True ROI on RFID to Be Found Beyond Simple Compliance

As CPG companies spend millions on technology, real return on investment seen in information on inventory dwell time and movement - Yankee Group

As CPG companies spend millions on technology, real return on investment seen in information on inventory dwell time and movement - Yankee Group

Boston — September 15, 2004 — Consumer goods manufacturers will spend millions on radio frequency identification (RFID) solutions in 2005, but these companies must put their return on investment (ROI) in RFID into perspective and look beyond generic benefits, according to a new research note from technology consultancy Yankee Group.

In the note, entitled "The Seven Things Suppliers of Wal-Mart and Large Buyers Should Do about EPC RFID," Yankee reports that consumer package goods (CPG) companies will spend an average of $6.9 million on electronic product code (EPC)-compliant solutions for RFID next year.

But Michael Dominy, Yankee's director of enterprise services, asserts in the note that enterprises viewing RFID solely as a customer mandate and a replacement to bar code will never achieve an acceptable ROI for the technology. Rather, the analyst argues that RFID deployed within a company's internal supply chain operations can provide a wealth of information about inventory dwell time and movement.

"Enterprises need to identify what they can improve and how RFID can help them streamline processes and improve material flow within and between their facilities," says Dominy. "Most companies focus only on the cost to incorporate RFID technology into their supply chains. It takes much more effort to identify how RFID can drive business benefits."

Dominy also argues in the research note that technology vendors and consultants have made RFID overly complex and confusing. "Software vendors tout the need for middleware, a nebulous catchall term for integration technologies and reader management software," the analyst writes. "Consulting firms push the need for extensive modifications to supply-chain and ERP applications."

Dominy suggests that supply chain professionals must be creative and do the hard work required to understand how to drive inventories down further and streamline processes and inventory flow using RFID within their internal and extended supply chains. "Companies exploring the use of RFID for improved supply chain management must cut through the confusion, roll up their sleeves and begin working with the technology," Dominy urges.

Yankee recommends those enterprises still debating the merits of the technology start using it, but do so with a manageable project limited in scope and complexity, not the company's biggest or most difficult supply chain problem. The initial project should represent a supply chain issue within the enterprise's internal operations that can be solved without substantial systems integration.

More information on the Yankee Group research note is available at