Click here to close now.


Mobile IoT Authors: Anders Wallgren, Pat Romanski, Liz McMillan, Kevin Benedict, Sanjay Zalavadia

Related Topics: Mobile IoT

Mobile IoT: Article

The Price of RFID

It's an expensive proposition

Initiatives by Wal-Mart and the Department of Defense will soon require hundreds of suppliers to implement complex RFID systems. These systems can offer enormous benefits, but the costs are high. What are the key challenges that companies face in fulfilling the mandates?

Last June, Wal-Mart announced that its top 100 suppliers would be required to implement radio frequency identification (RFID) tags on all cases and pallets by 2005, with all other suppliers expected to follow by 2006. Soon after, the Department of Defense announced a similar plan, requiring its top 100 suppliers to place RFID tags on all pallets and cases by 2005, and all other suppliers to do so by 2006.

It's an expensive proposition.

According to a recent report by the management consulting firm A.T. Kearney, the price of adoption will be about $400,000 per distribution center, plus an additional $35-40 million company-wide for systems integration. For manufacturers of high-end goods like clothing and electronics, these costs will be much more manageable than they will be for food and grocery manufacturers.

Because more volume means more RFID tags to buy, food and grocery manufacturers who produce larger numbers of cheaper goods will have to spend a lot more to meet the mandates. "The high-volume manufacturers will see the greatest cash-flow impact," says A.T. Kearney vice president Dave Donnan.

Still, the advantages of tracking every case and pallet with RFID tags can be enormous for manufacturers and retailers alike. Because the tags can be read automatically from a distance and don't have to be scanned directly like bar codes, companies can save enormous time and effort by switching to RFID.

A.T. Kearney predicts that the benefits of RFID for retailers will include a 5% reduction in inventory, a 7.5% reduction in labor costs, and a reduction in out-of-stock items, resulting in an annual benefit of $700,000 per $1 billion in sales. Manufacturers can expect similar improvements.

And they're taking notice. A recent survey by PSC Inc., found that 47% of manufacturers and suppliers plan to use or pilot RFID technology within the next year, and fully 100% plan to do so within the next two years.

Still, the mandates by Wal-Mart and the Department of Defense have forced many of those manufacturers to implement RFID technology far sooner than they had initially planned. The technology is still very new and expensive, with costs expected to come down gradually over the next few years. In working to fulfill the mandates by the 2005 and 2006 deadlines, manufacturers will face a number of significant challenges.

The Cost of Compliance
While both retailers and manufacturers will face considerable costs for implementation of readers and other back-end systems, the cost of the RFID tags themselves will be borne by the manufacturers alone - which means that the mandates will cost a lot more for manufacturers than they will for retailers. "For those tags, if you take a large manufacturer who might ship a billion cases a year, you're talking about $250 million in recurring expenses each year," says Omar Hijazi of A.T. Kearney's Technology Solutions Practice.

Over the next few years, until other companies join Wal-Mart and the Department of Defense in requiring RFID, some manufacturers might try to segregate their inventory and tag it differently from inventory for other retailers. Still, Hijazi says that would require an enormous investment of time and effort to break down and repack pallets of goods, eliminating any potential cost savings that might result. "That's a labor charge, and when we did the economics for that, it was highly unfavorable," he says.

As a result, Hijazi says, many manufacturers are likely to do as little as possible to fulfill the mandates, simply purchasing the tags and placing them on pallets and cases, but not implementing the systems required to take advantage of the benefits of RFID themselves. "I think the larger group will take a minimalist approach," he says. "Some of the larger, more aggressive companies that want to be known as innovators and want to prove their relationship with Wal-Mart will invest in this wholeheartedly."

Ian McPherson, president of the Wireless Data Research Group, says manufacturers are being forced to decide quickly how much risk to accept when fulfilling the mandates: either save money now and risk falling behind technologically, or spend more money in the expectation that it will eventually pay off. "They have to decide, 'Do I spend $1 for compliance, or do I spend $2 and hope that the byproduct of that is $3 in productivity,'" McPherson says.

Reaping the Benefits
Some larger manufacturers will take the leap and invest fully in the technology. "RFID has the capability to make significant improvements in operations," McPherson says. "Even the suppliers who are looking at this with trepidation will come to the realization that this technology does have the potential to dramatically benefit their operations."

As a result, McPherson says, two classes of provider are likely to result: the larger or more aggressive ones who make the extra investment and use the technology for their own benefit as well as for compliance; and others who simply accept that they'll have to comply at a bare minimum.

