RFID Tag Supply Chain Delays?
Posted by Bret Kinsella on Wed, Aug 11, 2010
Can you imagine waiting 10 weeks for RFID tags? It’s happening today. This does not affect all vendors equally, but there are clearly shortages occurring today and end users should plan accordingly.
Industry insiders tell me that there are two key drivers to the current delays. First, many silicon producers didn’t upgrade their equipment on schedule in 2009 due to the economic climate. This has created capacity constraints at a time when chip demand has been increasing across numerous industries.
The RFID Value Chain Squeezed
Some RFID inlay producers have been plagued by short shipments as chip suppliers can’t fulfill order volumes. This cascades down the RFID value chain as inlay producers then can’t fulfill orders from tag converters keeping inventories low and lengthening order fulfillment lead times. Ford can’t ship cars if they don’t have tires. Converters can’t ship tags if they don’t have inlays. Waiting on inlays turns into waiting for tags.
Walmart Initiative also Increasing RFID Tag Demand
The second driver of the delay is an increase in demand. Although only made public recently, Walmart’s apparel tagging initiative was communicated to its apparel suppliers months ago. Tag manufacturers confirm they started seeing some impact from the program as early as March of this year. This increase is material and is creating capacity constraints at the inlay manufacturing level as well. Reik Read of Robert W. Baird & Co. and publisher of RFID Monthly had predicted a 40% increase in UHF Gen 2 RFID tag inlays in 2010. He is now predicting 125% - 150% tag inlay sales growth for the year.
Beyond Walmart, there are many less publicized areas of increased tag growth ranging from RFID IT Asset and RFID Weapons Tracking to numerous manufacturing, healthcare and consumer applications. Walmart is a key driver, but only represents the tip of the iceberg in passive RFID adoption today.
End User Strategies to Address RFID Tag Shipment Delays
It is important for end users to understand that all types of passive RFID tags use the same precursor materials. Silicon chips are an important component that is part of a larger global commodity market. Silicon demand has increased across the board in 2010 as low inventories and production from 2009 were quickly overwhelmed by demand for chips across a wide range of electronic equipment.
End users don’t need to panic. However, you should plan for it. Some RFID tag suppliers will continue to face this problem for at least another quarter as silicon production is over capacity worldwide and the Walmart initiative continues to grow. Don’t delay your order until the last minute and keep in touch with your tag supplier to track tag shipment lead times.
What about RFID Tag Cost?
Finally, classical economics apply to RFID economics. When there are supply shortages you should not expect short-term price reductions. Most tag suppliers are trending toward record sales in 2010 and there are few incentives today to reduce price to capture new business. The good news is the difference between short and long run economic models. As the industry adjusts to the new capacity requirements and volumes continue to grow, manufacturing costs will fall. As costs come down, several tag suppliers will seize the opportunity to reduce pricing and capture market share.
What have you seen on tag shipment lead times? Comment below.