Labor Savings Can Be Illusive

By Mark Roberti

While RFID can reduce the amount of time and labor needed to do a job, the ROI comes from the technology's other benefits.


Many companies that sell radio frequency identification solutions base their sales pitches on the claim that their systems will deliver a return on investment within 18 months. Frequently, the basis of this claim is a significant savings on labor. But end users are often skeptical—and with good reason. While RFID can often reduce the amount of time and labor spent on a task, this savings rarely flows to the bottom line. It is not a shortcoming of the technology, but rather of the sales pitch.

Take the case of hospitals. RFID-based real-time location systems (RTLS) can reduce the amount of time each nurse spends looking for oxygen pumps, incubators and other medical equipment by as much as 30 minutes per day. If the average nurse makes $30 per hour and a hospital has 100 nurses each working 20 days per month, that’s a savings of $30,000 per month ($15 per nurse per day worked). But hospitals can’t force nurses to work 7.5-hour shifts, and few hospitals lay off nurses after deploying asset-tracking systems. So the hospitals save nothing in labor, though patients typically benefit because nurses can spend more time caring for them and less time searching for equipment.

Companies that can’t achieve any hard savings from reduced labor costs should factor the hard benefits RFID delivers into their ROI models.

The situation is similar in apparel retail. Studies conducted by the University of Arkansas’ RFID Research Center show that employees can take inventory with RFID in about 90 percent less time than it takes with bar codes. But in most cases, retailers do not take daily inventory with bar codes, and when employees do periodic cycle counts in stores, it’s during a time when there are few customers on site. Switching to RFID will reduce the amount of time retailers need to take inventory, but it’s unlikely they will reduce staff levels. Instead, they will have employees do more important tasks, such as replenishing stock or serving customers.

RFID can deliver labor savings, most notably in situations when companies would traditionally hire extra workers to take inventory or perform data collection. For instance, manufacturers, distributors and retailers typically hire temporary employees during holiday seasons to help count and track items. Because RFID allows workers to count large numbers of items quickly and accurately, companies that deploy the technology are less likely to need extra help during peak periods.

Does this mean RFID won’t deliver an ROI? Not at all. Those companies that can’t achieve any hard savings from reduced labor costs should factor the hard benefits RFID delivers into their ROI models.

Increased revenue: RFID can improve the top line. In apparel retail, for example, taking inventory more frequently with no extra cost (because RFID is so much faster than bar codes) lets stores do a better job of having items on the shelf when customers want to buy them. That means stores sell more items at a higher price (fewer markdowns), which increases revenue.

Better store execution by retailers results in more sales for apparel suppliers as well. And if the suppliers use RFID to ensure they ship the right items every time, they’ll see fewer lost sales and higher revenue. Suppliers that are more responsive to their partners’ needs may also gain market share.

RFID can help hospitals increase revenues as well. Several hospitals have deployed systems that link tagged equipment to specific patients. As a result, patients are billed automatically for specific services. In the past, a certain percentage of procedures went unbilled through clerical errors.

Reduced capital expenditures: One of RFID’s biggest benefits is the ability to reduce the amount organizations spend each year to replace reusable containers, tools, mobile equipment and other mobile assets. It’s easier to track down items when a company knows what they were used for and where they were last seen. And RFID provides the visibility companies need to know which assets are being used at any given time—and which are not. This allows them to boost asset usage rates and spend less to replace or add assets.

Reduced shrinkage: Retailers report that just RFID-tagging inventory leads to a drop in employee theft, because workers know their employers are carefully tracking items. Data analysis can often reveal which employees are working when items go missing, allowing the retailer to investigate losses and take action.

Manufacturers and hospitals also report fewer losses of high-value items after deploying RFID systems. Factories can track tools, containers and other assets that are often stolen or lost. Hospitals say they can do a better job of tracking items such as oxygen pumps, gurneys and wheelchairs that travel with patients to other medical facilities and are not returned.

There are, of course, applications for which no ROI is required. Ensuring the appropriate blood is given to a patient, for instance, is critical, and hospitals may not attempt to measure the return on investment for such a procedure. But for most RFID applications, businesses need a realistic model that clearly distinguishes between soft benefits and hard savings.