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U.S. government slashes budgets for RFID projects

When Paul Peters spoke at RFID Live last April,  the deputy assistant secretary of defense for supply chain integration for the Department of Defense indicated that the U.S. budget crisis would not slow the deployment of RFID in the Department of Defense.

A year later, government spending on RFID projects has slowed considerably. Since the government is one of the largest consumers of RFID, even a slight pullback can have a major ripple effect through the industry.

When Identive Group released its fourth quarter report on March 1 for the period ended Dec. 31, the company stated that while full year revenue increased 21 percent to $102.7 million, sales to the U.S. government declined by $3.6 million.

Identive’s growth was offset by a decline in sales of enterprise security and identity management systems to the U.S. government due to ongoing budget uncertainty and project delays.

“Our diverse revenue base enabled us to achieve strong growth despite an estimated $3.6 million decline in sales to the U.S. government sector, which continued to experience budget uncertainties and resulting project delays,” Ayman S. Ashour, chairman and CEO of Identive, said in a press release.

At the time of last year’s conference, Peters implied that a reduction in federal budgets would actually encourage RFID adoption, since the technology would help the government save money in the long run. While it’s not clear if Peters’ logistics division saw a cutback, the government in general definitely did.

“Federal spending is down, and the government is not releasing contracts,” said Carl Brown, President of Simply RFID, a firm that helps government suppliers to meet the DoD’s RFID mandate by offering pre-programmed RFID tags, as well as tags for the item, case and pallet level goods being sent to the DoD.

Brown says his firm’s revenue from the DoD fell by more than $1 million during 2011, and his company saw sales from one DoD supplier customer decline by $300,000. Brown actually began to notice a decline in government business three years ago. He says that government-generated revenue dropped to nearly zero during the fourth quarter.

That left Simply RFID with a big glut of RFID tags, as expected customer orders didn’t develop.

“Last year we had to eat a lot of cost,” said Brown. “We over bought labels last year because we thought our suppliers had a lot of commitments from the government. We committed to buy a lot of tags and then we only sold about half of them.”

According to VDC Research, government was the second largest consumer of RFID equipment in 2011. The government sector (VDC includes aerospace with its government statistics) used nearly 520 million tags last year. The government represents the largest tag revenue market not only due to the high amount of passive tags, but because the DoD and other government agencies consume large amounts of more costly active and battery-assisted tags.

“We definitely think that the government market is still growing,” says Drew Nathanson, vice president of the auto-ID practice at VDC. “I’ve heard that some areas are flat, but others haven’t been impacted.

“We think the slowdown is not just because of budget cuts, but because some projects are finishing up and others aren’t scaling up as fast because they are dealing with some kinks. The government is always on the cutting edge and a pioneer, and some of these installation environments are pretty hostile. So there’s a lot of extra work and extra design consultation and system integration that goes into that kind of project.”

One example of that highly hostile environment is the work that ODIN RFID is doing for NATO and the U.S. Navy. As previously reported in RFID 24-7, ODIN is outfitting NATO SeaSparrow missiles with RFID technology to improve maintenance operations on the units. The program could save NATO more than $250 million annually be eliminating unneeded maintenance tune-ups.

According to sources, each NATO missile undergoes an annual maintenance program, at a cost of approximately $100,000 per missile. More often than not, the missiles are in perfect working order and end up getting the expensive tune ups much earlier than actually required.

By deploying RFID to measure environmental factors like temperature, vibration, humidity and the amount of salt air the units are exposed to, NATO can push those inspections out to 24 to 30 month intervals, resulting in huge cost savings while at the same time ensuring those missiles that have had a tough life get serviced when they need it. This could prevent premature failures that are a danger to the warfighter.

“What we are doing for the Navy is developing a system that gives timely feedback on moisture, humidity, temperature, and the number of times g-forces exceed 1.5 Gs,” says Patrick Sweeney, CEO and founder of ODIN, which has transitioned from small weapons tracking to working on large defense projects like the missile program.

When any of the above readings reach a pre-determined threshold, the RFID tags and sensors trigger a signal indicating the unit needs maintenance. The system relies on a combination of active tags and sensors, as well as passive RFID technology.

According to the paperwork the Navy submitted to Congress to gain funding for the project, each missile costs between $1 and $2.5 million to build. Proper maintenance tracking and handling can have a material impact on missile useful life and warfighter safety by preventing pre-mature failures in the missile systems, for example, which renders them inoperable.

For every one percent decrease in missile failures driven by RFID technology, the government estimates a savings of up to $10 million.

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