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10/18/2004
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RFID Utopia?

Weighing the case for implementation in the small to midsized enterprise.

It's expensive, the ROI is hard to realize, and most businesses don't have to do it, so why move forward with radio frequency identification (RFID)?

The Wal-Mart deadline looms large for the giant retailer's top 100 suppliers who must affix RFID tags to all pallets and cases bound for Wal-Mart's Texas distribution centers by January. Wal-Mart suppliers like Jack Link's Beef Jerky, however, face no imminent RFID deadlines. Nevertheless the midsized, Minong, Wisc.-based manufacturer of snack goods is moving ahead with RFID implementation.

"We are starting small scale," says Karl Paepke, vice president of operations for Jack Link's. "We now tag cases and pallets of one item, our one-pound bag of beef jerky, that we sell to Wal-Mart. This is fairly simple. The biggest difference is the label. Instead of the standard bar code we affix a label that contains an RFID chip."

Only one piece of new hardware is required, an RFID label printer that costs about $4,000, a little more than twice the price of standard bar-code printers. The modest, up-front investment, however, is only the tip of the iceberg.

The Costs Add Up

First of all, the tags themselves are still somewhat pricey. "The tags cost at least 20 cents each, as opposed to mere pennies for standard labels," says Christine Overby, analyst with Forrester Research in Cambridge, Mass. "This can be significant, even for small to medium-sized manufacturers, if you ship in large volume."

Then there is the business case, or lack thereof. "Slap and ship, by itself, won't give you much benefit," says Judah Phillips, analyst with the Yankee Group in Boston. "To get any real benefit from RFID, most companies need to do things that may not even be possible given current constraints." Phillips says only about half of the companies currently implementing RFID can justify the cost.

Increased Visibility and Risk-Avoidance

At Jack Link's, Paepke thinks the business case is clear. "RFID will put more intelligence into our enterprise," he says. The benefit, however, is not in "slap and ship." Rather it's in increased visibility into the company's internal supply chain. "We plan to RFID tag raw materials coming in so we can track the manufacturing process all the way to the pallet leaving the dock door."

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