RFID: Hit or Myth?By Larry Dignan | Print
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Radio waves may be the next big thing in tracking goods. But before you rush in, make sure you understand their realities.Procter & Gamble markets some of the biggest brands in store aisles across the country, from Crest toothpaste to Pantene shampoo to Charmin toilet paper. To date, the company hasn't begun to figure out the physicsor the business caseof radio waves and how they can help move its products more efficiently to retail outlets. But that's about to change.
Procter & Gamble will be busy in the first months of 2004 determining how radio-frequency identification systems work. As one of Wal-Mart's top 100 suppliers, Procter & Gamble faces a January 2005 deadline to place tags containing chips and tiny antennae on the cases and pallets of household products shipped to the world's largest retailer. "We expect to be testing and learning with several pilots starting in the first half," says Milan Turk, Jr., director of global consumer e-business at Procter & Gamble.
Procter & Gamble's plan is to start with two test programs at undisclosed locations. One will focus on identifying where it might earn a return on installing these systems, Turk says. The second will concentrate on identifying technical pitfalls.
"A lot of companies will soon be moving in fast-pilot mode," says Bruce Hudson, an analyst at Meta Group in Stamford, Conn. "And there may not be a business case. It's a leap of faith."
But before you take that leap it may help to dispel a few myths.
MYTH 1: There is No ROI for RFID
The "slap-and-ship" crowd views Wal-Mart's mandate as simply a cost of doing business.
These are companies that plan to place radio tags on their cases and pallets for Wal-Mart's benefit alone. They don't presently plan to build their own data-tracking systems to take advantage of the potential efficiencies of the tags.
These suppliers claim there are no clear financial benefits to be had. But a business case can be made. (See "RFID: An Offer You Can't Refuse," Workbook, p. 82.)
First step: Figure out how well existing systems perform. Calculate how often your products are out-of-stock in warehouses and retail outlets, how much revenue is lost to shrinkage, what the proper levels of safety stocks are. Then, look for areas of improvement. For P&G's Turk, the payoff may be the abilities to selectively recall batches of drugs and to improve monitoring of expiration dates.
"The potential for RFID is total supply-chain visibility," says Simon Langford, manager of global RFID strategies for WalMart. "At the retail level, [RFID would] reduce inventory counting. [Wal-Mart could do] faster receiving and shipping because we're not having to stop and scan."
Even with such benefits as theft reduction, reduced labor costs and less inventory in the pipeline, Hudson says suppliers' goal for the first three years should be to minimize losses from complying with Wal-Mart's mandate. Most notably, the tags themselves remain expensive. In the absence of industry-wide standardswhich have yet to be agreed uponthere aren't a lot of vendors producing the tags approved by Wal-Mart. Meanwhile, it's unclear that the ones who areIntermec, Alien Technology and Matricscan manufacture tags in the volumes needed to cut costs.