RFID ROI: Closed Thinking
Thursday, May 08, 2008 - RFID Connections
Bert Moore
Editor
At AIM Global's Leadership Summit last week, attendees heard from a number of experts about the RFID market and where its benefits will most likely provide a solid business case in the near term. Closed systems are still the leading candidates for ROI of less than one year but there are other considerations that may begin to move RFID into the general supply chain in ways that have not been as widely discussed.
It has been clear over the past year or so that RFID systems that are under the control of a single entity (business, organization or government) provide the most direct and easiest to calculate ROIs. Asset management, access control, transit cards, libraries and the like will continue to thrive. Various other "small" applications that automate routine data collection or item identification tasks, and that ensure the accuracy of collected data, are also growing in popularity. Specimen identification, in labs or field applications, is one such application. Tracking of promotional displays -- and verifying their presence and location -- is another growing application where ROI can clearly be demonstrated.
Large supply chain applications that rely on developing a "critical mass" in order to provide real benefits are lagging behind. However, within the supply chain, there are a number of areas where RFID benefits can be easily recognized because they are, essentially, closed loops within the larger open loop system.
Item identification at retail is also growing, although somewhat slowly, primarily because individual retail chains are tagging or having items tagged for their own applications. Apparel seems to be the leading application with a number of retailers tagging their own brands. While these are "local" initiatives, the implications for the larger supply chain are obvious.
One area that has been somewhat overlooked in supply chain is product diversion, otherwise known as the "gray market." While considerable attention has been focused on preventing counterfeits from entering the supply chain, product diversion is another problem entirely. Diversion occurs when genuine products, typically high end brands, are sold outside authorized distribution channels. Products are typically sold at a discount and lack the warrantee service or customer support provided by authorized dealers. Diversion dilutes the brand's perception and may harm its reputation. It also makes it difficult for authorized dealers to compete. Companies are beginning to look at RFID as a way to track products that end up in the gray market in order to identify and close leaks in their supply chain.
Interest among third party service providers such as ports, logistics companies, and distributors seems to be focused in two areas: responsiveness and data mining. In some applications, reusable tags can be used for internal applications since they don't require a reverse logistics system. However, for most data mining applications, the full benefits are still waiting for broader tagging of goods.
While it may appear that RFID applications are stumbling forward in a haphazard way, indications are that each of these local or closed loop applications will serve as the basis for future, open system applications. Each application where an ROI can be demonstrated allows companies to move forward with developing the infrastructure necessary for end-to-end data discovery and exchange.
In fact, the shift of attention away from large supply chain applications and mandate compliance has allowed the benefits of these smaller applications to be more evident and receive the kind of attention they deserve.
As Lao-tzu, the Chinese philosopher, said, "A journey of a thousand miles begins with a single step." And today's RFID applications seem to prove that.
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Comments on this column? E-mail me: Bert Moore, Editor
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