issued the finding in its "Radio Frequency Identification" TargetView report.

For a contrary view of the future of the RFID market, see the article "The O'RFID Factor: A 'No Spin' Look at Where Radio Frequency Identification Is Headed," in the October/November 2004 issue of Supply & Demand Chain Executive.

More information on trends relating to radio frequency identification here.

More information on U.S. government efforts to transform its civilian and military supply chains here.

For additional news relating to trends in government IT spending, please see the following articles covering previous INPUT reports: