Welcome!

Mobile IoT Authors: Elizabeth White, Pat Romanski, Janakiram MSV, Shelly Palmer, Laureen Fagan

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
SYS-CON Events announced today that Massive Networks will exhibit at SYS-CON's 21st International Cloud Expo®, which will take place on Oct 31 – Nov 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA. Massive Networks mission is simple. To help your business operate seamlessly with fast, reliable, and secure internet and network solutions. Improve your customer's experience with outstanding connections to your cloud.
In the enterprise today, connected IoT devices are everywhere – both inside and outside corporate environments. The need to identify, manage, control and secure a quickly growing web of connections and outside devices is making the already challenging task of security even more important, and onerous. In his session at @ThingsExpo, Rich Boyer, CISO and Chief Architect for Security at NTT i3, discussed new ways of thinking and the approaches needed to address the emerging challenges of security i...
DX World EXPO, LLC., a Lighthouse Point, Florida-based startup trade show producer and the creator of "DXWorldEXPO® - Digital Transformation Conference & Expo" has announced its executive management team. The team is headed by Levent Selamoglu, who has been named CEO. "Now is the time for a truly global DX event, to bring together the leading minds from the technology world in a conversation about Digital Transformation," he said in making the announcement.
Internet of @ThingsExpo, taking place October 31 - November 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA, is co-located with 21st Cloud Expo and will feature technical sessions from a rock star conference faculty and the leading industry players in the world. The Internet of Things (IoT) is the most profound change in personal and enterprise IT since the creation of the Worldwide Web more than 20 years ago. All major researchers estimate there will be tens of billions devic...
Everything run by electricity will eventually be connected to the Internet. Get ahead of the Internet of Things revolution and join Akvelon expert and IoT industry leader, Sergey Grebnov, in his session at @ThingsExpo, for an educational dive into the world of managing your home, workplace and all the devices they contain with the power of machine-based AI and intelligent Bot services for a completely streamlined experience.
"The Striim platform is a full end-to-end streaming integration and analytics platform that is middleware that covers a lot of different use cases," explained Steve Wilkes, Founder and CTO at Striim, in this SYS-CON.tv interview at 20th Cloud Expo, held June 6-8, 2017, at the Javits Center in New York City, NY.
With tough new regulations coming to Europe on data privacy in May 2018, Calligo will explain why in reality the effect is global and transforms how you consider critical data. EU GDPR fundamentally rewrites the rules for cloud, Big Data and IoT. In his session at 21st Cloud Expo, Adam Ryan, Vice President and General Manager EMEA at Calligo, will examine the regulations and provide insight on how it affects technology, challenges the established rules and will usher in new levels of diligence...
SYS-CON Events announced today that Calligo, an innovative cloud service provider offering mid-sized companies the highest levels of data privacy and security, has been named "Bronze Sponsor" of SYS-CON's 21st International Cloud Expo ®, which will take place on Oct 31 - Nov 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA. Calligo offers unparalleled application performance guarantees, commercial flexibility and a personalised support service from its globally located cloud plat...
What sort of WebRTC based applications can we expect to see over the next year and beyond? One way to predict development trends is to see what sorts of applications startups are building. In his session at @ThingsExpo, Arin Sime, founder of WebRTC.ventures, discussed the current and likely future trends in WebRTC application development based on real requests for custom applications from real customers, as well as other public sources of information.
SYS-CON Events announced today that DXWorldExpo has been named “Global Sponsor” of SYS-CON's 21st International Cloud Expo, which will take place on Oct 31 – Nov 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA. Digital Transformation is the key issue driving the global enterprise IT business. Digital Transformation is most prominent among Global 2000 enterprises and government institutions.
SYS-CON Events announced today that Datera, that offers a radically new data management architecture, has been named "Exhibitor" of SYS-CON's 21st International Cloud Expo ®, which will take place on Oct 31 - Nov 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA. Datera is transforming the traditional datacenter model through modern cloud simplicity. The technology industry is at another major inflection point. The rise of mobile, the Internet of Things, data storage and Big...
While the focus and objectives of IoT initiatives are many and diverse, they all share a few common attributes, and one of those is the network. Commonly, that network includes the Internet, over which there isn't any real control for performance and availability. Or is there? The current state of the art for Big Data analytics, as applied to network telemetry, offers new opportunities for improving and assuring operational integrity. In his session at @ThingsExpo, Jim Frey, Vice President of S...
"We provide IoT solutions. We provide the most compatible solutions for many applications. Our solutions are industry agnostic and also protocol agnostic," explained Richard Han, Head of Sales and Marketing and Engineering at Systena America, in this SYS-CON.tv interview at @ThingsExpo, held June 6-8, 2017, at the Javits Center in New York City, NY.
"We are focused on SAP running in the clouds, to make this super easy because we believe in the tremendous value of those powerful worlds - SAP and the cloud," explained Frank Stienhans, CTO of Ocean9, Inc., in this SYS-CON.tv interview at 20th Cloud Expo, held June 6-8, 2017, at the Javits Center in New York City, NY.
"DX encompasses the continuing technology revolution, and is addressing society's most important issues throughout the entire $78 trillion 21st-century global economy," said Roger Strukhoff, Conference Chair. "DX World Expo has organized these issues along 10 tracks with more than 150 of the world's top speakers coming to Istanbul to help change the world."
"We've been engaging with a lot of customers including Panasonic, we've been involved with Cisco and now we're working with the U.S. government - the Department of Homeland Security," explained Peter Jung, Chief Product Officer at Pulzze Systems, in this SYS-CON.tv interview at @ThingsExpo, held June 6-8, 2017, at the Javits Center in New York City, NY.
The financial services market is one of the most data-driven industries in the world, yet it’s bogged down by legacy CPU technologies that simply can’t keep up with the task of querying and visualizing billions of records. In his session at 20th Cloud Expo, Karthik Lalithraj, a Principal Solutions Architect at Kinetica, discussed how the advent of advanced in-database analytics on the GPU makes it possible to run sophisticated data science workloads on the same database that is housing the rich...
"MobiDev is a Ukraine-based software development company. We do mobile development, and we're specialists in that. But we do full stack software development for entrepreneurs, for emerging companies, and for enterprise ventures," explained Alan Winters, U.S. Head of Business Development at MobiDev, in this SYS-CON.tv interview at 20th Cloud Expo, held June 6-8, 2017, at the Javits Center in New York City, NY.
SYS-CON Events announced today that DXWorldExpo has been named “Global Sponsor” of SYS-CON's 21st International Cloud Expo, which will take place on Oct 31 – Nov 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA. Digital Transformation is the key issue driving the global enterprise IT business. Digital Transformation is most prominent among Global 2000 enterprises and government institutions.
In his opening keynote at 20th Cloud Expo, Michael Maximilien, Research Scientist, Architect, and Engineer at IBM, discussed the full potential of the cloud and social data requires artificial intelligence. By mixing Cloud Foundry and the rich set of Watson services, IBM's Bluemix is the best cloud operating system for enterprises today, providing rapid development and deployment of applications that can take advantage of the rich catalog of Watson services to help drive insights from the vast t...