Boston's next exciting technology platform

When a stubble-faced man strolls into a drugstore hunting for a Mach3Turbo razor, Gillette Co. executives say the chances are as high as one in 10 that it will be out of stock. That problem, multiplied across an industry nettled by theft and product shrinkage through the supply chain, costs businesses an estimated tens of billions of dollars a year in North America alone -- not to mention the enmity of frustrated customers.

But it has also sparked a new technology application, emerging from the Boston area and gaining a toehold on both sides of the Atlantic, that could spawn one of the biggest industries of the next five years.

This new killer app, called radio frequency identification, or RFID, is being tested not in the clean rooms of cutting-edge research labs but on commonplace crates and shipping pallets in trucks and warehouses. By beaming a signal from bookmark-sized tags to interrogator devices, called readers, RFID heralds a new era of products smartly tracked through distribution and shelves amply stocked at point of sale.

RFID has advanced in fits and starts from its roots in MIT's Auto-ID Center in 1999, and it still faces tough economic and technological hurdles, and the scrutiny of

privacy advocates. But its adoption is poised to accelerate in 2004 with a push from three key players, retailer Wal-Mart Stores Inc., the UK grocery chain Tesco PLC, and the Pentagon, all of which have embraced the technology and ordered their top suppliers to prepare for tagging shipments. Pilot projects have begun and will pick up steam throughout the year, working toward a Jan. 1, 2005, initial deadline, set by Wal-Mart for its top 100 suppliers, and the Department of Defense for its top 1,000. (Tesco has set a deadline of November for its 100 largest suppliers.)

RFID tags, embedded with microchips and antennae, will be used at first only on cartons and pallets. But the technology eventually could be extended to individual items on store shelves and to a broad range of non-retail applications, from temperature loggers for batches of fruits and vegetables, to detectors of pathogens in cargo ship containers.

"This is the start of a new movement," said Sanjay Sarma, an MIT associate professor of mechanical engineering and the former research chairman of the Auto-ID Center in Cambridge. The center completed its work and dissolved itself in November, handing off standards setting to a nonprofit group, though affiliated MIT labs continue to do RFID research and to spin off companies.

Sarma is sometimes called the founding father of commercial RFID, a label that makes him uncomfortable. He is quick to note that radio frequency technology was around for two decades -- and was used in everything from car key clickers to Fast Lane transponders -- before he and his MIT colleagues David Brock and Kai-Yeung "Sunny" Siu recognized its potential for the supply chain.

Now a director at OATSystems Inc., a Watertown start-up that designs RFID-related software, Sarma remains deeply involved in the field. "The Boston area is the RFID nerve center of the world," he said.

A bevy of area companies has sprung up to capitalize on the RFID boomlet. OATSystems, ConnecTerra Inc. of Cambridge, and GenuOne Inc. of Boston, are competing in the market for RFID software that tracks products and connects computer systems.

In the hardware space, ThingMagic LLC of Cambridge is building tag readers, and Ember Corp. of Boston has struck a partnership with a Norwegian company to develop chips that enable wireless networks for readers. Greater Boston venture capital powerhouses, such as Greylock and Polaris Venture Partners, are investing in RFID companies.

Indeed, the market research firm Venture Development Corp. estimates that RFID, though still in its infancy, was a $1.1 billion industry last year and will grow to $1.8 billion by 2005 and between $2.5 billion and $3 billion by 2007. The numbers represent projected annual sales for companies that supply RFID tags and readers, software for sorting, interpreting, and storing tracking data, "middleware" for communicating between computer networks at manufacturers, suppliers, and retailers, and services for integrating and maintaining the systems.

Mark Roberti, founder of the RFID Journal, a two-year-old trade publication, sees the technology as the next phase of the computer revolution -- with the potential to electronically brand and connect billions of individual items around the planet.

"RFID is today what the Internet was in 1995," he said. "We're in the early stages, and don't know what's possible." At the very least, Roberti said, organizations eventually will have to upgrade servers, routers, and enterprise software to accommodate the flood of new data generated by RFID.

For the early adopters, RFID holds the promise of lower labor and inventory costs, enhanced tracking information, and recaptured sales. Unlike the bar code, which it ultimately will supplant, the RFID tag can give each box or item a numerical ID that can be verified by a "non-line of sight" signal rather than hand-scanning.

Gillette, the Boston company that sells razors, batteries, and other products worldwide, was an early backer of the Auto ID Center research and has been a leader among consumer goods companies in rolling out the technology.

"We feel we can significantly reduce `out of stock,' " said Richard J. Cantwell, vice president at Gillette, which is running a pilot program testing RFID at a distribution site in Devens. "The real value to us is when the customer goes to the shelf the product will be there."

Before that happens, though, "there are some serious challenges facing this industry today," said Michael J. Liard, senior RFID analyst at Venture Development in Natick. He and others think those challenges may delay full implementation of RFID in the supply chain until 2006 or even later.

On the financial front, the cost of an RFID tag has dropped from over a dollar two years ago to 20 to 50 cents today, depending on the volume purchased. But it will have to fall to about a nickel before it will be cost effective.

There is also the matter of standards. EPC Global, the nonprofit organization licensing intellectual property from the Auto-ID Center, is preparing specifications for a new class of tags called C1G2. But the specs won't be ready till later this winter, and until then, companies may be loath to invest in tags now on the market.

Then there are technological hurdles. In a yearlong Florida pilot that ended last March, the pallet company CHEP found that metal or water could interfere with radio frequency signals.

"It's more a black art than a science," said Andy Robson, the London-based RFID business development manager for CHEP. "If the radio frequency signal is not able to penetrate things like metal or wood, then you don't have a tag talking to a reader." CHEP is seeking a patent on a redesigned tag antenna that could circumvent the interference, but other companies may similarly have to reengineer their tags to get accurate readings.

While some have raised the specter of RFID bringing Big Brother from the store into the home, large-scale item tagging remains several years away. Nonetheless, though they are not opposing RFID in distribution, privacy advocates are viewing it warily. "We're concerned the investment that's being put into the supply chain will remove the structural impediment to item-level tagging," said Katherine Albrecht, a Harvard University doctoral candidate who is founder and director of Consumers Against Supermarket Privacy Invasion and Numbering.

All this adds up to an industry that, while moving forward, remains "a work in progress," said Christine Overby, senior analyst with Forrester Research in Cambridge. Overby said a key test will be the so-called Wal-Mart Mandate, unveiled last June, directing the retailer's top 100 suppliers to have their first shipments of cases and pallets tagged by the start of next year. Wal-Mart said in the fall that it will launch its pilot only at three Dallas distribution sites.

"We have asked our suppliers to review their plans and present them back to us by the end of February, including any barriers they might see," said Sarah Clark, a spokeswoman for Wal-Mart.

In the meantime, the Wal-Mart Mandate has grabbed the attention of vendors. Boston's GenuOne, which started five years ago marketing advanced bar-coding services, has moved into the RFID software space and views Wal-Mart's move as a key driver.

"It makes corporations step up and say, `Now, we're going to do this,' " said Jeffrey Unger, GenuOne's chief executive.

Robert Weisman can be reached at weisman@globe.com.