RFID Report

RFID Report examines the key developments taking place in radio-frequency identification.

By Robert Spiegel -- Supply Chain Management Review, 3/1/2005

News and Trends

Mandate's over, but ROI is still miles away

In the words of one Wal-Mart supplier, "RFID is pretty expensive goodwill." As companies sweep up the chips after the scramble to meet the mandates set by large retailers and the Department of Defense (DOD), there's a sense of relief as well as a sadder-but-wiser acceptance that a return on investment (ROI) for RFID adoption is years away. "The Grocery Manufacturers of America (GMA) did a study that found that even if tag prices were brought down to zero, there would still be no ROI," says Chantal Polsonetti, vice president of manufacturing advisory services at ARC Advisory Group.

Polsonetti is doubtful, too, that GMA members can find an ROI by using the RFID data generated by retailers to reduce stockouts and track promotions. She notes that many GMA members—particularly those in food and beverage—work with wholesalers, so they're not able to incorporate sales data from retailers. As for the wholesalers, they already have the data from the retailer because they're doing vendor-managed inventory. "We've asked these suppliers if they're able to cost-justify the use of RFID in their four walls, and the response has been a resounding no," says Polsonetti.

Over at AMR Research, research director Kara Romanow says that suppliers found that RFID adoption was necessary to retain major customers, though it offered little-to-no direct benefit. "We're starting to see that the cost and business case don't add up for consumer packaged goods," she says. The analyst believes that there may be a business case for RFID with high-end apparel, electronics, and pharmaceuticals, but not with most consumer goods. "This isn't going to work with toothpaste," Romanow concludes.

On a more positive note, a recent AMR study found that suppliers spent less than anticipated to meet mandates. The researchers originally expected companies to spend in the range of $13–23 million to adopt RFID. When the dust settled, AMR found that Wal-Mart's top 100 suppliers spent a total of $250 million to meet the mandate, averaging from $1–3 million each. "Our estimates included tags, readers, system integration, changes to existing supply chain applications, and storage and analytics for large volumes of incoming data," AMR's Romanow notes. Most companies reigned in their spending when it became clear that they would not receive any return on their investment, she adds.

RFID called one of the Top 25 Technologies of past 25 years

In the opinion of experts in the Lemelson-MIT Program, RFID is the 10th most innovative technology of the past 25 years. CNN television recently aired a program on "The Top 25 Innovations of the Last 25 Years," as selected by Lemelson-MIT, a program dedicated to honoring and encouraging inventors and inventions. In addition to RFID, the Internet, cell phones, personal computers, fiber optics, and digital cameras were cited as innovations that have changed our lives. The show featured Sanjay Sarma, who launched the RFID study project at MIT that eventually become EPCglobal. He is now the chief technology officer at OATSystems.

A.T. Kearney sees near-term ROI in "Smart Box" technology

It's becoming increasingly apparent that return on investment for RFID deployment will first show up in niche areas of the supply chain. One example: the "smart box" technology used on oceangoing containers. New research from consultants A.T. Kearney has found that adoption of this technology, which has been promoted by U.S. Customs and Border Protection (CBP), can deliver sizable returns. Part of that return will come from the CBP's promise to give speedy clearance to containers tracked by RFID.

Commissioner Robert Bonner has announced that the agency is ready to take the Customs-Trade Partnership Against Terrorism (C-TPAT) to the next level, which he calls "C-TPAT Plus." A key provision of this initiative would allow for "no inspection upon arrival—immediate release" of containers from low-risk shippers using technology that can detect and record tampering. The core technology used in smart box containers that meet this requirement is RFID.

Considering the benefits related to speedy clearance and tracking, A.T. Kearney analysts were able to determine an ROI for smart-box containers. "Based on a number of potential benefits, we calculated that users could realize net benefits averaging $1,200 per container shipment," says Omar Hijazi of A.T. Kearney, who directed the report. The research was conducted on behalf of Savi Technology.

Airbus puts RFID on commercial jet

Aircraft manufacturer Airbus has equipped its new A380—the world's largest commercial jet—with 10,000 RFID chips. The 555-passenger, double-decker jet will have passive RFID chips on removable parts such as seats, life jackets, and brakes. The goal is to make maintenance easier and to reduce the time required to make aircraft inspection reports. "We could use RFID for routine checks before a flight, such as making sure that a life jacket is under each seat," says Jens Heitmann, senior manager of systems standardization at Airbus. According to Heitmann, Airbus started using RFID on its A400M military transport aircraft four years ago

Intermec launches RFID pilot with 3PL provider

RFID solutions provider Intermec Technologies and third-party logistics provider Worley have launched a pilot program at Worley's facilities to identify the elusive return on investment from RFID deployment. The project seeks to use RFID technology to bring productivity to yard management, inventory control, shipping and receiving, and labor management. Executives from both companies cite ROI as the critical element needed to push widespread RFID adoption. "Demonstrating clear ROI is a critical next step in the rollout of supply chain RFID technology," says Intermec executive Scott Medford. "Worley's facilities provide a working warehouse site where we can demonstrate how the quality and quantity of work performed on the floor can be improved by RFID," Medford says.

Vendors in the RFID space have been working on a range of activities, among them:

• Savi creates tag-and-ship for DoD suppliers. Savi Technology, an RFID solutions provider, has introduced a tag-and-ship offering that includes components from Symbol Technologies and Zebra Technologies. Tag-and-ship is designed to help Department of Defense suppliers meet RFID shipment requirements.
• HP and Sun tap Printronix. HP and Sun Microsystems have selected Printronix as an RFID printing provider for retail, manufacturing, and government deployment. HP just opened an RFID "Noisy Lab" (so called because it simulates real-life conditions) that features a Printronix printer. Sun has included a Printronix printer in its entry-level tag-and-ship solution.
• Closed-loop fulfillment and tracking packages offered. GEOCOMtms, a fleet services company, and OSMO Technologies, a wireless data collection and RFID vendor, have teamed up to provide closed-loop order fulfillment and tracking packages incorporating RFID technology.
• Unisys adopts GlobeRanger RFID platform. Unisys will incorporate GlobeRanger's iMotion RFID platform as a component of its Global Visible Commerce solution.

Book on RFID Labeling

RFID Labeling: Smart Labeling Concepts & Application for the Consumer Packaged Goods Supply Chain

Published by Printronix, this book gives a state-of-the-industry look at RFID in consumer packaged goods, including detailed information on tags and readability issues. The book is available from Amazon.com for $29.95. The Printronix Web site (www.printronix.com) also offers a number of RFID resources that can be downloaded at no charge.

Upcoming RFID-Related Conferences

RFID Supply Chain Solutions 2005

March 29–30, Vancouver, British Columbia

April 26–27, Montreal

Produced by SoftMatch, this conference is aimed at companies facing compliance mandates.

Contact: www.softmatch.com/soln20.htm

The 2005 RFID Technology Conference

May 3–4

Boston

Produced by the Conference Board, this conference looks at RFID standards, ROI models, security, and implementation.

Contact: www.conference-board.org

U Connect 2005

June 7–9

Grapevine, Texas

Produced by UCCNet, EPCglobal, and RosettaNet.

Contact: www.uc-council.org/uconnect

Robert Spiegel covers the supply chain technology space for a number of Reed Business Information publications.