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.
RFID Costs and Considerations
RFID is a significant business investment for most organizations, requiring a commitment to a particular solution and the dedication of resources and funding to implement the project. There are several considerations for RFID solutions today, including:
- Tags—The cost per RFID tag has come down significantly over the past several years, reaching 10 cents per tag in 2006 versus 25 to 30 cents per tag in 2004. The good news is that with demand increasing—yielding economies of scale—and production costs declining, tag prices are expected to reach even lower levels over the next few years. For the short term, it typically makes sense to place the tags only at the packaged product level (pallet or carton) and on high-margin products, with the current standard being where the tag represents less than 1 percent of the total cost of good sold.
- Readers—Reader costs are modest, between $2,000 and $3,000 per reader, including installation and accessories such as repeaters, multiplexers and networking costs.
- Tag and Reader Survivability—Many warehouse, distribution and retail environments are hostile and can result in damaged tags or readers. These damaged systems might fail to work as expected. Error-detection and repair budgets should be in place to help minimize the impact and costs of downtime. The most resilient RFID solutions should be purchased from RFID suppliers with proven reliability. Over time, dealing with equipment failures or errors on the back end will be more expensive than making the proper up-front investments in reliable equipment and solutions.
- Software and Integration—The cost for software and integration is higher, averaging $500,000 for a small deployment to $2 million or more for a large installation. An additional 18 to 20 percent should be budgeted for ongoing maintenance and support. Special customization can drive the initial costs higher, depending on the complexity of the application development and integration project.
- Data Warehousing—Many organizations may not be ready to transmit, store, process, interpret or integrate with current supply-chain management and enterprise systems, or the mountains of real-time data that RFID will produce—the location of pallets, cases, cartons, totes and individual products in the supply chain; the activities of picking, packing and shipping; and the tracking of expiration dates and recalls are just a few examples. An investment in RFID requires modification investments in data warehouse and database systems, as well as the business intelligence applications and dashboard systems they support, in order to analyze the metrics to turn data into information.
- Business Processes and Systems Integration—The business processes around data collection and information processing are often not in place, and key systems need to be connected and integrated with the collection and database systems. The process changes and integration need to be developed in order to take advantage of many of the benefits.
- Edge Computing Power—At the distributor or retail level, most remote systems are not powerful enough or configured to handle the data and information workload required to make RFID effective at the product level. In order to reap the rewards, a large investment in computing power, bandwidth, storage, IT operations and administration per location will need to be made.
- Redundancy With Existing Bar-code Systems—Often, the RFID solution does not replace current bar-code systems, requiring that companies maintain both data-collection systems and processes. In some applications, RFID will eventually supersede the bar-code system. In others, the investment will be maintained. It is important not to overstate the system cost avoidance or current bar-code scanning labor savings if both systems are still