Apr 01, 2002April 1, 2002 - I often hear skeptics say that RFID will never take off because tags will never be as cheap as a bar code. Why? Because you can print a bar code right on the box or wrapping of an item. The cost of the additional ink used is negligible. But are bar codes really free?
Of course not. Companies have to invest in scanners and software systems to take advantage of the information from bar codes, just as they'll have to invest in RFID readers and software. That's an obvious cost that even skeptics acknowledge. What's less obvious is the cost of scanning bar codes. One study of the grocery industry found that it costs, on average, 7 cents in human labor to scan a bar code. (I've been unable to track down the study and how this number was calculated. If you have any information about it, please send me an e-mail.)
And bar codes only provide a manufacturer and product type. It doesn't identify individual items. If you need that capability, RFID may already be competitive with bar codes. Intellident, a British integrator that has designed both RFID and bar code systems for grocery chains (see Case Study on Marks & Spencer), provides some interesting cost analysis.
Intellident gives the example of a retailer with 400 stores, eight distribution centers, 300 suppliers and a just-in-time Inventory policy. To keep goods moving, the retailers have approximately three million "traded unit" containers – crates, roll cages and pallets. Most of these move twice a week from suppliers to stores and are returned randomly.
To bar code an average number of container each time they move takes 300 million individual labels at a cost of around 10 Euros ($8.72) per 1,000 using on-site printers capable of providing the variable data required, such as "best before" date, store locations, product grade details and so on. That's 3 million Euros ($2.6 million) per annum, including print consumables, labor and captive depreciation.
In addition, labor is required to put each label correctly on each plastic crate holder or panel at a rate of 20 per minute at say 8 Euros per hour. That comes to about 2 million Euros per year ($1.7 million). Add a 5 percent, or 250,000 Euros per year ($218,000), for label changes and replacements for "non readable" codes. And add another 500,000 Euros per year ($436,000) in administrative costs for labels that aren't read properly, which causes inventory errors and non-compliant returns and penalties.
It is easy to accumulate a cost for bar code labeling and scanning of over 3 million Euros per year excluding equipment depreciation or labor. This cost is incurred for each and every year because new labels have to be put on forever. By comparison, to secure a read/write electronic tag to those same 3 million containers, for repeated depreciated use over, say a minimum of 10 years, the capital cost is around 3 million Euros - a tenth of the cost of the labeling operation cost per year, according to Intellident.
The point here is not to argue that every company needs to move swiftly to adopt an RFID system. It's to point out that the knee-jerk arguments against RFID are often misguided. Companies need to think seriously about what their needs are and then examine the costs carefully. Bar codes are neither as cheap nor as effective as many RFID bashers would have you believe.
Mark Roberti is the Editor of RFID Journal. If you would like to comment on this article or submit your own, send e-mail to
mroberti@rfidjournal.com.
