Boosting Profits in a Sluggish Economy

By Mark Roberti

RFID can help companies make more money when sales are growing slowly, by squeezing inefficiencies out of their operations.

You're the CEO of a large manufacturing company. You've outsourced production to a low-cost country, such as China. You've deployed an enterprise resource planning (ERP) system enabling everyone in your firm to share information more effectively. You've cut payroll to the bone. Sales remain sluggish due to global economic conditions. How do you boost profits?

Easy—you attack inefficiencies you haven't yet touched. There aren't any, you say? I'll bet there are. Perhaps you have reusable containers that end up missing and have to be replaced. Or it could that be you have tools being underutilized. Maybe inventory goes missing, or is in the wrong place, and later has to be written off because you can't sell it. Or perhaps there are delays on your manufacturing line, because parts weren't where they needed to be.

In short, there is still a lot of waste involved in the management—or lack of management—of your business' mobile aspects. If it moves, you probably aren't managing it very well.

The reason is pretty simple: Information technology is what enables companies to analyze data and manage it effectively, but IT systems reach only to a PC on a desktop, a handheld computer in the field, or a machine on the line. Everything beyond these devices—parts, raw materials, work in process, inventory, returnable containers, tools, rental equipment, vehicles, workers and much more—are beyond the reach of today's IT systems and are, thus, virtually invisible. And if you can't see it, you can't manage it.

The savviest companies see RFID not as a cost of doing business with a partner, but as an extension of their IT infrastructure—a way to gain visibility into the location and status of all mobile things they are currently unable to manage. The benefits can be significant. Northrop Grumman, for instance, deployed a real-time locating system (RTLS) to track the tools it rents to build fighter aircraft. The company saved enough on the rental cost of one tool used to build advanced fighter aircraft to pay for the entire RFID system.

And it's not just manufacturers. Hospitals and medical clinics have tons of mobile devices as well, and they often pay rental costs on equipment they don't need. Smart hospitals worldwide are adopting RFID to root out these inefficiencies. Bon Secours Richmond Health System, which runs five hospitals in the area of Richmond, Va., is employing RFID to track a wide variety of assets across its facilities. This has increased asset utilization and reduced rental costs, saving the company $2 million annually (see Bon Secours Richmond Finds RFID Saves $2 Million Annually).

Retailers can also improve margins by better managing inventory. The University of Arkansas' RFID Research Center has shown how the technology enables apparel retailers to take inventory more often, with little extra cost. The added visibility of frequent cycle counting increases inventory accuracy.

Although there have not been any studies to prove greater inventory accuracy boosts margins, RFID Journal's Fashion Retail ROI Calculator shows how selling just a few items at or near full price can quickly lead to a 4 percent boost in profits. I bet a detailed study would show RFID actually improves margins by more than that, because when stores are at their busiest, execution is at its worst. That is, when a store is filled with people, employees are focused on helping customers, not on replenishment. Items not sold during the rush are marked down later.

How much RFID can improve your company's profit margin depends on many factors—your industry, the size of your company, the number of mobile assets you use in your operations, and how efficient you are. Another big question is how rigorously you use the technology. Airbus, for instance, plans to use RFID wherever it can improve inefficiencies, so it will achieve more benefits than companies that simply deploy the technology to solve one or two problems.

What's more, when you utilize RFID as an extension of your IT system to manage your mobile assets, the benefits keep accruing. And as you track more mobile things, there is little extra expense beyond tag cost. When the economy picks up, this could enable businesses to grow revenue without significantly increasing costs, leading to even greater profits down the road.

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, RFID Connect or the Editor's Note archive.