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The Bad News Bears

Media coverage of RFID technologies has turned decidedly negative, but do the news stories reflect the reality of the current situation?
By Bob Violino
Jul 23, 2004—In the January 2004 print issue of RFID Journal, we forecast that there would be plenty of negative news reports about RFID technology this year (see “The Ugly Year Ahead”). Expectations had been raised high in 2003 by overly optimistic news articles, and the media loves nothing more than pumping up a straw man only to knock it
down. True to form, the press reports began turning negative around the end of the first quarter.

Here is a sampling of the headlines that appeared in online publications in the last week of April and the first week of May:

“Standards Spat Threatens RFID Rollout” (CRM Daily)
“RFID: Too Few Experts, Too Dear and Tech Not Good Enough” (Silicon.com)
“RFID Far From Critical Mass” (VNUNet.com)
“RFID Redux: Don’t Toss the Bar-Code Reader Yet” (ADT Magazine)
“RFID a Simple Solution With Complex Problems” (Computerworld)
“RFID Not Ready for Primetime” (SearchSecurity.com)

Just as the thrust of most news stories last year was that RFID is “the next big thing,” the focus has shifted to “RFID is overhyped.” But few stories provide the much-needed insight into why the technology is being adopted, or whether the obstacles to adoption can be overcome.

Take, for instance, the April 20 article published by ComputerWeekly, which said: “About 50 percent of all radio frequency identification tagging pilot projects conducted worldwide have already been written off as failures and most of the rest have yielded indifferent results, according to the analyst firm Meta Group.”

Omitting the Operative Word
A CEO reading this story might be duly unnerved or dismiss RFID as irrelevant, but what the CEO wouldn’t know is that the Meta Group paper referenced in the article was not based on a survey or study, but rather on anecdotal evidence and information from customers, according to Gene Alvarez, VP of technology research services at Meta Group (the study actually said the analyst firm believes that approximately half of pilots ended in failure).
Here’s another example of misleading reporting that made it tougher for CEOs to assess the potential return on investment from RFID. In late March, Forrester Research published a study called “RFID at What Cost?” Many articles based on the study said the “average Wal-Mart supplier” would have to spend $9 million to comply with the retailer’s RFID mandate.

What the study actually said was it would cost a typical top 100 supplier $9.1 million a year on an ongoing basis to comply with Wal-Mart’s mandate. About $7.6 million of that $9.1 million cost was for 19 million RFID labels needed annually for tagging pallets and cases shipped to Wal-Mart. Christine Spivey Overby, the senior analyst at Forrester who wrote the study, created a fictional $12 billion company. Most news reports failed to mention the size of the supplier, and none pointed out that the $9.1 million total cost of compliance represents just 0.075 percent of sales for a $12 billion manufacturer.

The Forrester study was valuable to end users because it created a baseline for understanding the cost of complying with mandates by large retailers and the U.S. Department of Defense. But many of the articles about Overby’s conclusions were too eager to play up the notion that RFID is too expensive to be implemented and failed to mention that costs vary widely.

Overby released her study at RFID Journal Live!, an executive conference hosted by RFID Journal. At the same event, Alien Technology announced it was dropping the price of its Class 1 EPC tags—one of two kinds Wal-Mart will accept—to less than 20 cents each for orders of 1 million or more. That’s half of the average price used in the Forrester study. Journalists’ failure to mention this is significant because CEOs reading news articles were unaware that if the $12 billion company were to purchase tags from Alien, the total cost of compliance would actually be $5.3 million, or about 0.044 percent of sales.

RFID has only recently become a hot topic, so it’s not a surprise that most journalists newly assigned to cover it are unaware of the technology’s history. But this, too, leads to reporting without much depth. Back in January 2003, Gillette placed an order for 500 million tags from Alien Technology. Dick Cantwell, the VP in charge of Gillette’s RFID rollout, told RFID Journal at the time that his company paid less than 10 cents for the tags. So news reports didn’t indicate that a $12 billion Wal-Mart supplier willing to commit to a larger order could cut the total cost of compliance to less than $3.8 million, or 0.028 percent of sales.

Of course, the price of tags also depends on the kind of product you sell. Companies that sell many products with metal (such as Campbell Soup Co.) or liquid (Unilever) could spend far more than 40 cents on specially designed tags used on materials that either reflect or absorb RF energy.

It’s important for CEOs to have a realistic understanding of what the benefits and risks of adopting RFID are. But CEOs should be wary of drawing conclusions based on reports in the press—whether they are overly optimistic about RFID’s potential and pace of adoption or overly pessimistic. Most journalists, at this stage, just don’t know enough about RFID to do intelligent, objective reporting.

Decision makers need to be skeptical of vendor press releases (see “How to Read RFID Press Releases”) and news reports based on them. Be wary of wild claims and sweeping generalizations. Challenge positive and negative assumptions. Focus on facts that confirm or refute things you are reading. The fact that 37 suppliers not among Wal-Mart’s top 100 have agreed to meet the RFID mandate by January 2005 disproves reports stating that suppliers are not adopting RFID.

RFID is neither a panacea for supply chain problems nor a huge additional cost being forced upon all manufacturers. It’s an added cost for some suppliers, but it is also a tool that can be used to improve supply chain efficiency. Whether the equation tips more toward cost than savings will depend on the nature of a business and how it uses the technology.
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