As prices fall and systems improve rapidly, manufacturers are finally starting to embrace the electronic tagging technology .

It used to take seven workers to unload materials at Boeing's Auburn (Wash.) plant where the aircraft maker builds parts for its planes. A supplier would send three employees along with a load of material, such as aluminum plates. Those workers would be greeted by four Boeing employees to help get the stuff into the building through a giant, 24-foot-wide doorway and to manually enter the batch's bar codes into the aircraft manufacturer's computer system. The data entry alone took about two hours a day for each of the Boeing employees.

No more. Now the only worker needed to move the parts is the supplier's truck driver who delivers the goods. Boeing has no employees of its own working the door. What happened? In three words, radio frequency identification (RFID).

Last September, Boeing began attaching RFID tags, which are tiny squares about the size of your big-toe nail, onto the side of the carts holding the plates. The tags carry a unique identifying number that, when scanned by a special RFID reader, lets Boeing know that a pallet of material just arrived. As the carts are carried on a forklift through the giant doorway, the tags are scanned by such a reader, located on the door frame. Within seconds, the reader notifies Boeing's computer system that another order has just arrived, and the system wires money to the supplier. The RFID system, which cost $16,000 to set up, has saved Boeing $29,000 in labor alone during its first six months of operations.

"A NO-BRAINER."  Boeing is so happy about those savings, it's about to up its bet on RFID. It plans to roll out the technology to three more manufacturing facilities on the Auburn campus in the next seven months. Boeing is also testing RFID in tracking tools and supplies in its 737 assembly plant in Renton, Wash., and its 777 plant in Everett, Wash. With the potential for big savings in labor costs, "RFID is a no-brainer," says Tim Burke, a Boeing program manager.

That wasn't always how manufacturing execs saw it. The technology has been around for at least a decade, but early adopters tell horror stories about pricey RFID systems that break down and can accurately read only 20% of the tags. However, thanks to efforts by Wal-Mart  and the U.S. Defense Dept. to mandate the use of RFID, it's getting a second chance.

Like many other nascent technologies, RFID has improved with age, and many former pitfalls are getting cleared away. RFID has become more reliable and less costly. Take Boeing. It says its RFID system works 99.8% of the time, failing to read just 21 tags out of more than 18,000 from September to March. That's negligible compared to the occurrence of human error when deliveries are entered manually.

HITTING HIGH GEAR.  More important, RFID system costs have come down, finally making the technology's return on investment attractive. While several years ago, the simplest RFID tags cost $1 to $5, they now sell for 25 cents to 50 cents. And tag prices are still dropping -- expected to reach 20 cents this fall as suppliers deploy new, materials-saving manufacturing processes. "[RFID] is worth millions of dollars in cost-avoidance for Boeing," says Ken Porad, a program manager who has been leading Boeing's RFID effort.

Now manufacturers are starting to incorporate RFID on their own accord, to better manage their inventory and to track work in progress, storage containers, and tools. "Over the past year, it has become clear that it's not just the mandates [from Wal-Mart and Defense] where the technology can be used," says Vivek Khandelwal, a manager of RFID industry services at server maker Sun Microsystems , which has pilot-tested RFID in its production.

Indeed, RFID adoption among manufacturers is about to go into high gear. As many as 40% of all U.S. manufacturers -- in industries as diverse as aerospace, pharmaceuticals, semiconductors, automotive, and mining -- will deploy RFID by 2010, up from under 10% today, estimates Kara Romanow, an analyst with AMR Research. That's a tremendous jump, considering that most companies using RFID today are running only limited trials.

SHARP ESCALATION.  That's also going to make the cash registers of RFID suppliers, including Intermec Technologies, Texas Instruments , Philips, Alien Technology, and Boeing vendor Symbol , start to ring with an ever-increasing frequency. The $1.7 billion RFID industry is expected to balloon to $5.9 billion by 2008, according to technology market researcher Venture Development.

RFID suppliers should see a sharp escalation in demand in mid-2006. That's when manufacturers are expected to first start moving from pilot tests to large-scale RFID deployments as new, industry-standard RFID technology comes to market, says Tom Miller, president of RFID systems supplier Intermec, part of automation giant UNOVA Called Gen 2 RFID, these new readers and tags will be cheaper, a lot more accurate, and work at distances up to 30% longer than their predecessors.

Many manufacturers have been waiting to deploy RFID until Gen 2 comes out in late 2005 to early 2006. That's because this long-awaited new technology is incompatible with previous generations of RFID. But when it does hit the market, manufacturers should start moving to RFID full speed.

WI-FI TO THE RESCUE.  As they adopt Gen 2, they'll find that implementing RFID isn't the headache it used to be. Testing RFID has become a lot less painful. In the past year, server maker Sun has opened three test centers -- in Dallas, Singapore, and Korea, complete with conveyor belts moving at 600 feet a minute. The centers allow customers to test-drive RFID technology without disrupting their own manufacturing processes. Hewlett-Packard  opened an RFID testing center in Omaha in January.

What's more, RFID no longer requires a mountain of special add-ons to corporate networks. Manufacturers that have installed Wi-Fi, a wireless broadband access technology, on their factory floors can use these networks to capture information from RFID tags without the help of RFID readers. Mining company Inco uses this setup to track the location of vehicles, containers, and drills within its Sudbury (Canada) mines. Using an existing Wi-Fi network, companies can save up to 50% of the cost of RFID deployment, says Gabi Daniely, vice-president for marketing at Inco's RFID vendor, San Mateo (Calif.)-based AeroScout.

Major customization and tweaking of corporate software systems have become unnecessary, too. RFID feeds, for example, will be a standard part of Microsoft's  enterprise-resource-management software, used to track products through the manufacturing process and due for release in the first half of 2006. "Customers tell us today that RFID is harder to deploy than it should be," explains Steven Martin, group product manager at Microsoft.

AUTOMATIC ALERTS.  With RFID becoming easier to install, and less costly, other companies are finding new uses for it. Tools and equipment vendors are starting to make RFID a standard part of their wares used by manufacturers to improve asset management. In April, power-tools maker Bosch began shipping tools for production-line maintenance with tiny RFID tags embedded into their handles. The idea is to prevent employees from "walking away" with tools, while making locating misplaced gadgets easier as well.

Although RFID adds 2% to 5% to the tools' price, seven companies are already getting ready to test the technology, says John Doherty, a product manager at Bosch. "We are very pleased with the response. It's cascading," he says. "It's [a revolution], sort of like moving from analog to digital phones."

RFID's benefits have extended even further. Business-intelligence software from the likes of SAP , OATSystems, and T3Ci helps managers analyze daily trends in inventory buildup. AeroScout has just come out with a new version of its MobileView software that compares the way an RFID tag travels through the manufacturing process with how it's supposed to move. If a product skips a production step, the software sends a short text message or an e-mail to the plant manager. Or it can leave the boss a voice mail.

In the future, RFID's importance for making business decisions will grow, as the tags start incorporating more memory as well as a slew of sensors, recording things like temperature and noise levels. "If you view it as a sensing technology, the possibilities are limitless," says Chantal Polsonetti, a vice-president at manufacturing consultancy ARC Research Advisory Group. Then, manufacturers will have far more information about their businesses at their fingertips.