Radio frequency identification devices have been the next big thing in supply chain management for several years. Now Avery Dennison Corp.'s RFID business may finally be ready to take off after years of sluggish growth.

The Pasadena-based label maker is betting that a strategic partnership with wireless communications giant Motorola Inc. will jump start a business segment that has so far failed to generate profit.

Avery Dennison is one of the leading makers of supply chain RFID tags virtually paper thin chips-on-a-label that allow products to be tracked without bar code scanning devices. Instead, the tags emit frequencies that are picked up remotely by readers made by Motorola and other manufacturers.

The technology has been adapted for a variety of purposes, including key cards and library books, but their use in supply chains has been limited because the relatively costly labels that are attached to shipped packages are generally often thrown away after just one use.

"You're seeing two major brands in the industry coming together," said Michael Liard, RFID research director for ABI Research, a firm that analyzes emerging technology markets. "I think that relationship is significant."

Under the agreement, Avery will provide finished tags which consist of a small microchip provided by a supplier, an antenna and packaging for Motorola customers. The two companies also have a cooperative marketing agreement through which they will share client referrals.

The agreement is expected to strengthen Avery Dennison's stature as one of the top three tag makers in the country, while allowing the Schaumberg, Ill-based Motorola to focus on its readers and eventually move out of tag manufacturing, which has become more of a commodity business.

It also follows a recent approval Avery Dennison received from the Federal Trade Commission to move ahead with its acquisition of Paxar Corp., a leading maker of RFID tags for the retail and apparel industries.

"We are still in a net loss position as the business is growing," said Bob Cornick, Avery Dennison's vice president and general manager of RFID. "I think it is an important step forward for both firms."

Unfulfilled promise

The Motorola agreement comes as the industry appears ready to take off after years of promise and incremental growth. The first modern incarnations of RFID were developed in the early 1970s, but RFID did not achieve any sort of commercial application until the 1990s.

Then in 2003 the industry got a big boost when Wal-Mart Stores Inc. began using RFID tags to track inventory. Though the labels are catching on with other big-box retailers such as Best Buy Co. Inc., there are still only an estimated 1,000 to 2,000 companies that use RFID in supply chain management.


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