RFID ROI

RFID ROI comes from warehouse management efficiencies, but there will be a huge first-mover advantage for the company that figures out how to incorporate RFID and all the information it can contribute to its data systems into its business, says Gartner senior analyst Jeff Woods. CIOs should start thinking about that today.

While much of the RFID (radio frequency identification) world seems fixated on reducing the cost of tags, there's a much larger cost that's often left out of the discussion. The cost of the infrastructure—which includes everything from readers and antennas to the interfaces written for application software—often outstrips tag cost by a very wide margin.

Sharing that cost among several business processes is critical to the economic deployment of RFID ROI systems, but that doesn't mean that managers must share project funding among several departments or partners. It does mean that they must pay attention to how they build a reading infrastructure for today's projects, such that as much as possible can be leveraged for tomorrow's opportunities. There are three ways in which a designer can develop an infrastructure for today's project that stands a chance of supporting tomorrow's new idea:

• Emerging air interface standards let users mix and match transponders from a variety of manufacturers, no matter which company built the reader.
• Some manufacturers offer RFID readers that support more than one air interface.

·         At the highest level, software standards shield application programmers from the variations among RFID tag types.

Not yet RFID ROI: The current applications of RFID technology are strictly at the supply-chain level, mainly in order to comply with Wal-Mart and Department of Defense mandates. Some forward-looking pilot programs are using RFID to estimate demand and ensure optimal use of shelf space -- but even those deployments are on the macro level. They do not violate consumers' privacy.

The supply-chain use of RFID has nothing to do with privacy -- at least at this point nor does it have much to do with RFID ROI. Simply put, there are few -- if any -- successful examples of mass RFID adoption. "The technology is not yet standardized," AMR Research analyst Kara Romanow told NewsFactor. "It is largely based on proprietary systems. Then there is the fact that there are few systems integrators that have built a track record in these deployments, so that expertise is in short supply."

In another words, it will be a long time before RFID delivers an ROI to early adopter companies.

Benefit of RFID ROI: Various companies admit that it cannot benchmark the system because it has lacked the ability to gather sufficient data. They believe that there is an annual loss. RFID and increased visibility could result in a 5-10% reduction in this figure.

They do know, however, that each 1% increase in merchandise availability corresponds to 1/4% increase in sales. Considering their annual turnover, that is a significant number.

With better data, companies plan to begin "preplenishment" of stores -- certainly one of the more widely recognized benefits of better inventory management.  They estimate that the system could result in a reduction in out-of-stock situations by up to 6%.