If your company ships goods that are perishable or expensive or you're interested in becoming a supplier to Wal-Mart, Target or the U.S. Department of Defense, you may have reason to consider deploying radio frequency identification (RFID).

The truth is that many small businesses may be able to get by without implementing RFID for the next few years. But while you wait, your competitors may already be benefiting from early adoption by realizing return on investment from automating receipt and shipment of goods or by becoming a supplier for one of a growing number of big firms and organizations -- Wal-Mart, Target and the DOD included -- that have adopted RFID and required their suppliers to do the same.

How RFID works

RFID is a technology in which small, cheap tags are attached to items or cartons or pallets of goods and are automatically read and tracked by a computer system. Many regard RFID tags as the new bar-codes to help businesses track and trace goods through the supply chain. But there are already several examples of RFID now in use by a wide variety of people, including toll-collection systems like EZ Pass, the microchips veterinarians insert into pets and instant payment credit cards that no longer need to be swiped.

For small businesses, the use of RFID is likely to be more along the lines of Grantex, a Grand Rapids, Mich. uniform rental company. In 2001, Grantex bought an RFID system for a little over $1 million. The company now sews the chips into uniforms. When the company washes the garments, an RFID system reads the chips and automatically sorts the uniforms so they go back to the right companies.

Doug Singer, Grantex's president, says that since he installed the system, there has been a 36 percent reduction in labor costs and a 21 percent decrease in uniform costs. Partially, that's because uniforms can no longer be lost or stolen. Unless you rip the tag out, the uniforms are like a lost dog with a microchip -- easy to locate. The company used to use bar codes for the sorting function, but the RFID tags are much tougher, Singer says. "Our goal is to attack grease, oil and dirt and we do a darn good job of it," he says. "If we had bar codes, they would just come off."

Small firms can get big benefits

Singer says RFID lets Grantex, which has about 50 employees, operate like a much bigger company because it can handle a large workload (the company regularly services about 10,000 uniforms). Other small- to medium-size businesses that need to track inventory are also adding RFID. A study by Gartner Dataquest found that 40 percent of such inventory-intensive businesses planned to install an RFID tracking system by the end of last year.

But for most small businesses, RFID won't be a big priority for a while, says Mark Johnson, president of RFID Tribe, a Dallas-based professional association for the RFID trade. "It's very useful for any organization that has many, many objects to track," says Johnson. "But if you're a mom-and-pop, a clipboard and a No. 2 pencil does fine." Johnson says that a bare-bones RFID system would probably start at $10,000-20,000, but it wouldn't do enough to make a difference in operations.

Realizing ROI from RFID

Andy Nathanson, practice director for RFID for Venture Development, a Natick, Mass., market researcher, says most RFID systems will cost around $250,000, but the companies that use it realize ROI within 18 months. The good news is that the prices are coming down. Tags that used to go for 25 cents are "now approaching the 10-cent barrier," he says. Still, unless you track items that are worth more than $25, are perishable or are easily copied, RFID shouldn't be a top priority right now.

The exception to that is if your firm does business with Wal-Mart or the Department of Defense, both of which require suppliers to use RFID. One way to approach this is what Johnson calls "slap and tag," that is, just putting tags on merchandise without installing an RFID reading system. But even that can be expensive. "People say it's only a quarter or so, but we're talking about millions and millions of products," he says. "It adds up."