The ROI Case For RFID

If there's one thing that industry analysts, vendors, systems integrators and solution providers can agree on about RFID, it's that merely complying with a mandate from a retailer such as Wal-Mart likely won't result in significant ROI.

"There are a lot of clients that say they want to deploy RFID to meet the mandate, but also want to gain some value from that," says Odin Technologies' president and CEO Patrick Sweeney. "Then there are others buying the $10k solution, where they're just slapping on tags and doing the minimum amount of work -- they will never have an ROI, and they're losing an opportunity."

However, that's not to say there's no value in complying with mandates, Xterprise CEO Dean Frew says. He points to a widely publicized case study in which Procter and Gamble tagged display cases for Wal-Mart. As a result, Wal-Mart was able to pull Fusion razors onto shelves more quickly and, thus, increase sales of Fusion blades by 19 percent.

"Eventually, retail will be the biggest market by far for RFID," an IDTechEx report states. "[But] consumer-goods companies are yet to see sustainable paybacks."

For companies installing RFID systems to comply with Wa-Mart's mandate, there's not as much value in the near term for internal operations and processes, Frew agrees. But he contends that ROIs will start to become more apparent as Wal-Mart brings more suppliers onboard and suppliers increase the volume of tagged products -- something he predicts will increase significantly in 2007.

"It's difficult to find value when you're tagging .1 percent of your total shipping value," Frew says. "Those organizations will see ROI only when they expand volume."

Miles Technologies and other RFID integrators and vendors say customers are finding paybacks more easily in closed-loop process improvements, such as asset management.

"It's easier to determine the ROI and value proposition in some of these closed-loop applications where you're not dealing with trading partners that need to share the data," agrees Michael Liard, research director for RFID and contactless technologies at ABI Research.

A recent research report from ChainLink also concludes that mandate-driven activities are, alone, not likely to produce ROI, while process-driven applications could pave an easier path to ROI. But for the most part, the question of ROI on RFID remains unanswered.

Among those manufacturers that had implemented RFID systems, 71 percent said it was too soon to determine ROI, 15 percent said they've seen a poor ROI and 14 percent said they achieved a good ROI. But the report showed that the survey respondents under mandate were most likely to say they already knew their ROI -- and that it was poor.

Go to main article, The Surprise Driver Behind Today's RFID Projects