RFID not the 'budget buster' originally predicted
RFID not the 'budget buster' originally predicted
The cost of entering the radio frequency identification game may be much less than first anticipated, according to research by a logistics publication.
In Logistics recently published a story reporting that cost of initial compliance may be as little as $15,000 for some firms and stretch only as high as $400,000 for even the largest vendors. That is a far cry from the early estimates that put cost estimates for the larger companies at well over $1 million.
Even in the Aug. 1 issue of The Produce News, Gary Fleming of the Produce Marketing Association said that realistic cost estimates had recently shrunk to the $500,000 to $700,000 range for most big companies. And even that appears to be too high.
It was in that article that Wal-Mart's Bruce Peterson reiterated the giant retailer's position that its major suppliers need to be compliant by Jan. 1. While this list of 300 suppliers includes very few produce companies, Mr. Peterson said that RFID is on its way, and prudent companies will start positioning themselves for the inevitability, as he sees it. Of course, the key component is cost.
In Logistics asked many vendors who had been involved in more than 100 different RFID implementations to itemize the cost factors. That panel of companies, which unmatched experience with regard to this new technology, reported that the cost was more accurately put in the $200,000 to $300,000 range.
However, there is a caveat to these lower numbers: In Logistics said that most of those questioned were talking about pilot projects rather than full-scale implementation. Many of these vendors apparently are not totally sold on the concept and have complied with the retail mandates by adopting "slap-and-ship" models, which is apt description of the practice: slap a "passive RFID tag on the carton and send it out the door.
This approach is much less expensive, but there are also serious questions about its eventual payback. In last week's article in The Produce News, both Mr. Peterson and Mr. Fleming said that a shipper using this method is clearly just looking at the new technology as an added cost rather than a potential fruitful supplier of information.
In Logistics said that many of the others it had queried went beyond the "slap-and-ship approach but were still limiting RFID to a small number of SKUs and distribution centers owned by Wal-Mart or other customers. Even early adopters who started with RFID programs in 2004 are only estimating that 6-10 percent of their merchandise will be RFID-compliant in 2005.
In the article, researchers were quoted as identifying four different cost centers for implementation: hardware, consulting services, changes to existing supply chain applications, and storage and analysis of the large volume of data that are expected to be captured by RFID applications.
The story said, "Analysts predict these costs will break down over the long term as follows: hardware, 44 percent of total implementation cost; integration, 22 percent; changes to supply chain applications, 22 percent; and data storage and analysis, 13 percent.
At the early end of the process, In Logistics found the cost breakdown much different as the consulting costs are consuming 50-80 percent of a vendor's RFID budget. Of course, that cost is not ongoing. The majority of costs will eventually be in the tags themselves and the analysis of the data.
The story also found that the much-needed drop in tag costs for rapid adoption is already occurring. The researchers claim that passive tags are now available as inexpensively as 20 cents per tag in bulk, with high-end readers, now priced at roughly $1,000, expected to drop to $300 during the next two years. Another ongoing cost will be the subscription fee of EPCglobal, RFID's equivalent to the Uniform Code Council. Currently the subscription fee is $75,000 for companies with annual sales of $1 billion to $10 billion. EPCglobal membership is necessary for full access to standards.
In Logistics concluded that "RFID is not the budget-buster originally predicted.
In Logistics recently published a story reporting that cost of initial compliance may be as little as $15,000 for some firms and stretch only as high as $400,000 for even the largest vendors. That is a far cry from the early estimates that put cost estimates for the larger companies at well over $1 million.
Even in the Aug. 1 issue of The Produce News, Gary Fleming of the Produce Marketing Association said that realistic cost estimates had recently shrunk to the $500,000 to $700,000 range for most big companies. And even that appears to be too high.
It was in that article that Wal-Mart's Bruce Peterson reiterated the giant retailer's position that its major suppliers need to be compliant by Jan. 1. While this list of 300 suppliers includes very few produce companies, Mr. Peterson said that RFID is on its way, and prudent companies will start positioning themselves for the inevitability, as he sees it. Of course, the key component is cost.
In Logistics asked many vendors who had been involved in more than 100 different RFID implementations to itemize the cost factors. That panel of companies, which unmatched experience with regard to this new technology, reported that the cost was more accurately put in the $200,000 to $300,000 range.
However, there is a caveat to these lower numbers: In Logistics said that most of those questioned were talking about pilot projects rather than full-scale implementation. Many of these vendors apparently are not totally sold on the concept and have complied with the retail mandates by adopting "slap-and-ship" models, which is apt description of the practice: slap a "passive RFID tag on the carton and send it out the door.
This approach is much less expensive, but there are also serious questions about its eventual payback. In last week's article in The Produce News, both Mr. Peterson and Mr. Fleming said that a shipper using this method is clearly just looking at the new technology as an added cost rather than a potential fruitful supplier of information.
In Logistics said that many of the others it had queried went beyond the "slap-and-ship approach but were still limiting RFID to a small number of SKUs and distribution centers owned by Wal-Mart or other customers. Even early adopters who started with RFID programs in 2004 are only estimating that 6-10 percent of their merchandise will be RFID-compliant in 2005.
In the article, researchers were quoted as identifying four different cost centers for implementation: hardware, consulting services, changes to existing supply chain applications, and storage and analysis of the large volume of data that are expected to be captured by RFID applications.
The story said, "Analysts predict these costs will break down over the long term as follows: hardware, 44 percent of total implementation cost; integration, 22 percent; changes to supply chain applications, 22 percent; and data storage and analysis, 13 percent.
At the early end of the process, In Logistics found the cost breakdown much different as the consulting costs are consuming 50-80 percent of a vendor's RFID budget. Of course, that cost is not ongoing. The majority of costs will eventually be in the tags themselves and the analysis of the data.
The story also found that the much-needed drop in tag costs for rapid adoption is already occurring. The researchers claim that passive tags are now available as inexpensively as 20 cents per tag in bulk, with high-end readers, now priced at roughly $1,000, expected to drop to $300 during the next two years. Another ongoing cost will be the subscription fee of EPCglobal, RFID's equivalent to the Uniform Code Council. Currently the subscription fee is $75,000 for companies with annual sales of $1 billion to $10 billion. EPCglobal membership is necessary for full access to standards.
In Logistics concluded that "RFID is not the budget-buster originally predicted.
