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RFID's Vertical Phase

As radio frequency identification moves from slap-and-ship packaged goods, retailers and manufacturers cry out for help in making sense of this new data source. And help is on the way.

In a report released on Tuesday, ABI Research said consulting firms are building domain expertise in such verticals as automotive and transportation, retail, consumer packaged goods, point-of-sale, life sciences, pharmaceuticals and defense and security.

According to ABI director of RFID and ubiquitous technologies Erik Michielsen, Accenture is targeting the pharmaceutical industry, while Deloitte Touche Tohmatsu will build on its strength in transportation.

Though the technology may be similar for many verticals, Michielsen said, the business issues and processes differ. For example, in the pharmaceutical industry, the counterfeiting component needs to be addressed, whereas that's not a problem in consumer packaged goods. "People don't counterfeit toilet paper," he said.

RFID technology uses tiny transponders, or RFID tags, that can communicate at short distances with reading devices. They carry a unique number, which can be understood by matching it with a database. The tags are automatically read when they pass within range of a reader, which allows a retailer, for example, to create an automatic record of what's come into a warehouse without having to point a scanning device at each case label.

Phase one for consulting firms' push into RFID was awareness, Michielsen said. Their outlook was, "We'll put it into our lab and assign a small team to look at it. We don't have a lot of client demand, but we think there's a future here."

The technology got a huge push when Wal-Mart and the Department of Defense mandated that their top 100 suppliers begin tagging products at the case or pallet level by January 1, 2005. Wal-Mart later extended the mandate to its top 200 suppliers, as other big-box retailers, including Target , also asked their suppliers to get onboard.

These suppliers turned to consulting firms to find a business case of their own for RFID. Automating the tracking of goods through the supply chain could help suppliers reduce shrinkage and damage while saving on labor costs -- but only if they can integrate the flood of data from RFID systems with their other enterprise systems.

And that launched a new wave. In Michielsen's words, phase two was, "The phone is starting to ring off the hook. We have a list of 100 potential clients who need to know about this stuff. We need to get some consultants on board."

Now, according to ABI, the third phase is beginning: "Our CEO wants us in and wants us in big."

Consulting firms are deepening their benches with consultants who understand vertical markets. ABI said some consultancies are adding RFID-trained staff at the rate of 25 percent per quarter.

But this doesn't necessarily mean a red-hot job market for consultants, Michielsen cautioned. Many firms are moving personnel from less lucrative parts of the practice, counting on their client-service chops to help them get up to speed in this sector.

He said the most difficult sector to break into is also the most lucrative. Aerospace and defense contracting are dominated by entrenched players with long-term, big-money contracts. Nevertheless, he said, "The barriers to entry are coming down in the Department of Defense area. It's a pretty difficult market to address and dominate, but there's more than enough money to go around."