Calculating Costs of Radio-Frequency Identification

Maybe it's time to tag along with a certain massive Arkansas-based retailer that has been steadily squeezing your food-store operation, despite your best technology efforts. Here's a planning tool for costing-out radio frequency identification (RFID) in t

If you cant beat em…well, maybe its time to tag along. A certain massive Arkansas-based retailer has been steadily squeezing your $36-billion food-store operation, despite your best technology efforts.

The solution? Stop fighting the 800-pound gorilla, and instead walk just a step behind it in the path its clearing—in fits and starts—toward radio-frequency identification (RFID) in the retail supply chain. RFIDs efficient data-capture technology uses specialized receivers to record data via radio waves from goods laced with tiny chips and antennae. Its already tracking everything from livestock to Prada handbags (see "The Science of Desire," Baseline, Case 049, December 2002), and now, thanks to Wal-Mart Stores Inc.s edict to its suppliers, RFID is coming to a retail supply chain near you.

The good news is that your new pal Wal-Mart has put on the suppliers the burden for buying and placing the millions of RFID tags that will be needed. Your challenge, then, is to figure out exactly how RFID will integrate into and improve your supply-chain systems. "Dont boil the ocean," says Christine Overby, a senior analyst at Forrester Research Inc. Its too early in the RFID game, Overby says, to reinvent business processes around a technology that will likely take seven to 10 years to become fully realized in the supply chain.

Instead, stay on the leading edge by teaming with an RFID-logistics consultant to guide you through a one-year pilot. Deploy RFID at one of your distribution centers and three of the stores it serves. Work through the application-integration hurdles and push the new-and-improved data into your warehouse-management and enterprise-resource-planning systems. Then youll be ready to fully roll out RFID and start cashing in on its promise of reduced labor, error and theft, and improved sales from real-time inventory tracking.