Radio Frequency Identification (RFID) is a method of using small tags and transponders to enable remote, automatic identification of objects that transmit information to a reader. These tags can easily be attached to products, pallets, equipment, and vehicles, making them an ideal technology for logistics and supply chain management.
Many businesses are beginning to view RFID technology as a replacement for barcodes for several reasons. RFID tags can hold a ton of data, and they don’t require individual scanning like barcodes. But, if your distribution business decides to invest in RFID technology, what’s involved, and how do you maximize your return on investment (ROI)?
Rising Pressure to Implement RFID Technology
While RFID technology has nearly endless possibilities, more and more distributors are under pressure to convert their tracking systems by major retailers and brands. For example, Zara and H&M have successfully adopted the technology, which is improving their overall results.
But, if businesses want to work with Wal-Mart, they will be required to use RFID tags. Wal-Mart was one of the first adopters of this technology, now requiring all suppliers to use it as well.
Quantifying the Current Situation
One of the first steps in justifying a switch to RFID technology is a thorough examination of existing processes to review how RFID might improve them (or not). Here are some of the areas you may wish to analyze:
- Automation — How many of your processes are still manual, repetitive ones, such as scanning barcodes and product picking? Can a reduction in these processes lead to reduced labor costs and greater efficiency?
- Certainty — How certain are your current inventory figures? Would more real-time, accurate data reduce stock-outs, lower error rates, and boost customer satisfaction?
- Efficiency — How much time does your business waste tracking products and assets? If you were able to get all of this time back, what would that be worth in terms of productivity?
- Insights — Does your business have the information it needs to make informed decisions about inventory, processes, labor, and its customers? Would real-time insights improve your forecasts and decisions related to business growth?
Some of the positive benefits businesses have experienced after implementing RFID solutions include:
- Reduction in labor costs
- Reduction in inventory carrying costs
- Reduction in shrinkage
- Reduction in stock-outs
- Improved fulfillment rates
- Improved customer service
- Improved brand reputation
Another important factor concerning the long-term benefits of RFID is that many other supply chain partners are adopting these solutions. This can help inject visibility throughout the supply chain and reduce overall risk.
The Cost of Implementing RFID Technology
Once you’ve figured out the various cost savings your business can obtain by using RFID, you’ll need to consider the cost of implementing RFID technology. RFID systems can vary depending on scope and configuration. But they all require four primary components — tags, hardware, software, and services.
The RFID tags are the label-like items containing microchips that will be affixed to your products, packages, pallets, equipment, vehicles, etc. Simple RFID labels can cost anywhere from $0.15-$0.40 each, depending on quantities. More durable tags placed on vehicles or with embedded transmitters can cost up to $5.00 each.
You will need to purchase additional hardware, such as RFID label printers and fixed or mobile RFID readers. Bluetooth-connected RFID readers can cost anywhere from $1,000 to $5,000, depending on the type and complexity of the hardware.
Pre-built and customized software solutions are available to manage inventory, distribution, and fulfillment using RFID tags. The price of these solutions varies extensively. If you are using a warehouse management system (WMS), it may already have RFID capabilities. Depending on the size of your operations and your requirements, these solutions can cost anywhere from $5,000 to upwards of $100,000.
The final component will be the one-time cost of installing and implementing your RIFD system. You can work with a partner that can provide a quote for services customized to meet your needs, so you only receive the services that will benefit your business.
Calculating Your RFID Return on Investment
Once you’ve figured out the likely benefits and costs, calculating the ROI of your RIFD investment won’t be complicated. First, you would consider the potential improvements in your conditions in terms of cost savings or increased revenue over a specified period, usually 3 to 5 years. Then, compare it with the entire cost of implementing the system. To get an accurate ROI, you want to take the Net Present Value (NPV) to determine whether the benefits outweigh the costs.
RFID ROI Statistics
Every business will have different implementation costs and benefits from RFID technology. But, when you are taking full advantage of its capabilities, there’s little doubt that your ROI will be positive and substantial.
Alinean Research released a report about RFID ROI in the supply chain that included some powerful statistics. Specifically, companies that implemented RFID experienced a 3-5% reduction in supply chain costs and a 2-7% increase in revenue due to greater accuracy and visibility throughout the supply chain.
This real-time access to product information means distributors can fulfill goods faster than competitors not using RFID and can make more sales because stock-outs are reduced, and your reputation is improved.
A fully integrated RFID system may be the highest-paying return on investment available for your distribution business. It maximizes efficiency and delivers complete visibility throughout every phase of the supply chain. While it takes a commitment of time and resources to implement RFID, the benefits are well worth the investment and effort.