Posted by Bret Kinsella on Wed, Jul 28, 2010
In keeping with this week’s Wal-Mart theme (Wal-Mart RFID Announcement), I thought I would comment on a good post by Mark Roberti of RFID Journal (Why Isn’t Wal-Mart Killing the Tags) that goes beyond Wal-Mart and speaks to general RFID economics. He outlines a sound explanation why Wal-Mart’s in-store item-level RFID tracking for apparel isn’t killing RFID tags. It’s all about RFID economics.
Issuing a kill command to a tag makes it inoperable. The capability is standards based and is widely available as a way to proactively address consumer privacy concerns. Eventually Wal-Mart may decide to enable this feature when it achieves scale in its in-store tagging. Roberti’s commentary suggests the economics would not justify the investment today.
Calculating RFID Cost
In order for Wal-Mart to kill every tag, it would need to do this at the time of purchase. This means in the check-out lane. Consider 4,000+ Wal-Mart stores and an average of 25 (Mark estimates 40), that is over 100,000 lanes. Placing an RFID reader at each lane at a cost of $800 (Mark estimates $3,000) gives you a hardware cost of $80 million before installation, testing, maintenance and repair costs are included. Mark’s calculations come to $480 million. Either way, it is a large number.
Without the check-out lane readers, there will be no killing the tags at check-out – for now anyway. The current trajectory suggests Wal-Mart is only a couple of years away from just this type of investment. As a greater percentage of its floor stock is tagged, there would be more usefulness of leveraging RFID to streamline check-out. You can imagine how this event will usher in another economic phenomenon – a change in total retail operational costs.
Why Wal-Mart’s RFID Adoption Helps You – It's RFID Economics
If you aren’t in retail or an RFID supplier it may not be obvious how this Wal-Mart hullabaloo helps you. It’s simple RFID economics. When Wal-Mart began its initiative several years ago a lot of investment poured into the RFID industry. That investment in turn yielded better performing tags and readers at lower price points. RFID software has also changed dramatically from RFID 1.0. This in turn helped open up a lot of new RFID application categories and more favorable business cases for a wide range of industries.
RFID in healthcare, aerospace, financial services, government, energy, hospitality and others benefit from this every day. As Wal-Mart ramps up its adoption and purchases 5,000 handheld readers, the unit cost of those readers comes down and the savings can be passed along to other customers. As Wal-Mart suppliers purchase another 40-100 million RFID tags to meet the Wal-Mart requirement, increased RFID tag volumes allow for lower total costs for everyone. When Wal-Mart moves, it drives large volume on its own. Large volume drives down costs. Those cost reductions benefit every RFID end user.
Contribute your thoughts on Wal-Mart and RFID economics by adding a comment below.
Posted by Bret Kinsella on Fri, Mar 19, 2010
“The reality is that most end users don't know—or care—how a tag or sensor communicates, whether it has an onboard CPU and so forth. What they care about is what RFID does: can it solve their problem?”
Mark Roberti of RFID Journal hit the nail on the head in his February post when he said RFID users don't care. RFID adoption is not about technology, it is about improving business processes to cut cost, increase throughput, enhance security, improve visibility and reduce risk. This is different than 2004-06.
During that time, we spoke with many buyers who were interested in learning how each component worked and why we were recommending one RFID technology or vendor over another. Since it was their first exposure to RFID and there were few third party user references, many buyers perceived a great deal of purchase risk and wanted to be educated. Vendors obliged.
Reader and tag manufacturers hungry for customers would tout the performance of their wares and discuss how they operated differently from competitors. At ODIN, through discussions and benchmarks we often were asked to provide an objective evaluation of these vendor claims and in turn took time to further educate buyers. While we still have a loyal following for ODIN’s RFID Benchmark Series™, buyers are more likely to ask us how fast can we install, what else we’ve done in their industry or our experience integrating RFID into SAP than what kind of tag we recommend.
RFID Physics still matters because performance is essential
So does the physics of RFID still matter? Yes.It has simply taken its rightful place behind the business value discussion. RFID performance is more important than ever. As buyers have zeroed in on solving business problems, they are expecting reliable performance. If they don’t get the performance, they don’t get the benefits. While the discussion focuses on benefits, timelines and integration interdependences, the scientific work designing reliable and scalable RFID systems becomes a checklist item for the buyer and a responsibility of the provider.
Thankfully, RFID reader and tag vendors have made great progress over the past five years improving price and performance. At the same time, client expectations have grown and tougher use cases have emerged.
Better RFID Performance is an Opportunity and an Obligation
The lesson for RFID product and solution providers is to put forth high performing solutions that enable substantial business benefits. You can do this through the many components that drive RFID performance: tags, readers, antennas, software, material flows and business processes. If you can adjust these variables properly, you can deliver the 99.9% or higher accuracy that is often needed.
The lesson for end users is that you should present a clear business objective and manage to it. It’s not about the technology. It’s about what it can do for your business. However, you also should ask your suppliers how they expect to achieve the high read accuracy performance you require. Do they understand how to leverage different components, software and processes in order to make subtle performance improvements? That knowledge may be the difference between project success and failure.
Bret Kinsella is one of ODIN Executive Leaders and recognized RFID industry veteran.