For the former group, which decides to implement RFID systems fully, that implementation process will be a challenge. "The not-so-secret secret is that the big winners in this are going to end up being Accenture, IBM Global Services, and the other companies that do the professional services for design of deployments, as well as implementation and consulting," McPherson says.

A well-managed, company-wide initiative will be required to make sure that the adoption is integrated and consistent. That's good news for Accenture and others. "There's an outstanding opportunity to make some money building those interfaces and extracting the complexities of those systems to interface with these new data capture devices," McPherson says.

Still, for a retailer like Wal-Mart, there's very little downside, and the same is true for any other retailer that's large enough to bear the costs of a full implementation. "If they can get their suppliers to tag all their pallets with this, they're going to greatly increase their accuracy and lower their processing time," McPherson says.

Consumer Concerns
For any company that considers adopting RFID technology, privacy concerns can present a significant problem. Because RFID tags can be read from a distance and don't have to be scanned directly, consumers' purchases can be tracked without their knowledge. Understandably, that makes many people uncomfortable.

In 2003, Wal-Mart canceled a pilot project with Gillette to test in-store RFID sensors after privacy concerns were raised, and groups like C.A.S.P.I.A.N. continue to protest any and all use of RFID at the item level.

Ian McPherson of the Wireless Data Research Group points out, though, that there are valid ways for retailers to assuage consumers' privacy concerns. "You make sure that the consumer knows that these are part of the product they're purchasing, and you put kill switches on them," he says. "Those should be a mandatory part of a consumer packaged product, along with the ability to remove the tag when possible."

Still, he says that privacy advocates have done a good job of raising visibility. "Their tactics have probably been more shrill than they needed to be, and that hasn't ingratiated them to the vendors," McPherson says. "But somewhere along the way, that conversation needs to happen. Technology is agnostic in terms of where it goes and how it's developed, so this does need to be brought to the forefront for discussion."

And as A.T. Kearney's Hijazi points out, privacy concerns are valid even when items are tagged only at the case and pallet level. Sam's Club, a division of Wal-Mart, sells items in bulk, meaning that consumers frequently buy an entire case at a time. "At a Sam's Club, consumers could potentially be picking up product with RFID chips even though they're not tagging it at the item level," Hijazi says.

Precautions like those that McPherson describes, divulging the use of RFID tags and then disabling and detaching them after the sale, will be necessary to make consumers comfortable with the use of RFID tags at all levels. Still, with the publicity that RFID implementations like Wal-Mart's have received, it's likely that all retailers that implement the technology will continue to face those concerns as they move forward.

Future Improvements
As more companies take on the technology, McPherson expects a number of changes to occur that will make adoption easier. "We'll continue to see the costs for the hardware driven down," he says. "We'll also see multimode and multifunction readers that span the gap between UPC, bar codes, EPC, and RFID, and that make it a little bit more of a migration rather than a wholesale replacement."

Still, the cost of the tags themselves will continue to provide the most significant challenge. "You're looking at about 25-30¢, for a very basic tag," McPherson says. "When you're talking about a pallet-level tag, you're looking at 75¢ to a dollar for something that's more capable, that has some storage capabilities."

Bringing the cost of a tag below 5¢, McPherson says, will take quite a while. "I don't think we'll see a 5¢ tag in five years," he says. "The economics just aren't there. Regardless of how much you automate the manufacturing process, the cost of the materials is still going to be prohibitive."

Clarke McAllister, RFID Solutions Manager for PSC Inc., says that improvements in antenna technology will have a significant impact on tag costs. "Etched copper antennas are the standard way of building a tag these days," he says. "You're going to see that begin to give way to something more like a printed silver antenna."

As costs come down, McAllister says, more and more companies will come to understand the advantages of investing in a full-scale adoption of RFID technology. "The benefit really does accrue to those who can implement RFID and reduce the amount of human touch, reduce the number of errors, and increase the thoroughness of monitoring to give them complete supply-chain visibility," he says.

And regardless of the challenges it may cause for manufacturers, the Wal-Mart and Department of Defense initiatives have sent a strong signal to the market in general about the viability of this technology. "It attracts some that might ordinarily sit by the sidelines and watch to see what happens," McAllister says. "Even they are now attracted to the market and may well say, 'Yes, this is it. It's happening now.'"

More Stories By Jeff Goldman

Jeff Goldman is a freelance writer specializing in business and technology issues. Brought up in Belgium, Jeff spent the last decade in New York, Chicago, and London; he now lives in Los Angeles.

Comments (0)

Share your thoughts on this story.

