Pinpointing the ROI in RFID

Using radio-frequency identification to track packaging and work in process may not be as flashy as end-to-end supply-chain visibility, but companies are generating real returns with asset-management solutions and are getting a return on their investment

Bob Trebilcock, Editor at Large, for Modern Materials Handling -- Packaging Digest, 6/1/2007

In February, several newspapers, including The Wall Street Journal, as well as magazines, online publications and others, ran a rather bleak assessment of Wal-Mart's radio-frequency identification (RFID) mandate [see Rollin Ford's presentation comments in our sidebar to this article]. While the world's largest retailer reports that it has reduced out-of-stocks and increased the efficiency of order replenishment, suppliers complain that the cost of serving Wal-Mart has done nothing but go up:

• They've absorbed the cost of RFID hardware and software solutions to meet the mandate.
• Applying tags has increased labor costs, and
• They still haven't seen the reduction in tag costs that was supposed to come with scale.

Despite those hurdles, the market for asset tracking and real-time locating systems using RFID is going nowhere but up, according to Mike Liard, research director for RFID and contactless for ABI Research (www.abiresearch.com). Liard projects the market for asset management solutions will grow from $233 million in 2006 to $874 million by 2011. Add in solutions for cargo tracking and security, and the market will grow to $1.4 billion by 2011, he estimates.

Why are companies that are skeptical of case- and pallet-tracking solutions so interested in tracking assets like lift trucks and work-in-process in plants?

"The value propositions are stronger in asset management," Liard explains. "There is definitely an ROI [return on investment]."

In fact, end users implementing an asset-management solution are demanding an ROI. "Our customers won't consider a solution without a six- to nine-month ROI," says Gary Latham, director of industry solutions for WhereNet (www.wherenet.com).

Why is there a quick payback in asset management when suppliers for Wal-Mart don't see a return for years to come? One answer: Tracking assets in a closed-loop environment, like a factory, a distribution center or the yard, is easier to control than tracking a case or a pallet across an open environment like the retail supply chain. "If you're implementing RFID across a supply chain, all of your trading partners need to put in the infrastructure to get visibility," Liard says. "In a closed loop, you only care about what's happening in your facility or in your yard."