SupplyChainDigest Editorial Staff

RFID Journal Live featured a panel discussion on “Compliance versus Internal Benefits,” meant to discuss how companies can “save money internally to offset the cost of compliance.” It featured Mike Bargmann, chief logistics officer at Wegmans Food Markets, Gary Cooper, chief technology officer at Tyson Foods, and Ed Mathews, IT director at Pacific Cycle, maker of Murray, Schwinn and other bicycle brands, and a company often cited by Wal-Mart as a mid-sized company embracing RFID.

Wegmans’ Bargmann offered a compelling case for data synchronization with suppliers – both generally and as a foundation for effective EPC - but offered little insight into the ROI question. His comments on data sync, however, were worth noting, coming after a more than two-year project at Wegmans mandating data synchronization ties with suppliers. As he noted, “data synchronization is very dry, very difficult, but in terms of ecommerce programs it is an absolutely essential foundation.”

Tyson’s Cooper and Pacific Cycle’s Mathews spoke around the topic of RFID ROI for the manufacturer, but were unable to share much detail with the audience, in part due to a lack of clarity on the sources of ROI, in part due to not wanting to share whatever internal insight they had publicly.

Cooper noted that Tyson had taken a variety of data from the industry and built a model predicting where tag costs would be over time. In the low-margin, high-case volume meat industry, he noted, “I just can’t afford to do EPC at current costs.” He said that based on Tyson’s model, he believed tag costs could reach a point where it provided ROI for Tyson in early 2007 – but was not willing to share what the model predicted, though after a few questions did say “it would take tag costs in the single digits [cents] – low single digits,” for ROI to work for Tyson. He did note that he thought there were ultimately real savings opportunities, including improved “cold chain” management, improved order picking/shipping accuracy, and reduced shipping-receiving discrepancies with customers.” As all cases at Tyson are already serialized with bar codes for lT tracking and recall processes, they are looking hard at how much labor savings (and accuracy improvements) will come from RFID reads versus bar code scans. Cooper also believe strongly that once embarking on RFID, companies will find a number of “aha moments” – discovery of real savings opportunities from RFID that are not well understood currently. They are looking at building business cases “from the bottom up” – focusing on core supply chain processes.

Pacific Cycle has been an early adopter of EPC with Wal-Mart. It has some advantage in that as a bicycle manufacturer, a case and item are generally one and the same, and the ratio of item value to tag cost is favorable. Nonetheless, ROI is still challenging at current levels of tag costs. Mathews noted the technology is changing – and improving – rapidly, and that in a relatively short time frame they have already cycled through a few tag and reader suppliers.

The main source of ROI Mathews sees immediately is in improved “deductions management” – the charge back and invoice adjustments retailers take from vendors for a variety of shipping mistakes (real or perceived). RFID-based receiving should at least eliminate the deductions and overhead associated with SKU/quantity discrepancies (we will note this only works at 100% read rates – otherwise, it could add to discrepancies). He also sees the potential to better get goods from the retailer’s back room out to the store floor.

Left unsaid – but which is perhaps the key question – is whether the lack of vendor ROI will slow the pace of adoption, or whether the issue is really how to get at least some return back when forced to tag from retail or other customers. We think that question remains unanswered.

Will lack of clear vendor ROI slow RFID adoption – or will retailers drive tagging regardless? Are you hearing anyone give a clear, granular picture of potential ROI? Can deductions management be improved before read rates are nearly 100%? Let us know your thoughts.