Marching Toward the RFID Business Case

To find a profitable place for RFID in the manufacturing enterprise, executives should take a long look at the business processes where the technology can be applied.

Posted on Mar 19, 2008

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Wal-Mart Stores, Inc. has done it again. Another 500 of the company's stores will be RFID-enabled and another 300 suppliers will need to meet the retailer's RFID mandate by the end of next month.

Rollin Ford, the newly appointed executive vice president and CIO of Wal-Mart, recently said in a company statement that he remains steadfast in his commitment to RFID, echoing the convictions of his predecessor, Linda Dillman. Wal-Mart has already achieved some of the benefits of RFID -- such as reducing stock-outs and excess inventory. But as the company moves forward with efforts to couple new work processes with the technology, Ford suggested the gains will become more quantifiable and more widely spread across the organization.

"RFID will transform the way we do business, and I am privileged to be a part of this technology that is bringing positive change to Wal-Mart, the retail industry, and many other sectors as well," he said.

Ford did not elaborate on the new initiatives underway, saying only that the company would announce each project as it is rolled out. His silence could be intended to protect the competitive advantage that he expects RFID will bring to the company. Or it could be that Wal-Mart, like many of its suppliers, is still trying to figure out where to apply the technology outside of having it slapped on containers moving through the supply chain.

Many manufacturers, having first adopted RFID in reaction to mandates from organizations such as Wal-Mart and the Department of Defense, are now wrestling with their own confusion. Sure, many manufacturers have deployed RFID tags, readers, and gateways and upgraded to technology that is compliant with EPCglobal specifications, all in the interest of meeting the demands of their largest customers. But now these companies are asking: Where's their ROI?

Asset tracking has emerged as one area where RFID investment can be justified. Already, medical equipment manufacturers are using RFID to track products in hospitals, while aerospace companies are using RFID to locate parts. As manufacturers begin to explore applications beyond asset tracking, some are beginning to uncover opportunities in personal safety, security, logistics, and plant data collection, all of which offer promise to industries outside of retail.

Still, despite the fact that RFID is not a new technology, many manufacturers are struggling to understand the business case for next-generation RFID deployments. It's not an issue of a young market or an immature technology. Rather, experts say, the problem may be that company executives haven't taken the time to sit down and figure out the real value-add of RFID.

"People are still missing it because they haven't looked at the business case first," says Duncan McCollum, a principal at Computer Sciences Corp. and co-author of the book RFID Strategic Implementation and ROI, published earlier this year. In order for that to happen, he says, RFID needs to move from the realm of the IT department into the hands of line-of-business managers.

"Two or three years ago, whoever was available in IT was the person given the responsibility for the RFID project," McCollum says. "Now, we are seeing a real shift in awareness that this is a cross-organizational issue. You have to get the operations, manufacturing, supply chain, logistics, and finance [departments] involved."

That may be happening in some industries. Indeed, a recent report from research firm Frost & Sullivan noted that although the retail sector continues to be a sweet spot for RFID in terms of market size and growth, automotive, aerospace, and industrial products are three manufacturing sectors that are expected to see the rewards of RFID within production and logistics operations over the next several years. The combined market for production and logistics RFID applications in those three industry segments is expected to grow from $71.3 million in 2005 to $225.7 million in 2012, according to the study.

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