As noted in my previous column, I've been analyzing the RFID-related data from our Benchmarking & Best Practices initiative, which contains data from more than 100 companies in the retail and consumer products markets. As I've been doing this, I've received a steady stream of press releases in my inbox with stories from companies outside our B&BP consortium. In every case these stories confirm the data reported by our consortium members. The synchronicity is almost spooky. For this month's column, I'd like to share the relevant findings on RFID compliance programs and return-on-investment (ROI) data.
Return On Investment Findings
This column has repeatedly discussed the perils of finding ROI in RFID programs using examples from client experience, first-hand consulting experience, and industry reports. I can now add some metrics from our benchmarking survey data. First, some words about the spread of RFID technology: of all survey respondents, one out of five currently uses RFID technology in their inbound and / or outbound logistics supply chain (22%). This percentage of RFID-users is likely much larger than the general adoption-rate of RFID technology, since our B&BP survey respondents are dominated by very large companies (average annual revenue approaching $1B). All of the remaining respondents say they expect to use RFID technology within the next three to five years. This "expectation" response is unchanged since 2004, which is not that surprising to anyone who follows technology trends. In the world of information technology, the future is always three to five years away (depending upon the capital-planning horizon of the technology prognosticator.)
The RFID technology used is still fairly basic. For example, only 14% of the RFID users have an RFID-enabled warehouse management system. Of those WMS users, only one in three actually use the RFID-enabled features in their WMS. This paints a picture of a supply chain that applies RFID tags for compliance purposes, but has not yet found a reason to interrogate the tags for data. RFID end-users (such as Wal-Mart and the DoD) interrogate tags, but the data shows that suppliers to these end-users typically do not interrogate the tags.
The data on the ROI findings for RFID implementations shows that 86% of respondents report finding a negative ROI (and in many cases postpone the adoption of RFID technology because of this negative return.) Surprisingly, however, the 14% of respondents that report positive ROI say that the returns are between 10% and 30% -- a significant positive ROI. This required additional analysis to find the difference between the companies reporting negative ROI versus positive ROI.
In each case, the companies reporting negative ROI already had a sophisticated internal auto-ID system based around barcodes. Therefore, RFID technology added little to no extra value to their internal business processes. On the other hand, companies reporting positive ROI for RFID programs began the process with less-sophisticated paper-based processes. Therefore the RFID program forced technology and process improvements that generated a positive ROI.
RFID Press Releases For The Holidays
Consider the above metrics in relation to the recent announcement by Razor, Inc. that they will begin tagging one model of their electric scooters this December. According to a November 27th article in RFID Journal, Razor will affix RFID labels to cartons of electric scooters destined for shipment to Wal-Mart. Several thousand cartons will be tagged in each month. The article goes on to describe the process used by Razor. Tags will be hand-applied to individual cartons, and also to a pallet. Employees will scan each carton as they build a pallet, thus creating a cross-reference between the pallet ID and the individual cartons contained on the pallet. This data will then go into a back-end database for storage. In the event of scanning problems, employees are trained in ways to manually enter EPC data into the database and rework the affected tags. Razor's RFID implementation consultant claims that the resulting database of EPC and other tag data will be used to create advance shipment notices (ASNs) in the future, when Wal-Mart requires ASNs to contain RFID tag data. Currently, each pallet ships with a paper print-out listing the EPC data for each carton.
Although the article is silent on the subject of ROI, Razor's business case for RFID is clear if you read between the lines. They apparently do not have an RFID-enabled WMS, since they needed to create a stand-alone RFID database. They are tagging a small enough quantity of boxes that hand-applied tags are the correct economical choice (slap-and-ship). They are responding to a compliance mandate from Wal-Mart. Notably, they are using this compliance expense to position themselves for process improvements and ROI in the future. Their system will provide the basis for automating ASN records to Wal-Mart. It will also provide advantages in product traceability of their product through Wal-Mart's vendor information system, which can be used to Razor's advantage in arbitrating charge-backs.
In all of these aspects, Razor provides an excellent case study of the current state of retail RFID compliance -- as well as an example of preparing for the future state of the industry.
Companies continue to roll-out RFID compliance initiatives. In the majority of cases, RFID compliance is purely a driver of costs for consumer-products suppliers. There are some success stories in gaining positive ROI from RFID projects, but these are driven by internal efficiencies for which RFID was the catalyst, but not a unique enabling technology. Positive ROI continues to be driven by business process improvements, not the magical application of an RFID tag.
Paul Faber is a Principal with Raleigh, N.C.-based Tompkins Associates, a supply-chain-solutions consulting firm. As the chief manager of RFID equipment implementation at Tompkins Emerging Technology Center, Faber possesses extensive experience in material handling solutions, systems integration, and installation. He has managed field integration and operations activities at material handling sites around the world.
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