“Those who do not remember the past are condemned to repeat it”
In 1949 Norman Joseph Woodland formed his first barcode on a sandy beach in Miami. At the time, everybody thought it was too expensive and nobody thought it would stick. There was a plume of excitement followed by a trough of fear and shortly thereafter articles about its demise. Then, many sceptics compared the cost of the product to the cost of the tag. Today over 5 billion barcodes are scanned every day and the technology has yielded savings in the trillions of dollars.
Nearly 50 years on we’re in the same situation with the adoption of RFID. Sceptics are comparing the cost of RFID tags to the cost of products and making sweeping statements on the demise of RFID due to its expense.
They were wrong then. They’re wrong now, and this is why…
“For every complex problem there is an answer that is clear, simple, and wrong.”
In any RFID conversation, it seems that at least one person has the following view.
“The tags are too expensive. If you have products that are priced at less than £3-20 it will dilute the margin and become uneconomical”.
My recommendation is that if you are to consider this ‘rule of thumb’, that you evaluate the tag cost against the weighted average price of your products. In this case, you will be in a better position to evaluate what the impact of the tag cost is against the overall product range. More often than not, sceptics will find their weighted average price above their initial arbitrary estimate.
The real crux of the problem is that the above ‘rule of thumb’ (even after refinement) does not consider the additional benefits that would not be possible if a retailer tagged all products.
For example, the above doesn’t cover the following benefits at store:
- Rapid checkout process
- Improved replenishment accuracy
- Seamless returns
- Reduced loss and theft
…or the following innovations that could be differentiating in this challenging climate:
- Supplier managed stock and promotions
- Real-time click and collect
- Product provenance
So, in effect, the tag cost vs. product cost ‘rule of thumb’ does not give a retailer a clear picture of the real benefits (tangible or intangible) to make a decision on an RFID investment.
“Scientific management promised to replace rules of thumb with accurate measurements.”
In summary, there is only one way to measure RFID return on investment (ROI) – and no surprise – it follows the same ROI calculations as any investment i.e. evaluating the cost of hardware, software, labels, resources, and services over the benefits – tangible and intangible - for your organisation over time.
If you are considering an RFID journey, some things to factor into your ROI and benefits case should:
a) ensure your roadmap exploits the benefits of RFID across your entire eco-system of customers, stores, supply chain, and partners
b) ensure that you consider bottom-line and top-line benefits
c) consider lease vs. buy models for hardware and include the decreasing cost of tags
d) balance the speed of roll-out against the available capacity of change
e) evaluate RFID as an end-to-end service to minimise capital expenditure
So, in conclusion, if you are in a conversation and hear somebody refer to RFID ROI as a function of tag cost; know that there is a better way to determine what the real benefit is to your organisation.
And if you need somebody to drive home the point, I’m always happy to help.