Add your comment
You must be signed in to add a comment. Sign-in | Register

In accordance with our Comment Policy, we encourage comments that are on topic, relevant and to-the-point. We will remove comments that include profanity, personal attacks, racial slurs, threats of violence, or other inappropriate material that violates our Terms and Conditions, and will block users who make repeated violations. We ask all readers to expect diversity of opinion and to treat one another with dignity and respect.

@ThingsExpo Stories
Today air travel is a minefield of delays, hassles and customer disappointment. Airlines struggle to revitalize the experience. GE and M2Mi will demonstrate practical examples of how IoT solutions are helping airlines bring back personalization, reduce trip time and improve reliability. In their session at @ThingsExpo, Shyam Varan Nath, Principal Architect with GE, and Dr. Sarah Cooper, M2Mi’s VP Business Development and Engineering, explored the IoT cloud-based platform technologies driving this change including privacy controls, data transparency and integration of real time context with p...
The Internet of Things (IoT) is growing rapidly by extending current technologies, products and networks. By 2020, Cisco estimates there will be 50 billion connected devices. Gartner has forecast revenues of over $300 billion, just to IoT suppliers. Now is the time to figure out how you’ll make money – not just create innovative products. With hundreds of new products and companies jumping into the IoT fray every month, there’s no shortage of innovation. Despite this, McKinsey/VisionMobile data shows "less than 10 percent of IoT developers are making enough to support a reasonably sized team....
Just over a week ago I received a long and loud sustained applause for a presentation I delivered at this year’s Cloud Expo in Santa Clara. I was extremely pleased with the turnout and had some very good conversations with many of the attendees. Over the next few days I had many more meaningful conversations and was not only happy with the results but also learned a few new things. Here is everything I learned in those three days distilled into three short points.
DevOps is about increasing efficiency, but nothing is more inefficient than building the same application twice. However, this is a routine occurrence with enterprise applications that need both a rich desktop web interface and strong mobile support. With recent technological advances from Isomorphic Software and others, rich desktop and tuned mobile experiences can now be created with a single codebase – without compromising functionality, performance or usability. In his session at DevOps Summit, Charles Kendrick, CTO and Chief Architect at Isomorphic Software, demonstrated examples of com...
As organizations realize the scope of the Internet of Things, gaining key insights from Big Data, through the use of advanced analytics, becomes crucial. However, IoT also creates the need for petabyte scale storage of data from millions of devices. A new type of Storage is required which seamlessly integrates robust data analytics with massive scale. These storage systems will act as “smart systems” provide in-place analytics that speed discovery and enable businesses to quickly derive meaningful and actionable insights. In his session at @ThingsExpo, Paul Turner, Chief Marketing Officer at...
In his keynote at @ThingsExpo, Chris Matthieu, Director of IoT Engineering at Citrix and co-founder and CTO of Octoblu, focused on building an IoT platform and company. He provided a behind-the-scenes look at Octoblu’s platform, business, and pivots along the way (including the Citrix acquisition of Octoblu).
In his General Session at 17th Cloud Expo, Bruce Swann, Senior Product Marketing Manager for Adobe Campaign, explored the key ingredients of cross-channel marketing in a digital world. Learn how the Adobe Marketing Cloud can help marketers embrace opportunities for personalized, relevant and real-time customer engagement across offline (direct mail, point of sale, call center) and digital (email, website, SMS, mobile apps, social networks, connected objects).
The Internet of Everything is re-shaping technology trends–moving away from “request/response” architecture to an “always-on” Streaming Web where data is in constant motion and secure, reliable communication is an absolute necessity. As more and more THINGS go online, the challenges that developers will need to address will only increase exponentially. In his session at @ThingsExpo, Todd Greene, Founder & CEO of PubNub, exploreed the current state of IoT connectivity and review key trends and technology requirements that will drive the Internet of Things from hype to reality.
Two weeks ago (November 3-5), I attended the Cloud Expo Silicon Valley as a speaker, where I presented on the security and privacy due diligence requirements for cloud solutions. Cloud security is a topical issue for every CIO, CISO, and technology buyer. Decision-makers are always looking for insights on how to mitigate the security risks of implementing and using cloud solutions. Based on the presentation topics covered at the conference, as well as the general discussions heard between sessions, I wanted to share some of my observations on emerging trends. As cyber security serves as a fou...
We all know that data growth is exploding and storage budgets are shrinking. Instead of showing you charts on about how much data there is, in his General Session at 17th Cloud Expo, Scott Cleland, Senior Director of Product Marketing at HGST, showed how to capture all of your data in one place. After you have your data under control, you can then analyze it in one place, saving time and resources.
