Retail

Retail

Opinions expressed on this blog reflect the writer’s views and not the position of the Capgemini Group

Tagging up for success - Debunking the traditional RFID ROI myth

“Those who do not remember the past are condemned to repeat it”

George Santayana

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.”

H. L. Mencken

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.”
Jill Lepore

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.

About the author

Shashi Subramanian
Shashi Subramanian
Shashi is an experienced Management Consultant with Capgemini with expertise in creating and implementing strategic solutions in large organisations in the retail and consumer goods industries. He is especially interested in how new technologies disrupt consumer driven supply chains resulting in better and more informed decision making across retailers and their partners
1 Comment Leave a comment
I find this a very interesting and refreshing read/perspective. Thank you. Two comments in reference to your post: 1) ROI is naturally the Return on Investment. The key component word is "investment" and if a company does not look at RFID as an investment into its operating business, associates and ultimately to and for its customers.....then they will never effectively launch and sustain a RFID deployment. 2) "include the decreasing cost of tags" - If a RFID deployment is successfully launched and sustained over a year or two, and 2-3 of the value propositions you stated above are met and/or exceeded over time, then the cost of the tags become irrelevant and the program's annual tag cost should be covered. I have constantly witnessed where pressure toward driving down RFID tagging costs eventually leads to twice, sometimes triple in real tag costs when the RFID tags are poorly produced, improperly ordered and then delayed in delivery to factories...and thus having finished goods delayed in transit and air freight is involved.

Leave a comment

Your email address will not be published. Required fields are marked *.