May 25 2023

What Is RFID and How Does It Work?

Radio frequency identification has been around for a while, but now it’s primarily used for supply chain management and tracking inventory.

Modern conveniences such as self-checkout and contactless payments are often taken for granted. Because of this, it’s natural to overlook the critical technology that makes such everyday efficiencies possible. We frequently use technology without knowing how it works — and that’s all the more reason to understand its history and use cases.

What Does RFID Stand For, and How Has It Evolved?

 RFID, or radio frequency identification, is a way of using electromagnetic waves to identify and track objects. Its origins date back to World War II, when the British developed a system they called Identify Friend or Foe. IFF used radio waves to (as the name implies) distinguish between friendly and enemy aircraft, which helped the armed forces avoid friendly fire and detect enemy planes.

After the war, RFID technology advanced and diversified through experimentation, evolving from a warplane identification tool to a multi-object identification and tracking device used in business. Today, RFID is used in retail stores, libraries, scientific laboratories and many other places. It’s even used to track and identify pets.

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How Did RFID Originally Work, and How Does It Work Now?

In the beginning, as IFF, RFID was used on British planes with transponders that would answer with a coded signal when intercepted by radar. These transponders made it easy to pinpoint the location and destination of each plane. While there’s now greater diversity among RFID technologies, such as passive and active tags, it relies on a similar process today.

A basic RFID system has four components: a tag, an antenna, a reader and a database. RFID tags consist of an integrated circuit and an antenna, held together by protective material that shields it from environmental conditions. The tags are attached to the desired assets, where they store data and transmit it to an RFID reader through the antenna.

Though similar in their application, there is a key difference between RFID and barcode technology. To gather data, a barcode scanner has to scan the barcode; because RFID readers use wireless technology, they don’t require a direct line of sight to read the RFID tags.

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The percentage of companies that plan to increase their spending in RFID

Source: MHI, 2022 MHI Annual Industry Report, March 2022

There are two types of RFID tags: passive tags, powered by the electromagnetic energy from an RFID reader; and active, or self-powered tags. Both can be read at a distance. Passive tags can be read from 25 meters out and active tags can be read from a distance of more than100 meters. The tags can be embedded on or hidden within the asset, and multiple tags can be identified at once by a single reader. Ultrahigh-frequency RAIN RFID readers can detect upward of 1,000 tags per second.

These benefits explain why 52 percent of companies are increasing their investment in RFID sensors and automatic identification. Among those who don’t use RFID yet, 27 percent plan to adopt the technology by the end of 2023.

How Is RFID Used Across Industries?

RFID technology can be used in all types of organizations and industries, including aerospace, manufacturing and healthcare. RFID use cases generally fall within one of the following categories.

Tracking: Whether in a retail store, a manufacturing warehouse or a hospital, keeping track of inventory is essential to operational success. Inaccurate inventory tracking can result in erroneous reports about product performance; leave organizations unaware of employee theft or other shrinkage (a $94 billion problem in the U.S. alone); or, worse, stop a healthcare system from reordering lifesaving medicine. With easy, expansive and instant wireless tracking capabilities, RFID technology helps improve the accuracy and efficiency of inventory operations, eliminating the need for manual data entry (and the human error that often accompanies it) and providing real-time updates on the location and status of tagged objects.

Automation: Inventory tracking isn’t the only process RFID technology can automate. Have you ever used a contactless, near-field communication credit card for a tap-to-pay payment? NFC is actually a subset of RFID, and the technology has long been automating processes for consumers and producers.

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The tech can also be applied to self-checkout. Scanning products physically can be time-consuming, especially as barcode systems have an accuracy rate of only about 70 percent. By contrast, RFID can scan many objects all at once and guarantee up to 100 percent accuracy. With U.S. retailers losing an estimated $38 billion in annual revenue when potential customers choose to leave empty-handed rather than wait in long lines, this increased efficiency promises a high return on the investment.


The percentage rate of inventory accuracy from RFID scanning

Source:, “Impact of Item Level RFID on Inventory Accuracy,” Aug. 27, 2020

Management: The accurate, real-time data that RFID provides equips IT leaders with the information they need to make informed business decisions, especially as they relate to supply chain management. The information RFID technology provides can be used to optimize stock levels, identify inventory bottlenecks, sharpen transportation within a supply chain and ensure overall operational efficiency.

RFID may be an unsung hero of technology, but with such vast use cases, its impact can’t be overstated. As it continues to evolve, RFID technology will continue to support everyday conveniences and ultimately promote the success of multiple enterprises across industries.

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