Smart labels contain electronic devices that have read/write memory used to store and access information. The electronic device is a radio frequency identification (RFID) transponder or tag. The RFID technology, like bar codes, is used to automatically capture data. It is different from a bar code in that it can hold much more data, it can be reprogrammed, and its data is accessed by a reader but it does not need optical contact with the reader to be read.

The standard construction of a smart label consists of a pressure sensitive facestock, an inlay, which contains the radio frequency identification transponder, and a liner. The inlay is laminated between the facestock and the liner. The transponder contains an antenna and microchip. The data from the smart label is accessed when the transponder passes by the reader. Radio wave lengths are picked up from the antenna and the data on the microchip is transferred to the reader and then passed on to a computer or printer. As the product moves from one stage to the next its movements can be monitored and data can be updated when necessary. The smart label can identify, track in real-time and authenticate a product.

Some common applications where smart labels would be used are supply chain management, production control, work-in-process, baggage identification and tracking, express delivery services, reusable container tracking and security systems (see Label-Types-Security Labels).

The industry acceptance of smart labels has been slow. The RFID technology can improve performance and efficiency but is expensive to startup. As more companies commit to the use of this new technology it will become more widely accepted and many will benefit from its capabilities.

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