Engineering Economic Analysis

Rate of Return Analysis

II

Big Brother Is Tracking You

Do you ever get the feeling that your closet is spying on you? Well, you may be right.

Manufacturers of products ranging from jeans to shampoo are trying out a new tech-

nology called radio-frequency identification (RFID), which embeds tiny tracking chips in

merchandise. The chips can follow goods from the time they leave the plant until you buy

them at your local shopping mall-and even after you take them home.

RFID chips offer a wealth of advantages to

product makers and retailers. They can tell ship-

pers when trucks are delayed, and they can alert

store security when products are being stolen.

They can also tell managers when stocks of pop-

ular products are running low.

The chips still suffer from some technical

drawbacks, including vulnerability to interfer-

ence from cell phones and other electronic de-

vices. A bigger drawback,however,is their cost.

As of early 2003,RFID chips cost about 30 cents

each, which makes them too expensive to em-

bed in low-cost products like soap and shaving

cream. Moreover, the scanner~required to read

the chips currently cost about $1000 each. And

companies that want to use the technology must

also investin the electronic equipmentnecessary

to keep track of the chips.

The cost hurdle may be falling soon, though. A major manufacturer of RFID chips

says it can produce them for 5 cents each if the customer orders a batch of at least a billion.

Even more substantialcost reductions are likely when the technology becomes more widely

adopted.

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