October 4, 2004
(Computerworld)
BALTIMORE -- Companies preparing to test or evaluate radio frequency identification technology didn't get any easy answers at the EPCglobal U.S. Conference 2004 here last week.
Consumer goods manufacturers facing RFID compliance deadlines from retailers such as Wal-Mart Stores Inc. and Target Corp. encouraged other companies to begin using the technology. They also spotlighted potential benefits, such as the ability to track inventory with greater precision and keep products in stock and on store shelves.
But some of those same early adopters said that they're still trying to nail down business cases, that the technology isn't mature and that RFID standards remain a work in progress. In addition, the cost of RFID tags and readers has yet to drop to levels that will help users achieve returns on their investments.
"It's going to be pure cost at the beginning. That's a concern, because it cuts into our profitability," said Richard Siegfried, manager of global data synchronization efforts at Binney & Smith Inc., a subsidiary of Hallmark Cards Inc. in Easton, Pa., that makes crayons and other products.
At the same time, Siegfried noted that he's optimistic about the long-term ROI potential from an increased flow of information, which is expected to help his company improve forecasting and planning with its suppliers.
A manager of e-commerce at a midsize producer of consumer goods said, "We were looking for some more definitive ways to get ROI. The [speakers] were either keeping it to themselves, or it's not there yet.
"We see benefits to this. We see it coming. But it's not there yet, and we don't have the resources of Procter & Gamble," added the manager, who asked not to be named.
Efrain Barreiro, director of operations at Elan-Polo Inc. in Nashville, said the footwear maker and distributor faces a January 2006 deadline to comply with a directive from Wal-Mart to put RFID tags on pallets and cases shipped to the retailer's Dallas-area distribution centers. He said the ability to press a button and get an accurate inventory count would provide great benefits.
High Tag Costs
But Barreiro said that as much as 70% of Elan-Polo's shoe business involves high-volume, low-price products. When he runs the numbers, he needs 5-cent tags to make the RFID investment pay off.
However, Gartner Inc. analyst Jeff Woods estimated that RFID tags typically are still selling for 40 to 50 cents apiece.
In many ways, the pros and cons of adopting RFID haven't changed substantially since the technology became a hot-button issue last year, after Wal-Mart directed that its top 100 suppliers begin tagging pallets and cases by the start of 2005. The retailer updated its plans in June, saying it expects the next 200 suppliers to be on board at the start of 2006.
"The faster payback is really going to be upstream, in working with our raw materials and finishing-goods suppliers and looking at how we manage our materials within our operations," said Mike O'Shea, director of corporate RFID strategies and technology at Kimberly-Clark Corp., which started conducting RFID field trials in 2002.
But an ROI isn't expected for a few years. First the Irving, Texas-based company has to do the business process re-engineering necessary for it to take advantage of the information gathered through RFID technology, according to O'Shea. He said that in the near term, Kimberly-Clark views its RFID work as a research and development effort with no immediate payback.
Jim Flannery, director of global customer development at Cincinnati-based Procter & Gamble Co., another early adopter of RFID, said the company is still figuring out which business processes to change.
"We're working with our trading partners, trying to figure out where to get value," he said. "What's clear is that the business cases are going to be different based on different [product] categories."
Flannery said the justification is more apparent in P&G's pharmaceutical business, where RFID is viewed as a technology that can help curb counterfeit drugs and bolster consumer safety. But in product categories that are optimized around bar-code technology, there's more work to do, Flannery said.
Despite the encouragement of early adopters, launching RFID pilot projects isn't always possible. Greg Vick, director of distribution systems and Web development at Unified Western Grocers Inc., a Commerce, Calif.-based food wholesaler and cooperative, said he went to the conference to try to find a manufacturing partner with which to pilot RFID technology. But he found no takers.
"The reaction was, 'No, we're not going to do this because it costs a lot of money,' and 'We're only doing it because we have to,' " Vick said. "I understand the tags are expensive. But there's a lot of talk here that 'we don't want to do slap and ship. We want to look upstream. We want to find that value.' But people aren't ready to act yet."