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Retail giant Wal-Mart was so confident that tagging technology was set to take off that, at a suppliers' meeting, it put a large picture on the wall with the caption: "If your product doesn't have one of these, don't sit down." That was 1984 and the hot new tracking technology was the barcode. Where Wal-Mart led, retailers across the globe followed. Soon there was hardly a product on the shelves without its own set of vertical black and white lines.

Twenty years on and Wal-Mart, now the biggest retailer in the world, has thrown its mighty weight behind another hot new tracking technology: radio frequency identity (RFID) chips. But this time, it is proving a lot harder.

Wal-Mart's move in 2003 to mandate the use of RFID tags appeared to give it a long-awaited boost. At the same time, suppliers began to solidify around the EPC (electronic product code), and standard radio frequencies were largely agreed.

But even with Wal-Mart's backing - or perhaps because of it - RFID is now suffering a backlash from suppliers and consumers alike. For suppliers, the main sticking point is price. Barcode labelling is practically free, an RFID tag currently costs between 20 and 50 cents (11-27p). Wal-Mart admits that the price must fall to 5 cents before widespread adoption can be achieved, yet it has set a deadline of January 2005 for its top 100 suppliers to put RFID tags on all its cases and pallets.

Only one-quarter of Wal-Mart's suppliers believe they will meet the deadline - and Wal-Mart has already backed down on a March deadline for 18 pharmaceutical suppliers to use RFID.

Many RFID advocates - such as consultancy Accenture - have spoken enthusiastically of putting tags on individual items, not just on cases and pallets. But analyst group Forrester Research has done the sums and has written off the notion of the 5 cent tag, for this decade at least. By 2012, the very cheapest tags, ordered in high volumes, will cost 26 cents, it says.

There are other concerns, too. Some retailers say the technology is unreliable; and one big tag manufacturer has recently decided that even the EPC standard is not good enough.

Forrester says that the only way for Wal-Mart's suppliers to meet its January deadline is to "slap and ship" products with RFID tags without integrating them into their own supply chains. That would mean that the suppliers get none of the technology's benefits themselves.

Collecting data in the supply chain and integrating it into back-end systems may be the best and perhaps only way to justify an RFID investment - but it also presents the biggest challenge. As well as planning, training and support considerations, RFID requires a complete change of infrastructure, from reader networking to ERP software.

Microsoft, Oracle and PeopleSoft will all include RFID support in their latest software releases, which should help their customers. But this data gathering aspect has also led to a more public criticism: the threat to privacy. In both the US and Europe, opposition to the unregulated use of RFID tags is growing, because it can theoretically give commercial organisations access to accurate data on spending, movements and preferences. German retail giant Metro, Benetton fashion stores, the San Francisco Public Library and the TSA boarding pass tracking system at airports have all faced the wrath of privacy protesters.

In the US, these concerns have reached legislators. The state of Utah has passed the world's first RFID privacy bill, to ensure retailers notify consumers when their goods bear RFID tags. One senator has called for a congressional hearing on RFID and another in California has introduced a data protection bill specifically targeting the tags.

With all these issues, RFID needs a rock-solid business case. The theory is clear enough. Retailers, for example, can benefit from RFID with much better inventory management, which cuts waste, controls theft, and keeps shelves full. Wal-Mart has said it could gain as much as $8 billion per annum using RFID.

But for others, the case is much less clear. Forrester estimates that meeting Wal-Mart's deadline will cost suppliers $9 million, while German research house Soreon says that suppliers face a three-year negative ROI of 63%.

Neither the economic nor the privacy objections are likely to be overcome in the short term. But other technologies may yet help to popularise RFID: Nokia, for example, recently unveiled its plans for a mobile phone with a clip-on RFID fascia that can read tags. Clearly, more innovations, as well as real cost savings, will be required before Wal-Mart can expect to wean its suppliers off barcodes.