Question: What would adopting RFID do to our cost structure?

Our Advice: Many people argue that RFID will raise operating costs, but "not if you learn to substitute information for inventory." Back in 1983, an upstart retail chain named Wal-Mart spent two cents of each dollar of sales on getting goods to its stores, versus a nickel for Kmart, the discount market leader at the time. [In Sam We Trust, a chronicle of retail competition by former Wall Street Journal writer Bob Ortega.] Within seven years, Wal-Mart had leveraged that three-cent advantage to overtake Kmart in total revenue.

The short answer is that every company, and even individual facilities within a company, has its own leverage points where more specific, accurate, and timely information can improve economics -- that's what RFID is all about. At one manufacturing client, we found an opportunity to reduce trailer-loading and pull-away time by about 15 minutes per order by implementing an RFID-based trailer-loading system to eliminate manual verification and to communicate with yard drivers automatically as trailers fill. For this facility, the improvements represent a 20% increase in shipping capacity. More capacity means less need for additional facilities as the company grows -- hence less people, rent, and inventory.

The long answer is that effectively adopting a new, disruptive technology like RFID requires rethinking business processes and long-time operating rules.

RFID Profit Points

To profit from RFID, three practices are essential:

• Scope RFID projects to achieve a wider range of benefits. RFID technology can improve speed, accuracy, and security (Gen 2) while generating robust data for business analysis. With these attributes in mind, challenge existing business rules and process models. We employ our own variant of Lean Six Sigma methodologies to surface opportunities for improvement.
• Determine the right starting point and ramp-up strategy for adoption. This point is the absolutely essential corollary to (1). It's hard to generate good ROI if you spend too much on the front-end of a project. Ramp-up also is critical; your level of business impact is dependent on cascading your solution across processes and facilities after it's proven successful.
• Deploy an RFID IT architecture that's scalable, and provides low total cost of ownership. Many companies think of RFID as just an item identifier, like bar codes. RFID is far more than an item identifier; it's really a business-event identifier, and one that can broadcast this information wherever it's needed -- e.g., real-time notice of success or failure. Once one begins to think this way, the importance of re-examining the company's IT architecture becomes obvious -- high volumes and urgent need for information.

Strategically minded companies are unlikely to see the "cost" of RFID forcing them to raise prices. Shortsighted competitors won't be as fortunate.

--Walt DuLaney