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Trend Lines, Part I

CEOs concerned about the high-cost of deploying RFID technology need to keep an eye on the bottom line, but they also need to prepare their companies for the future.
By Mark Roberti
Nov 24, 2003Following Wal-Mart’s meeting with suppliers down in Arkansas on Nov. 4 and Nov. 5, a number of analysts have suggested that all of the benefits of RFID tagging go to the retailer, while the manufacturers have to bear the recurring cost of tagging. Some have gone so far as to suggest there is no return on investment in RFID for manufacturers. While ROI calculations are an important part of any
decision to deploy new technology, CEOs also have to look at the big picture. They need to understand how the business landscape is changing, and they must position their company for the future.

When I launched RFID Journal, it was in the belief that RFID would one day be as common in the supply chain as corrugated boxes and that there would be a global system for tracking goods as they moved around the world. I'll deal with the issue of a single global system next week. Right now, I want to explain why all the trend lines point to RFID becoming the next evolution in supply chain technology and why CEOs need to factor that into their thinking.

By 2001, most large companies had achieved huge efficiency gains. They had installed enterprise resource planning software to share data across internal departments, and deployed Internet technologies to link to both customers and suppliers. But a lot of the information going into these expensive systems was bad. Bar codes weren't scanned in the warehouse, or the wrong bar codes were scanned. Someone typed in an order incorrectly. Someone stacked the wrong cases on the pallet. Someone put the product in the wrong place or moved it so others didn’t know where it was. All of this was costing companies money, but worse, it forced managers to make decisions with incomplete or erroneous information. There was no way to fix the situation without throwing a lot people at the problem.

When I first learned about RFID, it was like being hit with a flash of light. Here was a technology that could increase accuracy while reducing labor costs. Here was a platform that, when fully—and properly—deployed, could give managers almost perfect real-time information. Here was a way that companies could take efficiency to a whole new level. It seemed inevitable that the price of RFID technology would come down and the performance and reliability would go up, and we'd reach a point where every company would want to use RFID to track goods in their supply chain.

Of course, I wasn’t the first one to see this. In 1999, manufacturers Gillette and Procter & Gamble teamed with the Uniform Code Council to create the Auto-ID Center (the retailers came later) and begin developing a low-cost system that could be used to track goods in the global supply chain. Today, Wal-Mart, Tesco, P&G and other companies are starting to deploy systems to make this vision a reality.

It's clear now that RFID will one day be ubiquitous in the global supply chain. How long that will take is less clear. Prices will come down, perhaps at a slower rate than some would like or perhaps faster than anyone expects. What we do know is that this is an immature technology. Standards are in flux, and vendors are constantly improving their products. Installing an RFID system is not plug and play yet.

Given these issues, it seems to me that consultants and analysts who are telling their customers to sit on the sidelines are giving bad advice. Yes, they are raising some very important issues. The technology is expensive and not every supplier complying with Wal-Mart's mandate will achieve an ROI within the first 18 months. But that's not an excuse to do nothing.

My advice has always been to start early and start small. Learn, learn, learn. That way you'll be ready to deploy the technology when it reaches the right price-performance ratio (or when one of your customers requires you to start tagging). Whether you like it or not, the business landscape is shifting. Leading companies have not only been learning about RFID, they are deploying it. If you opt to do nothing, be prepared to tell your shareholders: "The good news is we didn't lose money on an RFID system. The bad news is we're losing sales to our competitors at an ultra-high frequency."

Mark Roberti is the Editor of RFID Journal. If you would like to comment on this article, click on the link below.

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