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10/29/2004
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Scoping Out The Real Costs of RFID

Much of the focus surrounding the cost of RFID has been on the price of RFID chips or tags. But implementing a fully functional RFID system incurs multiple costs including technology, consulting, recurring fees and many others. By some estimates, costs for big companies can be $25 million for mandate compliance.

Larry ShutzbergEditor's Note: This is the second in a series of excerpts from an in-depth research report written by the chief information officer at Rock-Tenn Co., a leading manufacturer of consumer packaging, promotional displays, and recycled paperboard. In Part One, Shutzberg urged readers to not miss the innovation opportunity that RFID presents. In this installment, Shutzberg walks in detail through the various costs that readers must be aware of as they embark on RFID projects.

Much of the focus surrounding the cost of RFID has been on the price of RFID chips or tags. But implementing a fully functional RFID system incurs multiple costs, including tags, readers, printers, middleware, infrastructure, consulting, R & D, system changes, implementation, training, change management, and service provider fees. There is also the cost for additional labor that will invariably be needed with today's RFID deployments.

For early adopters, we think it's likely that implementations will prove to be more costly in the beginning stages of adoption, given the likelihood of first-time mistakes and the lack of industry best practices.

Though the range of total investment will vary widely between companies based on many factors, in most cases, companies are looking at investments that can easily reach into millions of dollars. Industry analysts predict that typical, large-scale manufacturers in the consumer goods industry will spend from $9 million to $25 million on RFID mandate compliance.

Here's a look at the various costs that could create totals on that scale:

The cost of tags will vary for each company depending on the amount purchased. Tags have the potential to be the largest single cost line item for major consumer goods companies shipping millions of cases and pallets each year to Wal-Mart and other retailers with RFID mandates.

The cost of tag readers will vary from as low as $1,000 to several thousand dollars for high-functioning models. The number of readers will also vary depending on many factors, including the scope of RFID deployment.

The cost of tag printers will vary, but range up to several thousand dollars per printer. The number of printers will also vary depending on many factors, including the scope of RFID deployment.

The cost of RFID middleware will span a very wide range, from as little as $25,000 for a small operation to several hundred thousand dollars for an enterprisewide system.

The cost of technology infrastructure capable of supporting and managing RFID-related data will vary depending on the number of locations for deployment, environmental conditions at each location, and other complexities. RFID technology infrastructure is another potentially significant cost.

The cost for RFID strategy and technology consulting will vary; costs will be incurred in multiple phases as RFID initiatives are conceived and pilots are conducted. Initial consulting could be as little as $50,000 but can easily ramp up into hundreds of thousands and possibly millions of dollars, depending on the scope of RFID deployment.

The cost for RFID research and development will vary based on the appetite for R&D and includes costs such as labor, testing equipment and consulting.

The cost for changes to internal business systems will vary based on many factors and includes software upgrades, internal resource costs, and optional costs for third-party custom development and/or system configuration changes required for each mandate. Also included is the cost for integration with RFID middleware, which is difficult to estimate but could be one of the costlier aspects of RFID deployment, especially for larger consumer goods companies.

The cost for implementation, training and change management is another potentially significant cost but will be different for every company.

The cost for third-party service provider fees includes an annual sales-based subscription fee for EPCglobal ($75,000 for annual sales of $1 billion to $10 billion) and UCCnet ($40,000 for annual sales of $1 billion to $3 billion), as well as subscription fees for other optional third-party service providers, such as Transora, and WWRE.

The cost for additional labor will invariably be needed with today's RFID deployments since suppliers cannot achieve full inline integration with their manufacturing equipment. This cost will vary depending on the volume of tagging and the number of tagging stations.

RFID investments can grow considerably as more advanced capabilities are pursued, including:

The cost for equipment and/or engineering work around the placement of readers and tagging equipment throughout the plant floor and warehouse could be significant if more seamless integration is desired with conveyors, portals, transporting vehicles and such.

The cost for specialized, network-connected tagging apparatus offered by various suppliers, including plant floor machinery manufacturers, could be significant if these specialized apparatus are desired.

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