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Make the Leap — Now

There are plenty of areas where RFID can provide a return on investment today.
By Bob Violino
May 04, 2003May 5, 2003 - One of the questions I'm often asked is: "Where should we begin deploying RFID technology?" When you look at your operations, it can be a daunting question. But it doesn't need to be. There are many areas where you can get a healthy return on investments today.

This week, we publish the tenth installment of our Special Report on implementing RFID (see Where to Start Using RFID). It describes a wide variety of applications that manufacturers, retailers, distributors can explore in small pilots as they learn about the technology. These are not applications with a theoretical ROI. These are applications where companies are already getting a payback.

If you can get a return on an investment in RFID today, why are so many companies watching and waiting? Three reasons: ignorance, confusion about standards and concerns about the price of the tag. From where I sit, it's a little hard to excuse ignorance, since a $189 subscription to RFID will at the very least educate you about the issues and show you where others are deploying RFID. And the question about standards can be resolved by investing in technology that can be upgraded to work with whatever standards emerge. That leaves the price of the tag.

The price of the tag is important if you are going to replace bar codes on every bar of soap and pack of gum. But even if you could buy RFID tags for a penny today, no company would do that today. The reader and IT infrastructure costs would be huge and the payoff questionable. You have to track pallets and cases profitably before you can even think of putting a tag on an item. Given that, tag costs are already low enough to provide a return on investment.

Don't believe me? Well, now you can estimate the potential return on your investment by using a new calculator developed by the Auto-ID Center (see New ROI Calculator for RFID). I used the calculator's default inputs for a retailer tracking cases and pallets. The default settings are based on industry averages, and the savings assumptions are based on research by Accenture and IBM.

I put in a tag cost of $1 today, falling steadily to 30 cents in 2006. That's a conservative estimate because you can buy tags today for 50 cents from many vendors. I also put in a reader cost of $1,000 falling to $250 in 2006. The calculator came back with some interesting numbers. It said my company would spend $42 million to implement the system, and it could save $25 million annually, which means I'd get a return on my investment in less than two years.

You could argue that the assumptions built into the calculator are overly optimistic. I would agree that real-world implementations almost always cost more than you project. But no one is going to roll out a $42 million, enterprise-wide system in one year. You're going to start small, and how quickly you proceed will depend on whether there is an ROI at each stage.

Moreover, I would argue that the benefits of waiting for the tag and reader costs to fall would be offset by higher implementation costs. Why? Because if you start deploying in a limited way today, you have the luxury of proceeding cautiously. You'll make mistakes, but they won't be huge mistakes that get Wall Street's attention. If you wait until your competitors have a lead, you'll have to roll out an RFID system more aggressively. The mistakes will multiply exponentially with the complexity and the impact of the mistakes will be more noticeable.

I've seen this happen to companies more times than I care to remember. It happened with ERP implementations. It happened with supply chain execution software, and it will happen with RFID. Trust me, folks, explaining to investors that sales are down because you botched a technology implementation is not a pleasant experience for CEOs.

Mark Roberti is the Editor of RFID Journal. If you would like to comment on this article, send e-mail to mroberti@rfidjournal.com.
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