Italian Retail Pilot Quantifies RFID's Many Benefits

According to Rizzi, the pilot proved radio frequency identification can add value not only to logistics and supply chain processes, but also to other business processes. For instance, he says, the technology proved to be a viable tool for automating invoicing through RFID proof of delivery. "We statistically demonstrated from the field that sooner or later, a case shipped from the supplier to the retailer will be read at a retailer's read point. Data collected at that reading could thus be used to initiate an automated invoicing process, avoiding all administrative costs of managing invoicing manually and rectifying discrepancies," Rizzi says. "This could save a retailer like Auchan about €135,000 [$168,000] a year, and a manufacturer like Parmacotto about €65,000 [$81,000] a year."

As far as the customer service issue is concerned, RFID provides information that is currently otherwise unavailable, such as product availability and freshness. "As an example," Rizzi explains, "through store read points, we were able to punctually assess the residual shelf life of each case taken to the shelf. For a product expiring in 30 days, it is important to grant the customer the longest possible residual shelf life. During our tests, we were able to determine that goods were on the shelves an average of 25 days."

Based on a variety of similar calculations, Rizzi determined a return on investment for each type of company involved. "A manufacturer such as Parmacotto could actually realize a negative ROI by tagging all cases produced," he says. "The manufacturer is, in fact, burdened by relevant tagging costs. These costs cannot be balanced by internal efficiency improvements. These figures could be completely different if the potential benefits from visibility and out-of-stock reductions were high enough."

In addition, Rizzi calculated that the ROI could be as high as 75 percent during a five-year period, based on Parmacotto's annual sales of €150 million ($186 million). A DC could achieve 155 percent return on investment, and a retail store may get as much as 60 percent ROI.

Project participants are interested in continuing the work in 2009, with a pilot involving different manufacturers and a wider variety of products. Such a pilot, Rizzi notes, may employ RFID in conjunction with sensors to track temperature and humidity levels.