The ROI from RFID

Using RFID to track totes, lift trucks and work-in-process in a plant may not be as flashy as end-to-end supply chain visibility, but companies are generating real returns today with asset management solutions. That's the ROI from RFID.

By Bob Trebilcock, Editor at Large -- Modern Materials Handling, 2/20/2007

Last week, The Wall Street Journal ran a bleak assessment of Wal-Mart’s RFID mandate.

While the world’s largest retailer reports it has reduced out-of-stocks and increased the efficiency of order replenishment, suppliers complain that the cost of serving Wal-Mart has done nothing but go up:

• They’ve absorbed the cost of RFID hardware and software solutions to meet the mandate
• Applying the tags has increased labor costs, and
• They still haven’t seen the reduction in tag costs that was supposed to come with scale.

Despite those hurdles, the market for asset tracking and real-time locating systems (RTLS) using RFID is going nowhere but up, according to Mike Liard, research director for RFID and contactless for ABI Research.

Liard projects the market for asset management solutions to grow from $233 million in 2006 to $874 million by 2011. Add in solutions for cargo tracking and security, and the market will grow to $1.4 billion by 2011.

Why are companies skeptical of case and pallet tracking solutions so interested in tracking assets like lift trucks, trailers in the yard and work-in-process in the plant?

“The value propositions are stronger in asset management,” says Liard. “There is definitely an ROI.”

In fact, end users implementing an asset management solution are demanding ROI. “Our customers won’t consider a solution without a six- to nine-month ROI,” says Gary Latham, director of industry solutions for WhereNet.

Why is there such a quick payback in asset management when suppliers for Wal-Mart don’t see a return for years to come?

One answer: Tracking assets in a closed loop environment, like a factory, a distribution center or the yard, is easier to control than tracking a case or a pallet across an open environment like the retail supply chain.

“If you’re implementing RFID across a supply chain, all of your trading partners need to put in the infrastructure to get visibility,” Liard explains. “In a closed loop, you only care about what’s happening in your facility or in your yard.”