RFID Pain Now, Rewards To Come

Survey finds implementations of radio-frequency identification can be rough going, and payback may be a long time coming

Beth Bacheldor, Contributor

March 25, 2005

3 Min Read

Businesses implementing RFID face other challenges, too, according to the InformationWeek study. The biggest challenge, according to 60% of the respondents using or planning to use RFID, is that there are no universal RFID standards. Another obstacle is the technology's high costs to implement on a large scale, according to 56% of survey respondents. Companies are investing cautiously for now. Most, 74%, of the survey respondents that are using or planning to use RFID say they plan to spend less than $500,000 this year. Nine percent say they'll spend $500,000 to less than $1 million; 13% say $1 million to less than $5 million; and only 4% say they'll spend $5 million or more.

Equipment Expenses ChartThe costs go up when RFID implementation and integration fees are added in: 61% say they'll spend less than $500,000 on implementation, integration, and consulting fees (excluding equipment); 11% say $500,000 to less than $1 million; 19% say they'll spend $1 million to less than $5 million; and 9% say it will cost them $5 million or more.

Another factor for 48% of the respondents: the need to upgrade systems before they could start their RFID initiatives. Many companies implementing RFID talk about using a slap-and-ship method--which involves affixing tags on goods just before they're shipped out the door--that requires little back-end systems integration. But 33% of the respondents say they had to implement enterprise-resource-planning systems to move forward. "ERP integration--that's pretty advanced," Nonneman says. For the RFID service it's developing for customers in its UPS Supply Chain Solutions division, UPS had to upgrade warehouse-management systems and database-management systems; 46% and 39%, respectively, of the survey respondents say they had to upgrade those systems as well.

Implementation Cost ChartConsumer-goods company H.J. Heinz Co. is working with a slap-and-ship method on cases and pallets of goods. Today, between 7% and 15% of the total volume of goods shipped in the Texas region consist of RFID-tagged cases and pallets, which move from Heinz's Dallas warehouse to several retailers. But Heinz has its sights set beyond this, because RFID promises to supply Heinz with a lot of new information about its goods as they move through the supply chain. As the craving for more information mounts, "there will be a reason to integrate RFID into the supply chain by building out the software when we can't get that data from existing processes," says Doug Ostrosky, Heinz's RFID program manager.

Payback will be slow to come, however. Most survey respondents using or testing the technology estimate it will take two or more years to see a return on investment of RFID technology. In fact, one in five say they aren't sure they will ever see a return.

Future Business Prospects Chart

"The savings are in the retail side of the equation," says ARC's Banker. "Right now, it's a money loser for the manufacturers being forced to do this. It isn't even breakeven. Every time they put on a tag, they lose money."Manufacturers can expect to save some money in the longer run by creating more efficient warehouse and logistics processes, and by decreasing the number of charge-backs when shipments to retailers are late, he says.

By and large, survey respondents do expect benefits from RFID. In fact, 64% say operational efficiencies and improvements are driving deployments, 60% point to supply-chain visibility, 42% cite increased collaboration with business partners, and 42% cite real-time business intelligence. Reducing inventory costs was also a key driver, with 40% pointing to that. Only 26% say retailer mandates are driving RFID implementations.

So, despite the obstacles ahead, there's no stopping RFID now.

Whats Driving Deployment Chart

Must Upgrade Systems Chart

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