RFID: A Class Issue?

NEW YORK—RFID promises retailers more efficient inventory plans and streamlined supply chains in the near future, but for now it delivers only to the largest and most daring of them.

The technology remains the domain of the largest businesses, those with the means to invest in its deployment and wait for its return, said vendors and solution providers at the National Retail Federation Expo here this week. Small and midsize business clients, while impressed by the possibilities, remain daunted by the cost of implementation and unsure of its value.

"Some retailers think it's time—those who have the capital anyway," said Rick Legue, director of sales at Tekserve POS, LLC, an Arlington Heights, Ill.-based provider of hardware, software and services for retailers. "The rest are left looking at the price. There is a risk in implementation that it won't pay off, or won't pay off in time. For most of us it's still time to sit back, embrace it where we can and wait to see where it takes us."

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But momentum is building behind radio-frequency identification. More and more companies are launching pilot programs, and the investment in those programs has gone from an average of $50,000 to $500,000, according to data from Cisco Systems Inc.

For most companies the question of money is enough to discourage implementation. RFID tags are nearly 20 cents apiece, and a full integration of readers, encoders, middleware, application software and revised business processes would average about $9 million, according to Forrester Research Inc.

"A lot of these companies have less time to realize the benefits," said Michelle Nottingham, director of industry analyst relations at Lawson Software Inc., of St. Paul, Minn., a supply chain and retail software maker primarily used by grocery stores. "These are not companies that can afford to eat a loss. They need a return in the same fiscal year."

But uncertainty remains a factor, said Scott Erpelding, a business consultant with Lawson.

"They need proof that the value will be there and proof that they can actually do it and make it happen without disrupting everything," he said. "So many are waiting to see what the big guys are doing and there isn't even much data on that. Even the larger companies are merely phasing it in."

The largest of the large, Wal-Mart Stores Inc., injected some weight to the push to adoption when it released the results in October of its RFID pilot program, which cited a 16 percent reduction in inventory waste and 67 percent reduction in replenishment times.

"That's the biggest case for documented business value we've seen," said Mohsen Moazami, vice president of Cisco's Internet Business Solutions Group. "It is no longer, 'Am I going to see a benefit from this?' It's, 'When will I see a return on this?'" Wal-Mart now requires its major suppliers to place RFID tags on shipping crates and pallets.

Click here to read more about Wal-Mart's RFID pilot.

Supply chain mandates are already driving adoption and will likely drive more, Erpelding said.

"The supply chain could be what pulls [businesses] in," he said. "If they're involved in any significant importing, they're more likely to be involved in RFID because they're using it to track [shipping] containers. It is becoming the case with pallets, but it's not there yet."

Moazami added: "There isn't going to be a [day] where you wake up and say, 'This will be the year of RFID.' But there [will be] a sturdy, robust, dependable, upward curve in adoption and spending in years ahead."