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What's Holding Up Rapid Adoption of RFID?

Hint: It isn't the price of tags, as some recent reports suggest.
By Mark Roberti
Dec 17, 2006By Mark Roberti

A spate of news stories last week, based on reports from two market-research companies, suggest the reason radio frequency identification didn't achieve large-scale adoption in the retail/consumer packaged goods supply chain in 2006 was that tags are still too expensive. The truth is, even if tags were a penny a piece, I doubt we would have seen CPG companies buying millions of them to slap on cases sent to retail customers. The reason is simple: Companies don't know how to extract value from tagging large numbers of pallets and cases.

At the risk of stating the obvious, if tags cost $1 each, and you could save $2 per case from using them, you'd see rapid adoption of RFID in the supply chain. If tags cost a penny and you get no benefit, there is no reason to adopt the technology (other than a customer demanding it).

Clearly, then, the issue is not price. Rather, it's return on investment. ROI will drive adoption, not the price of the tag. Obviously, the lower the price of RFID systems, the easier it is to get a return on investment. But several early adopters tell me that they proved in 2006 that some RFID applications can deliver an ROI at today's tag prices.

So why isn't RFID use in the retail/CPG supply chain exploding? Because even the earliest adopters don't have the systems in place yet to seize the opportunity. Take Procter & Gamble. The company has analyzed RFID data supplied by its retail customers and believes that using RFID to make sure promotional displays and newly launched products get to the sales floor when P&G is advertising the promotion or new product could deliver a huge ROI. But P&G isn't tagging all promotional displays and new products yet, because the company and its retail partners need time to put the technology and business processes in place to automate the process of using RFID data to ensure that the displays are out on the sales floor at the right time. Until the partners work this out, they cannot extract value from their RFID systems.

Manufacturers are now working with their retail partners on the systems and processes needed to act on the data and achieve the benefits of the RFID systems. That will take some time. But once that happens, you will see volumes start to ramp up. When volumes ramp up, tag and reader costs will come down. That will enable companies to get an ROI on other applications, but it's foolish to think that a lower tag cost alone will lead to mass adoption of RFID in the retail/CPG supply chain.

There are many companies that did not do the hard work needed to determine where the ROI is, and they might tell analysts that the main obstacle to adoption is tag cost. The analysts should then ask, "At what cost would you get an ROI?" I bet most of these companies would say they don't know.

Focusing on cost isn't going to help anyone figure out when RFID will take off, or when companies will get value from RFID systems. The real questions are: Is there an ROI at today's cost and, if so, when will companies start to realize it? I know the answer to the first question is yes—at least for some applications. The second question is harder to answer, but I'll give you my thoughts in next week's column.

Mark Roberti is the founder and editor of RFID Journal. If you would like to comment on this article, click on the link below.
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Robert Amster 2006-12-23 09:48:01 AM
What's Holding Up Rapid Adoption of RFID? While I agree with Mark Roberti's assessment of the slow adoption of RFID technology, I have to point out that the argument holds true only for supply chain usage of RFID (case and pallet level). The real payback of RFID is in item-level tagging. I'm not too sure why retailers haven't figured that out, or why they have been slow to adopt RFID at the item level. However, i am optimistic...
Edmund W. SCHUSTER 2006-12-23 11:18:25 AM
RFID Adoption In January, the first edition of our book titled "GLOBL RFID: The Value of the EPCglobalTM Network for Supply Chain Management (Schuster, Allen, and Brock)" will be published in the United States by Springer Verlag. In doing the research for the book, I painstakingly sifted through many thousands of articles to identify the essential reasons that will drive adoption for the EPCglobal Network and RFID Technology. In general, the adoption issue seems to reduce to several important things 1) having enough real-world case studies that take a deep look into the value, both quantitative and qualitative, of the technology, and 2) focusing not just on cost reduction but also revenue enhancement, especially in the high value consumer goods industry. The EPCglobal Network and RFID technology are fundamental to the supply chains of the future because these technologies provide the ability to do unique identification on a large scale. All future scenarios of mass customization for consumer goods, pharmaceutical products, and other objects that exist within a supply chains must depend on a robust system of unique identification. Even in agriculture, unique identification is taking on greater importance as farmers apply new precision methods to maximize output and allow for the ability to do track and trace. As with all new technologies, it takes time for businesses to fully understand how to do implementations that will create value. Communication of the issues revolving around adoption is abundantly important. Publications like RFID Journal provide great value through consistent insight and reporting concerning the practical problems, and opportunities, that exist in industry. GLOBAL RFID: The Value of the EPCglobal Network for Supply Chain Management is a better book because we were able to reference articles from RFID Journal. Best, Ed Edmund W. Schuster Laboratory for Manufacturing and Productivity - Data Center Program MIT edmund_w@mit.edu www.mitdatacenter.org Information about our new book: Global RFID The Value of the EPCglobal Network for Supply Chain Management http://www.mitdatacenter.org/GlobalRFID-Flyer.pdf Published by Springer Verlag Try something new - HAVE SOME FUN! http://www.whooptones.com/ Select papers available online: "An Overview of the M Language" http://mitdatacenter.org/MIT-DATACENTER-WH-009.pdf "An Introduction to Semantic Modeling for Logistical Systems" http://www.mitdatacenter.org/BrockSchusterAllenKar.pdf "Controlling the Risk for an Agricultural Harvest" http://mitdatacenter.org/1526-5498-2004-6-3-0225.pdf "Capacitated Materials Requirements Planning and its Application in the Process Industries" http://mitdatacenter.org/JBL98v6%20-%201.5%20spacing.pdf "Master Production Schedule Stability Under Conditions of Finite Capacity" http://mitdatacenter.org/LEC20054-14-05R1.pdf

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