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The ROI of RFID in the Supply Chain

Although RFID implementations are not without costs and risks, a number of companies in manufacturing, warehousing and distribution and retailing have achieved a 200 percent return on investment.
By Thomas Pisello
Aug 21, 2006Many organizations that produce, distribute, handle or sell goods are researching what RFID can do to improve operating efficiency, reduce business risk and drive additional revenue opportunities. According to Alinean Research, these early RFID projects could cut supply chain costs by 3 to 5 percent and achieve a 2 to 7 percent increase in revenue, thanks to the better visibility and accuracy RFID provides.

Alinean studies show that on average, more than 90 percent of projects require a formal business case justification in order to gain approval. For an organization considering RFID projects that might require significant up-front investment, how can these general early adopter guidelines and case studies be used to ensure that individual programs generate positive business benefits and a tangible ROI? Most importantly, does the value of RFID tagging exceed the implementation costs?

RFID Defined
RFID is being implemented, along with key business-process improvements in many industries, to reliably track goods of all kinds—from cases, pallets and individual items in manufacturing, wholesale distribution and retail applications, to equipment and supplies in government applications, to overnight mail packages and passenger luggage in transportation and shipping. Many of these early adopters have experienced the benefits of bar codes, but realize that RFID can take supply-chain management to the next level. The network effects of a synchronized supply chain will result in numerous benefits, including improved scan reliability, process automation and real-time information access.

RFID provides persistent, real-time identification information with minimal human intervention, allowing more frequent data collection and greater information capture. With RFID, a dock door, conveyor, forklift or workstation becomes an important data-collection instrument that can read and help reconcile the location and status of goods in the supply chain. Armed with RFID, businesses benefit from more accurate insight and improved decision-making capabilities.

The key to an effective RFID business case is to find applications and processes where bar-code scanning efficiency can be increased. The capture of information on products and assets in motion, reduction of human errors from manual scanning operations and improvement of integrity and security are some of the incremental benefits RFID can provide over existing systems.

How Does RFID Drive Tangible Benefits?
RFID technology as a key component of an enterprise mobility solution, combined with appropriate business-process improvements, can result in clear benefits in the following key areas:
  • Automation—reducing manual processes through automated scanning and data entry improves productivity, thus allowing resources to be reallocated to higher value activities.
  • Integrity—improving the integrity of real-time supply-chain information, with increased authentication and security and tracking capabilities, thereby reducing errors, shrinkage and counterfeiting while improving customer satisfaction.
  • Velocity -minimizing the time spent finding and tracking needed assets, in turn increasing product flow and handling speeds.
  • Insight—providing the real-time information needed to make faster, better-informed decisions and the ability to be more responsive to the customer.
  • Capability—providing new applications and quality to meet supply-chain partner demands and enhance customer experiences.

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