With all the incredible momentum behind the Internet of Things (IoT) industry, it is easy to forget that not a single CEO wakes up and wonders if “my IoT is broken.” What they wonder is if they are making the right decisions to do all they can to increase revenue, decrease costs, and improve customer experience – effectively the same challenges they have always had in growing their business. The exciting thing about the IoT industry is now these decisions can be better, faster, and smarter. Now all corporate assets – people, objects, and spaces – can share information about themselves and thei...
The cloud. Like a comic book superhero, there seems to be no problem it can’t fix or cost it can’t slash. Yet making the transition is not always easy and production environments are still largely on premise. Taking some practical and sensible steps to reduce risk can also help provide a basis for a successful cloud transition. A plethora of surveys from the likes of IDG and Gartner show that more than 70 percent of enterprises have deployed at least one or more cloud application or workload. Yet a closer inspection at the data reveals less than half of these cloud projects involve production...
Continuous processes around the development and deployment of applications are both impacted by -- and a benefit to -- the Internet of Things trend. To help better understand the relationship between DevOps and a plethora of new end-devices and data please welcome Gary Gruver, consultant, author and a former IT executive who has led many large-scale IT transformation projects, and John Jeremiah, Technology Evangelist at Hewlett Packard Enterprise (HPE), on Twitter at @j_jeremiah. The discussion is moderated by me, Dana Gardner, Principal Analyst at Interarbor Solutions.
Discussions of cloud computing have evolved in recent years from a focus on specific types of cloud, to a world of hybrid cloud, and to a world dominated by the APIs that make today's multi-cloud environments and hybrid clouds possible. In this Power Panel at 17th Cloud Expo, moderated by Conference Chair Roger Strukhoff, panelists addressed the importance of customers being able to use the specific technologies they need, through environments and ecosystems that expose their APIs to make true change and transformation possible.
Too often with compelling new technologies market participants become overly enamored with that attractiveness of the technology and neglect underlying business drivers. This tendency, what some call the “newest shiny object syndrome” is understandable given that virtually all of us are heavily engaged in technology. But it is also mistaken. Without concrete business cases driving its deployment, IoT, like many other technologies before it, will fade into obscurity.
Microservices are a very exciting architectural approach that many organizations are looking to as a way to accelerate innovation. Microservices promise to allow teams to move away from monolithic "ball of mud" systems, but the reality is that, in the vast majority of organizations, different projects and technologies will continue to be developed at different speeds. How to handle the dependencies between these disparate systems with different iteration cycles? Consider the "canoncial problem" in this scenario: microservice A (releases daily) depends on a couple of additions to backend B (re...
The Internet of Things is clearly many things: data collection and analytics, wearables, Smart Grids and Smart Cities, the Industrial Internet, and more. Cool platforms like Arduino, Raspberry Pi, Intel's Galileo and Edison, and a diverse world of sensors are making the IoT a great toy box for developers in all these areas. In this Power Panel at @ThingsExpo, moderated by Conference Chair Roger Strukhoff, panelists discussed what things are the most important, which will have the most profound effect on the world, and what should we expect to see over the next couple of years.
Container technology is shaping the future of DevOps and it’s also changing the way organizations think about application development. With the rise of mobile applications in the enterprise, businesses are abandoning year-long development cycles and embracing technologies that enable rapid development and continuous deployment of apps. In his session at DevOps Summit, Kurt Collins, Developer Evangelist at, examined how Docker has evolved into a highly effective tool for application delivery by allowing increasingly popular Mobile Backend-as-a-Service (mBaaS) platforms to quickly crea...
Growth hacking is common for startups to make unheard-of progress in building their business. Career Hacks can help Geek Girls and those who support them (yes, that's you too, Dad!) to excel in this typically male-dominated world. Get ready to learn the facts: Is there a bias against women in the tech / developer communities? Why are women 50% of the workforce, but hold only 24% of the STEM or IT positions? Some beginnings of what to do about it! In her Day 2 Keynote at 17th Cloud Expo, Sandy Carter, IBM General Manager Cloud Ecosystem and Developers, and a Social Business Evangelist, wil...
PubNub has announced the release of BLOCKS, a set of customizable microservices that give developers a simple way to add code and deploy features for realtime apps.PubNub BLOCKS executes business logic directly on the data streaming through PubNub’s network without splitting it off to an intermediary server controlled by the customer. This revolutionary approach streamlines app development, reduces endpoint-to-endpoint latency, and allows apps to better leverage the enormous scalability of PubNub’s Data Stream Network.