RFID: An Offer You Cant Refuse

Radio-frequency identification tags can save suppliers money—add it up and see.

/zimages/4/17485.gif Justifying the purchase of new technology is usually a highly individual process: The acquiring company has the final say whether to adopt or not. That will not be the case with radio-frequency identification (RFID) tags. If you work with Wal-Mart or the Department of Defense (DOD), the decision’s already been made for you.

XLS Download By the end of 2005, every pallet and case shipped by Wal-Mart’s top 100 suppliers to its U.S. stores—and most of the DoD’s suppliers—must have tags. Analysts expect the “RFID-ification” of those massive supply chains will push tags into almost every company in the U.S.

And that’s going to cost—a lot. During the next two years tag prices will probably add about 30 cents to the cost of every carton or product tagged. Tag readers aren’t horribly expensive, but you need several on every door of every shipping dock to check products in and out, plus a couple inside the warehouse to track where stuff is stored. Then there’s the cost of data storage and analysis.

But there are also real risks: The cost of each tag may never drop enough to make the concept cost-effective; vendors may not solve protocol and reliability issues in time; trading partners may resist dumping existing investments in optical bar-code systems. Also, aside from IBM, few vendors are ready to do big rollouts. Plus, there’s the whole privacy thing.

The good news is that RFID almost can’t help but cut the cost of shipping, improve inventory control and reduce shrinkage. Knowing where every carton is means you could save a huge percentage of the labor that makes up the bulk of your supply-chain cost; minimize lost sales due to out-of-stock items; and know whether an item was paid for when it walks out the door.

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