Companies still seeking ROI in RFID

Attendees at the RFID Journal Live conference in Chicago are trying to make a business case for deploying the technology beyond meeting compliance mandates.

CHICAGO -- For Ed Matthews, who serves as director of information systems at Pacific Cycle, it's not a matter of "if" the bicycle manufacturer will gain ROI from its radio frequency identification (RFID) investment, it's a matter of "when."

I'm in the low margin business and I want to retain those margins for our stockholders.
Gary Cooper,
chief technology officerTyson Foods

Matthews oversaw an IT team that implemented RFID shortly after Wal-Mart mandated it last year. Today, data collected from RFID tags placed in owner's manuals on every Schwinn bicycle the company ships to the giant retailer is integrated into Pacific Cycle's SAP R/3 system using SAP XI -- a project that went live last September.

But after going through several different tag suppliers and hardware vendors, Matthews concedes that for now, the costs of deploying RFID are too high to gain return on investment (ROI).

"We now have visibility throughout the entire supply chain to the point of purchase and that's becoming a very good benefit," Matthews said. "But it will be about two years before we see ROI."

Matthews and other early RFID adopters discussed the benefits and the challenges of deploying the technology during dozens of sessions at the RFID Journal Live conference. The conference has grown to over 1,000 attendees as recent compliance mandates have been handed down to suppliers from giant retailers and the U.S. Department of Defense.

Companies here are weighing whether to deploy RFID, by implementing a "slap and ship" model, a minimal investment that results in meeting compliance mandates, or whether to make a larger investment to clean, integrate and analyze the gobs of data collected by tag readers.

"RFID is one of those sensing mechanisms that can allow you to determine what's happening in real time, but sensing is not enough," said Amar Singh, vice president of business development for SAP's Auto-ID program. "We see implementation of RFID as the need to be able to sense what's going on in the marketplace and the ability to respond appropriately."

Slapping an RFID tag on every box of chicken leaving Tyson Foods' giant distribution centers doesn't make economic sense, said Gary Cooper, chief technology officer at Tyson Foods. The company determined that it wasn't worth the cost of RFID tags -- as high as 60 cents a tag -- to deploy the technology companywide, Cooper said. Instead the company went live with a "slap and ship" deployment to meet a Wal-Mart compliance mandate.

"I'm in the low margin business and I want to retain those margins for our stockholders," Cooper said. "The technology is far too young … I need the costs to go down before I take advantage of it."

Wal-Mart, other retailers and the Department of Defense said the costs of deploying the technology will come down over time once volume increases and the technology advances. The Department of Defense has spent millions deploying the technology in two distribution centers located in Susquehanna, Penn., and San Joaquin, Calif., and has already used the technology to track shipments to troops deployed in Iraq, Somalia, Haiti and Bosnia.


But even the Department of Defense admits it has a challenge in integrating the data into more than 2,000 of its global logistics systems. To gain any meaningful use from the data generated from RFID, it must be collected, cleansed and analyzed.

"I think it will take care of itself as we implement it over time," said Alan Estevez, assistant deputy undersecretary for supply chain integration at the Department of Defense, during a keynote address at the conference. "Our goal is to improve the visibility, efficiency and inventory management and finally reduce the repair time on our weapons systems."

Despite all the implementation challenges, the costs of using the latest technology could result in great rewards, according to Matthews, who has been with Pacific Cycle since 1997. By fully implementing RFID and using the data collected effectively, Matthews believes Pacific Cycle has gotten a competitive edge.

"We're using the latest technology to make good business decisions using the latest supply chain information we have on hand," Matthews said.

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