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For ROI from RFID, Size Matters

A new report by Nucleus Research says the biggest return on investment from an RFID deployment goes to the biggest companies.
Feb 20, 2003Feb. 21, 2003 - Many companies are bedeviled by the question of whether to deploy an RFID system. Analysts at Nucleus Research say the technology could help many businesses save a lot of money today. The catch? Those companies need to be large.

In a new report, "2003 Technology Almanac," analysts at the Wellesley, Mass.-based consultancy write that "significant ROI might come to a large manufacturer with a complex internal supply chain, high transport costs, and 100-plus workers devoted to the scanning of bar codes for logistics."
Nucleus Research's Wettemann

In researching their report, Nucleus analysts talked with key IT decision-makers and vendors of RFID hardware and software.

"We focused on what we’ve seen from a number of different users we worked with during the past year or so and on what technology news we’ve heard from vendors that have briefed us," says Rebecca Wettemann, Nucleus vice president of research. "There are a couple of key factors we looked at: Breadth -- how many objects do I have to keep track of? Repeatability -- how often do they move or how often do I need to track them? And cost--how much does it cost me to do that today."

Wettemann cites international shipping companies like Emery as one type of enterprise likely to benefit from using RFID technology, in this case to track the packages they transport. Currently, those companies keep tabs on their cargo by having staff manually scan bar codes affixed to the packaging.

"Bar codes still usually require someone to walk over to the box and scan it with a bar-code reader," says Nucleus analyst Kyle Johnson. "If you’re a small company, those kinds of motions don’t add up to much cost, but if you’re a large company, that could mean several hundred employees and thousands of dollars a year."

An RFID system would totally automate that process, and the labor savings alone could well pay for a system. Other kinds of big companies, such as razor titan Gillette or retail giant Wal-Mart, could achieve similar benefits. What’s more, the value of RFID deployment extends beyond cutting labor expenses.

"Incremental gain in supply chain efficiency will also provide part of that benefit," explains Johnson. "What specifically is that benefit? It’s very much case by case. But if they have a lot of idle inventory -- not knowing where supplies are and therefore ordering more than they need -- RFID might well bring significant returns."

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