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The deadline has come and gone. Can you tell a difference?

In 2003, retail giant Wal-Mart told 100 of its suppliers to begin installing radio-frequency identification (RFID) tags on their shipments by January 2005. It continues to pressure CPG manufacturers to increase the number of units they’re tagging.

But the technology is getting mixed reviews from those suppliers. For some, RFID translates into greater efficiency and accuracy in distribution, which may cut product loss and boost availability, says Paul Fox, director of Global and External Relations for the Gillette Company.

“The benefits are now being clearly proven within a real supply chain environment,” Fox says. “The shelves should stay full and your customers stay happy and loyal. More players in the retail industry are recognizing the difference this technology can make.”

An RFID pioneer, Gillette began supplying Wal-Mart with four different products lines in its brand in April 2004, and nearly a year later, the manufacturer is moving to wider adoption. Gillette now is tagging cases and pallets of 450 different product lines for the retail chain. It has latched the chips onto pallets and cases to track product flow, and it hopes the tags will curb theft and improve in-stock status.

Such benefits will drive RFID adoption, according to Forrester Research, Inc. It says 37% of retail, consumer products and transportation companies will increase RFID efforts in 2005.

But enthusiastism is limited. “Initially, it’s a burden [to suppliers],” says John M. Hill, principal of ESYNC, an Ohio-based supply chain consulting firm. “The question is, where’s the value proposition for them?”

To date, Wal-Mart suppliers have spent $250 million on RFID, according to AMR Research. That translates into $1 million to $3 million each, far less than the $13 million to $23 million per company cost AMR had predicted last August.

AMR, however, stands by its initial prediction. The research firm based its estimate on the cost of RFID readers and tags, system integration work, changes need to existing supply chain applications and the cost to store large volumes of data. The firm says some suppliers are slow to embrace the technology, so the cost to implement a complete RFID system will be more substantial.

As suppliers and retailers learn more about RFID, one thing’s clear: the technology won’t become a mainstream marketing tool soon. Experts say it will be years — as few as seven, but as many as 15 — before RFID is tagged to individual units. Suppliers, scrambling to tag cases and pallets, say there’s much more work to be done before they can add tags per unit.

“Everybody is thinking about it,” says Jeannie Tharrington, spokesperson for Procter & Gamble. “It’s just a matter of getting on board. There are a lot of unknowns right now. With new technology, there is a learning curve.”

P&G, however, won’t hazard a guess as to when RFID will reach item level tagging. The manufacturer, Tharrington explains, is testing three of its more than 300 brands for Wal-Mart – Bounty, Pantene and Always. This spring, P&G plans to expand its product line to test dry laundry detergent (Tide, Cheer and Gain), she adds.

While Tharrington says P&G is “encouraged” by the new system, RFID “is not to 100% yet.” One of the major pitfalls P&G has encountered with the technology boils down to physics. RFID doesn’t work well with liquid products, including shampoo or detergent, or products that contain metal-based packaging, such as the foil wrapped Cascade, Tharrington says.

“There’s a lot more we need to learn,” Tharrington adds.

At end of first quarter 2005, Wal-Mart was giving a thumbs up to its RFID rollout. In January, it began receiving case- and pallet-level tagged merchandise from 137 suppliers, destined for distribution centers in the Dallas/Fort Worth area. Later this year, the retail giant plans to roll out to 600 stores and 12 distribution centers, according to spokesperson Christi Davis Gallagher.

“That implementation is going very well,” Gallagher says. “We continue to focus on the collaboration with suppliers through sharing of data and leveraging it for process changes.”

Wal-Mart itself isn’t rushing toward individual tags. “We don’t anticipate tagging at item level for 10 to 15 years,” Gallagher says. “We have a lot to learn at the case level.”

When, and if, RFID reaches item-level, Gallagher says customers will see better product availability, easier processing of returns recalls and warranties, and fewer counterfeit products, including pharmaceuticals.

A chip on a bag of chips?

All good, but chip cost will be the ultimate factor in RFID adoption. Tag prices vary based on quantity, the type of tag and the manufacturer. Many tags range from 25 cents to 50 cents each, but experts say that cost has to drop significantly if item level tagging to become a reality.

“The future of item-level is not guaranteed,” says David Diamond, a New York-based consultant. “You may never put RFID tags on packs of gum. It has to get awfully cheap.”

Consumer privacy is another RFID headache for retailers. The retail industry needs to draft a series of rules to qualm privacy issues, according to Diamond. For example, retailers must inform consumers about RFID tags — called “spy chips” by privacy advocates — on packages and give them the ability to remove them, he says. Retailers also have to prove to customers there are benefits to RFID tagging, Diamond says.

Once retailers overcome the privacy hurdles and RFID tags are slapped on individual packages, products would be prime for promotions and sweepstakes, Diamond says.

“A lot of progress is being made, but there is really nothing that is going to affect the world of promotions and consumer marketing that will be available and usable anytime soon,” Diamond says. “The reality is, from a consumer standpoint, there’s not much going on.”

Optimists, however, believe retailers and suppliers could see a break through coming in item level tagging in as little as seven to 12 years. “It probably won’t be RFID as we know it today, but it will be RFID…in some other incarnation,” Hill says.

And other retailers will have their say. Target and the Albertsons grocery chain are taking a less aggressive approach to RFID. Those retailers are advancing cautiously and setting later deadlines. “They are not playing the 800-pound gorilla,” Hill says. Without Wal-Mart forcing RFID technology onto its suppliers, little would be done in the way of RFID, he adds.

“Wal-Mart has accelerated both product development and the deployment of RFID,” Hill says. “Without them, it would have moved along considerably slower.”