Aug 01, 2005ROI—return on investment—is the "Where's Waldo?" of radio frequency identifcation. Everybody is looking for it except for those who already know where it is, and they're not telling. Even if they did, their answers probably wouldn't be of much use because every business is unique and must find its own ROI.
But one thing's for sure: If you're looking for the ROI in RFID tags and readers or in the data they capture, you're searching in the wrong places. The only place RFID will yield any value is in process changes—people doing things differently because of the data RFID provides.
This is much easier said than done. Business processes are a kind of folklore, with obscure origins and purposes, handed down from manager to manager. Ask what they're based on, and you're likely to hear: "It's the way we've always done things." To complicate matters, few processes happen in just one place. Today's supply chain involves different functions in different locations. An apparently efficient process in one part of the business can incur costs somewhere else.
Yet the search for ROI from RFID has to target these real processes. It requires rolled-up sleeves, dirt under the fingernails and, above all, brutal honesty about what's really going on in your company and what the inefficiencies are costing. It's no coincidence that the most passionate RFID users are those who have the most detailed, realistic view of their supply chain. Back in 2000, when I was telling the CEO of a major retailer about RFID, he immediately recognized the technology's potential and became excited. He knew that the most out-of-stock product in his store that week was a particular Pokémon game, and that the empty shelf was disappointing his customers and resulting in lost sales. I always think about him when I meet other executives who claim they have "perpetual inventory" and are never out-of-stock.
To find the ROI, you must adopt what I call "process realism." That's what Gerald Darsch, director at the U.S. Department of Defense's Combat Feeding Program and an early advocate of RFID, did in the years between 2000 and 2003. He would show Pentagon audiences a photo of real inventory piled in the desert. There was plenty of sand, but Darsch wasn't about to let people bury their heads in it. The photo was captioned with a quote from Maj. General Hank Stratman, a deputy commanding general in the U.S. Army: "...we have no idea what we have, when it will come or the ability to control it..." It was only by facing these real-world problems that the DOD could embrace RFID as a way to improve its supply chain.
So put down your spreadsheets and spiral-bound analyst reports, pick up some steel-toed boots and safety glasses—and step into the real world of your business processes.
Kevin Ashton was cofounder and executive director of the Auto-ID Center. He is the author of a soon-to-be-published book about RFID.