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Report: No RFID Business Case for Manufacturers

According to a report released last week by AMR Research, consumer products manufacturers are still finding it difficult or impossible to economically justify wide-scale RFID deployments.
Oct 12, 2005This article was originally published by RFID Update.

October 12, 2005—According to a report released last week by AMR Research, consumer goods manufacturers are still finding it difficult or impossible to economically justify wide-scale RFID deployments. The report, entitled RFID and CP Manufacturers: Still Battling To Find the ROI, is based on interviews with 20 "Tier 1" consumer products, pharmaceuticals, consumer electronics, and discrete manufactures.

Aside from the umbrella conclusion that widespread RFID still isn't justified, AMR found the following:
  • Manufacturers do see RFID as a worthwhile area for research and development. An interviewee said, "This is a very important pilot. We will spend a couple million dollars to learn about RFID. We will see if it will work or not. If it doesn’t work, we will shut down."
  • They believe in the vision of RFID. The long-term promise of dramatic new efficiencies based on RFID-supplied visibility and tracking capabilities is not in question. What is in question is: when. Most don't see a meaningful transformation for a full five to 20 years.
  • Along those same lines, manufacturers recognize that in their dealings with RFID, they are working with an immature technology. They give it the benefit of the doubt and believe that the quality and reliability will improve with time.
  • Tag prices remain too high. (RFID Update aside: Unfortunately, the tag and inlay pricing recently announced by Avery Dennison, Rafsec, Alien, and others may not be adequate. AMR quotes a manufacturer: "To meet our business case, we would need a retail adoption rate of RFID of 95% over four years and tags below five cents.")
  • Most are not yet deriving value from the new RFID data. There is not enough of it yet, and due to poor read rates and generally unreliable technology performance, the data that has been collected is, by extension, also not seen as reliable.
  • Many manufacturers complain that the retailers are not collaborating with them. Wal-Mart is singled out as particularly unhelpful.
  • Some are finding RFID to be justifiable in focused applications, like internal or closed-loop processes.
To this last point, AMR talks about the diminishing use of the "peanut butter" approach to deployments of "smearing RFID on everything and assuming that [out-of-stocks] will decrease and operational efficiency improve." Instead, targeted item-level tagging on high-value goods, tagging promotional items to measure a campaign's performance, and tagging newly launched products can provide near-term payback.

One area in which RFID can also provide benefits is electronic proof-of-delivery (ePOD), which, according to the report, "would enable manufacturers to reduce paperwork and the cost associated with the proof-of-delivery process, as well as improve cash flow based on quicker payment." Unfortunately, for reasons unexplained, retailers have not been willing to pursue this with manufacturers.

Ultimately, AMR cites technology immaturity and unreliability, the dearth of RFID data analysis tools and methodologies, and high tag cost as the leading impediments to wider adoption by manufacturers. Until these issues are resolved, the report suggests manufacturers begin figuring out how to work with the new RFID data as well as improve collaboration with the retailers.

The full report available here to AMR clients
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