Do You Really Need to Justify Your RFID Investment?

Nov 02, 2009I've been making the case for years that while radio frequency identification can solve many individual business problems, companies, governments, libraries and other organizations should deploy it as infrastructure. That is, rather than buying a system only to track assets, promotional displays, patients or parts, they should purchase a system that handles many applications—just as they use the Internet for a lot more than just e-mail. If CEOs start to think of RFID as infrastructure that is essential to managing their business, then justifying the deployment with a return on investment (ROI) becomes less critical, maybe even unnecessary.

Let me explain. Very few companies, if any, justified their investment in Internet technologies with an ROI study. Why? Because having an Internet site was essential—it was expected in order to seem like a legitimate company—and because it enabled many different applications, which made determining the ROI difficult. Similarly, companies don't conduct ROI studies on computers for their employees, because people need them to do business.

I know what you're thinking: "But no one needs to have RFID." In my view, that's just wrong. Almost every midsize to large company needs to have RFID—they just don't know it yet.

It might sound like I've gone off the deep end to say companies don't know what they need, but let me ask you this: In 1995, did your firm think it needed the Internet? In 1990, did your company think it needed cell phones? In 1980, did your business think it needed computers? In all three cases, the answer is almost certainly no. Yet, today, no company could imagine conducting business without any of these technologies.

So does your company need RFID? Almost certainly, the answer is yes—but until you have the technology, that will not be abundantly clear. That's because businesses have to accept inefficiencies in their business until a new technology comes around, enabling them to eradicate it.

Rewe Group, a European retail and food group, used to have to replace 10 percent of its roll cages each year because the company had no cost-effective way to track them, said Sven Jürgens, Rewe's project manager, at last month's RFID Journal LIVE Europe 2009 conference. Rewe has deployed an RFID system that can track roll cages in real time as they pass through dock doors, and it hopes to install the system eventually in 29 distribution centers, achieving real-time visibility into the cages' locations at all times (see Rewe Deploying Long-Range Real-Time Location RFID System).

A few years ago, we reported that Air Canada was spending a million dollars each year to replace food carts that went missing (see Air Canada GETS Asset Tracking). Since it deployed an RFID system to track those carts, the airline has reduced the number of food carts it loses each year by more than 80 percent, while also saving time and money taking inventory. In addition, the system delivered an unexpected benefit: Air Canada is saving money on trucking fees.

Other companies report benefits they didn't know they would achieve as well, such as a 90 percent reduction in parts handling and a 90 percent decrease in the amount of time required to take inventory. We've done case studies on businesses that have reduced their tool-rental charges by hundreds of thousands of dollars annually. In some cases, the RFID data allowed them to see they weren't using a tool or piece of equipment nearly as much as they thought, so they were able to dramatically reduce rental costs.

The point is, RFID lets you manage what has, to date, not been manageable—people, assets, tools, equipment, containers, inventory, vehicles, files and more. If you deploy it as an infrastructure technology, it will deliver myriad benefits over time, and then calculating an ROI on a specific application becomes less important.

I don't expect companies to rush out and deploy an enterprise-wide RFID system. But a smart strategy is to create a roadmap for an RFID infrastructure that can improve the way you do business in a wide variety of ways. Then, start deploying the infrastructure in stages. Create a system that solves one problem or delivers one benefit, then phase in the next aspect of the system by adding interrogators and tagging more objects. Each new application will deliver benefits, and help expand the infrastructure. Your company will steadily reduce its cost structure, while perhaps improving its customer service. By the time your competitors decide they, too, need RFID, you'll have achieved a significant cost and operational advantage.

Mark Roberti is the founder and editor of RFID Journal. If you would like to comment on this article, click on the link below. To read more of Mark's opinions, visit the RFID Journal Blog or click here.