The return from RFID would be much higher, however, if the cost of the technology were lower. To a large degree, the inflated expenses associated with setting up an RFID system are responsible for the technologys lukewarm receptionand a prime reason why companies are moving gingerly into adoption of the technology. "The challenge for companies is how to offset the expense," says Mark Roberti, editor of RFID Journal. "And unless a company has a very targeted, carefully drawn up and highly discrete application with a built-in ROI, theres no easy answer for this yet." A large supplier could pay as much as $9 million in the first year to comply with Wal-Marts narrow regional mandate, with about 80 percent of that going to the electronic tags for upwards of 16 million cases and pallets, according to Forrester Research Inc. The next highest expense involves the readers for scanning the EPCs as the products leave the manufacturers distribution centers, and, surprisingly, the additional labor costs for manual taggingautomated tagging and embedding RFID in packaging material is far from perfected. Currently, tags cost anywhere from 20 cents to 40 cents each, depending on volume purchased and the quality of the tags. "If youre shipping a high-margin product, thats a negligible amount, but if youre shipping tomato paste, where the margin on a case may be 20 cents, adding a 40-cent tag turns your product into a losing venture," says Dave Douglas, executive vice president for products and strategy at ConnecTerra Inc., a maker of RFID middleware.
Thats why most large consumer-goods companies are minimizing their financial exposure by not going beyond Wal-Marts requirement that they use RFID tags in the Dallas area. For even the biggest Wal-Mart suppliers, such as P&G, this will limit tagging to just 5 percent or so of their cases and pallets. VF Corp., maker of Lee and Wrangler jeans, among other consumer products, illustrates the wait-and-see response of suppliers to Wal-Marts initiative. Most of VFs shipments to Wal-Mart are so-called multi-SKU boxes, which means that each box contains a variety of products in different sizes, colors and styles. Tagging these boxes is like slapping the label "building" on a house; it sheds no light on whats inside. Consequently, unable to justify RFID tagging of pallets and cases, "VF knows that it will just have to accept Wal-Mart compliance as a cost of doing business, with no payback," says Roberti.