RFID's ROI

Within a few years, RFID (Radio Frequency Identification) tags on pallets and products could be as ubiquitous as bar codes now are, providing the manufacturing supply chain with more production and distribution data. But even with a limited mandate from retail giant Wal-Mart for its top 100 suppliers to use RFID beginning next year (See Factory To Foxhole: RFID Deadline Looms), the technology still is being defined as are its benefits and costs. Compared with bar codes, RFID promises to be a more accurate way of inspecting and tracking products, indicates Todd Warden, vice president of business development at Markem Corp., a Keene, N.H.-based maker of product identification equipment and software. Indeed, being better able to understand the flow of work through a plant and knowing where assets are two distinct benefits of RFID technology, says Jeff Wacker, an EDS Fellow and futurist at Electronic Data Systems Corp., Plano, Texas. "There are estimates that up to 30% of a capital budget are for items that are lost or stolen -- not where they should be when people need to use them," he relates. And in those instances where the absence of critical components keeps work from being done, "it's not just the capital budget that you hit but also the operational budget," Wacker emphasizes. Other RFID benefits to manufacturers, made possible by the extent of chip-contained data, include an enhanced ability to screen out counterfeit parts coming into the plant, the opportunity to improve decision-making and the provision of better after-sales customer care, whether it's recalling a product or streaming enhanced features to it, he adds. "You get a much more visible and secure chain by deploying the technology," states Markem's Warden. On the cost side of the value equation, tags range from 55 cents to $55 each; readers run about $2,000; a local server is about $5,000, and a encoding printer runs about $5,000, figures EDS' Wacker. Also needed are machines to put the tags on products and software to manage the data being generated, adds Warden. "As the price of tags comes down, the economics will work such that [people] can start putting them on lower-priced items," predicts Warden. Tag costs are coming down and are likely to continue to do so until they reach what Wacker terms "the end of silicon." At that point new technology will be needed to drive tag costs below 7 cents each. "There are technologies on the horizon, but they are five years out," says Wacker. Over the long term, Wacker believes, companies really won't have a choice but to adopt RFID. But both he and Michael Putnam, product marketing manager for RFID/AI at Markem, say that companies, generally, are still trying to assess what the returns on their investments will be at the enterprise level. They're asking: What are the physical infrastructure costs? What are the supply-chain savings? What will be the revenues from offering customers more?