Jun 29, 2009Last week, the venerable New York Times ran an article on the bar code turning 35 years old (see Game Changer in Retailing, Bar Code Is 35). The article contained this jarring statement, which immediately jumped out at me: "Bar codes, after all, cost just half a cent each, while the electronic tags used in RFID cost more than 5 cents each."
I'm not sure where the writer came up with such prices, but what bothered me was the implication that bar codes are cheaper than radio frequency identification. That's simply untrue—and yet, it's a myth preventing many companies from benefiting from RFID (granted, some people want to believe it so they can use it as an excuse not to change).
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Saying bar codes are cheaper than RFID tags is like saying a wood-handled hammer is cheaper than a nail gun. Well, yeah. But it takes a mere fraction of the time to finish a job with a nail gun than it would with an old-fashioned hammer. Similarly, apparel retailers have found that it takes 75 percent to 80 percent less time to complete a store inventory with RFID than with bar codes.
Lets say there are two apparel stores, each containing 15,000 items. The cost of the bar codes in Store A, at half a cent apiece, would be $75. The cost of the RFID tags in Store B, on the other hand, would be $750 at five cents—but just to be sure, let's use a figure of $1,500, since the cost might be closer to 10 cents. In the course of a year, let's say each company sells 250,000 items. The cost of the bar codes for Store A would be $1,250, while the RFID tags for Store B would cost $25,000. Bar codes look like a much better deal, sure—but remember, neither store has yet taken inventory.
Let's say each location decides that in order to maintain an inventory accuracy of 98 percent, it will conduct inventory twice daily—once upon opening, and again when closing. Each day, two employees at Store A would take a total of 10 hours to scan the bar codes on every item. The total labor cost would be $100 per day, or $36,500, assuming the store remains open 365 days per year. At Store B, meanwhile, it would take one worker two hours to read all of the RFID tags. The total labor cost each day would, thus, be $20—or $7,300 per year.
Collecting the data necessary to operate efficiently with bar codes would thus cost Store A $37,750 ($1,250 for bar codes, plus $36,500 in labor), whereas it would cost Store B $32,300 to collect the data it requires ($25,000 in tags, plus $7,300 in labor). So collecting the information needed to maintain a high inventory accuracy would actually cost more with bar codes than with RFID.
I realize I've simplified things in this example. You would also need to factor in the cost of handheld bar-code interrogators, RFID scanners, software and so forth. But you get the point, and there should be no disputing it: Collecting data is not cheaper with bar codes than with RFID tags.
The reality today is that most stores conduct inventory twice per year, not twice every day. Why? Because it's too expensive to hire people to scan bar codes twice daily. As a result, inventory accuracy in most apparel stores is approximately 65 percent—and that means the companies are losing a lot of sales. Since American Apparel began employing RFID to take inventory in its stores, however, it has found sales increasing by more than 14 percent. It seems to me that businesses not implementing RFID are missing out on an opportunity to cut costs while boosting sales, because of this crazy myth that bar codes are somehow cheaper, which is often perpetuated but is most certainly not the case.
Now let's say you're Store C. By installing an RFID system and taking inventory twice a day, you could boost your sales by 14 percent. That's an additional 35,000 items, assuming 250,000 items were sold annually before you implemented RFID. At an average selling price of $10, you would make an additional $314,200 every year ($350,000 in additional sales, minus $32,300 for RFID tags and labor on the original 250,000 items, and $3,500 in tags for the additional sales).
I guess the real question, then, is this: Why isn't Wall Street demanding that publicly traded apparel companies use this technology?
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.
