CIOs at retail companies also will have to work with their counterparts in their supply base to find ways to get product to the stores before the stores are sold out of an item. Studies show that products are out of stock in the grocery and mass-merchandise sector an average of 7 percent of the time. Procter & Gamble Co. has commissioned research that reveals that out-of-stocks on some fast-moving items can be as high as 17 percent.

As Wal-Mart pushes forward with RFID technology, the network effect is likely to spread quickly. If P&G is tagging pallets and cases for Wal-Mart, it's not difficult for P&G to do the same for Target Corp. and other retail partners. That provides incentives for other retailers to follow Wal-Mart's lead.

And the benefits of RFID won't be limited to the retail and consumer goods industries. Wal-Mart is the world's largest tire retailer. The Transportation Recall Enhancement, Accountability, and Documentation (TREAD) Act requires automakers to be able to uniquely identify tires on cars from the 2004 model year, so the tires can be recalled more effectively. If Wal-Mart uses EPC tags on tires, it would make sense for automakers to use the same tags, which will be less expensive than specialized tags produced in much smaller volumes.

As more companies adopt the technology, the price of RFID tags and readers will drop sharply and all kinds of new applications will become economically viable. Manufacturers will be able to put tags on parts to enable them to more efficiently customize their products. Pharmaceutical companies will be able to ensure that their drug products are not counterfeited. Farm products will be tracked from the stable to the table, ensuring freshness and the ability to quickly recall tainted meat. The improvement in productivity will dwarf the gains seen during the Internet era. But given the complexity of implementing this technology, companies that don't move quickly will wind up at a severe competitive disadvantage.

Mark Roberti is founder and editor of RFID Journal, an independent Web site that covers business applications of RFID technology.

Next page: The bottom line for Wal-Mart's RFID efforts.