RFID Strategy -- RFID In The Supply Chain

Aug. 22, 2005
The high price of cheap.

Marlo Brooke is president of Avatar Partners, a consulting services company specializing in RFID and supply chain implementation.

Statistics indicate that in 2005, the average manufacturer spent over $500K on RFID. The year before, average spending was $750K.

Less than a handful of these 200 or so companies achieved any payback. Most organizations did "slap and ship," and few are actually capturing, let alone using, RFID data to make better business decisions. For the majority of suppliers to Wal-Mart, Target, Tesco, Best Buy and Department of Defense, RFID is an initiative driven by the customer, without a discernable immediate ROI.

Without a payback, then, the plan was to find the cheapest and fastest way to get compliant. But the numbers don't add up. Half a million dollars without a return? That's not exactly cheap.

Why, then, is RFID turning out so expensive?

In today's economy, an executive would be hard hit to spend top dollar on a project without payback. As president of a consulting company, I know from experience that companies hire consultants and systems integrators because they are able to find the client the best economical value for any project -- not doing so would not be in the customer's best interest. But there is a clear difference between the best economical value and the cheapest solution. And sometimes, the best economical value is not the cheapest solution.

The chasm between best value and best price is where RFID can fall, if a company is not careful with how it approaches RFID. Because when it comes to RFID, cheap can be very, very expensive.

The Unfounded Hypothesis

Analysts speculate that the poor souls who continue with half-million-dollar RFID investments are gregariously paving the way for smaller companies who can shortly look forward to a "critical mass" whereby the cost of implementation decreases significantly when the cost of tags drops. While tag cost hits hard some low margin industries, it is not the whole picture. Nor can one categorically point to implementation services, nor software, nor backend database integration. Other groups argue that RFID is just the cost of doing business, the fee for admittance into the Synchronized Value Chain (SVC).

The Hidden Cost Of Cheap

There is a hidden cost that creeps into the folds, and is so subtle that it can be overlooked by even careful observers. This hidden cost will not go away when tag prices, hardware or software costs decrease. The biggest cost is the lack of knowledge.

A significant portion of the many hundreds of thousands of dollars already spent on RFID is on the learning curve, on throwing away solutions that were promised to work, as well as the time spent making mistakes.

RFID is constantly being underestimated. RFID is not plug-and-play, and it may never become that. "RFID is a complex recipe: it's equal parts physics, process changes, supply chain synchronization, and software integration" states Deon Nel of Avatar Partners, RFID engineer. With degrees in both mechanical engineering and MBA, Nel explains that companies can paint themselves into a corner if business issues are not addressed alongside the technology.

There are between 4-8 integration points for any given RFID solution. Generally, each point in the solution is provided by a different solution vendor. These points include tags, readers, portals, antenna placements, middleware, data storage, integration software, integration to external trading partners, and analysis tools. And yet, this is not to say that a 'single vendor' solution is preferred, for in that scenario there might not be a best of breed solution, and there might be a forfeiting of value.

"One of the biggest wastes in RFID," says Rich Corey, business development manager at Avatar Partners, "is the enormous amount of time and money thrown away on solutions that are tested and do not end up working."

Leveraging Cost Into The Future

Although it may be prudent to approach RFID projects to address tactical compliance issues, one must always keep in mind the significant momentum building throughout the world and within nearly all major industries. RFID is about connecting, synchronizing, and integrating. The more integration that is involved with a technology project, the higher the risk, and the higher the potential reward. Even though an executive's first thought might be "bare minimum compliance", he or she will best serve the company if a scaleable plan, made even more solid by outside subject matter expertise, is put in place for future business benefit, and in such a way that RFID does not become an impediment itself to the organization's growth.

Marlo Brooke is president of Avatar Partners, a consulting services company specializing in RFID and supply chain implementation. She welcomes your call at (949) 622-5557.

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