Among retailers and manufacturers, it's the big players with deep pockets, such as Wal-Mart, Procter & Gamble and Gillette, that typically are associated with wireless inventory-tracking projects based on radio frequency identification technology. Microsoft is aiming its forthcoming RFID wares at a less elite - but no less interested - market.

Last week the software maker announced its Microsoft Business Solutions group is working on RFID products for small and midsize consumer product and retail companies. Microsoft's plan is to offer packaged, plug-and-play RFID capabilities that work with its existing ERP applications for manufacturing and distribution.

Specifically, Microsoft plans to add RFID features to upcoming releases of its Axapta and Navision products in 2005. The vendor also plans to release an RFID-enabled version of Microsoft Retail Management System in 2006.

Microsoft is not alone in adding RFID capabilities to its business software; ERP and supply-chain management vendors including Manhattan Associates, Manugistics and SAP are building RFID capabilities into their suites.

But Microsoft's emphasis on smaller users is distinct. Small and midsize businesses have been left out of the early development of RFID, according to Nigel Montgomery, director of European research at AMR Research.

The good news

"Microsoft's presence in RFID is good news for smaller companies, putting pressure on other vendors to package complete systems. It will also likely push price points down," Montgomery wrote in a research brief.

Analysts expect a dramatic increase in the adoption of RFID-enabled technology, fueled by mandates from Wal-Mart and the U.S. Department of Defense that suppliers start tagging pallets and cases with RFID labels. IDC predicts spending on RFID software, hardware and services for the U.S. retail supply chain will increase from $8.5 million in 2002 to nearly $1.3 billion in 2008.

To get some experience with RFID, Microsoft has been working on a pilot project with KiMs, a midsize Danish manufacturer with about $67 million in annual revenue, 270 employees and 100,000 pallets of snacks shipped per year. The project is the first venture into RFID for Microsoft Business Solutions, the company says.

Last June, KiMs rolled out Microsoft's Axapta software for its manufacturing, raw-materials procurement, sales order management and warehouse management. That implementation was the foundation for the RFID pilot, which KiMs took live in December after a three-month design and development cycle.

At KiMs, RFID tags let the company monitor pallets of finished goods as they moved out of production and into a warehouse. The data is fed into the Axapta warehouse management software, which Microsoft altered so it could capture and manage data generated by RFID readers.