If it worked for Wal-Mart, why not the U.S. Government? As the Department of Defense (DOD) gets its RFID rollout under way, some predict that the same technology that enabled Wal-Mart to slash its supply chain costs will shave billions from the nation's budget deficit.
In May, the DOD awarded a $14.6 million contract to ODIN technologies to install RFID equipment in the Defense Logistics Agency's 19 U.S. distribution centers. Workers from Dulles, Va.-based ODIN have already brought two DCs online—one in Cumberland, Pa.; the other in San Joachin, Calif. The aggressive timetable calls for the remaining U.S. DCs to go live by the end of September and for the agency's 26 DCs worldwide to be RFID-ready by the end of 2007.
The U.S. government can expect a big payoff from its investment in RFID. Some of the savings will come from a reduction in inventories—the DOD has already reduced inventory to about $70 million from $127 million at a pilot location in Iraq. The government also stands to save billions of dollars by updating its archaic receiving system. The savings will multiply quickly if the RFID effort expands to other branches of the military. "Extrapolate those savings across the entire DOD," says Patrick Sweeney, ODIN's chief executive officer, "and this could have a huge impact on our national deficit."
Suppliers to the government also stand to benefit. For one thing, they're likely to see much faster payment once the RFID system is in place. Instead of waiting 30 to 60 days to be paid, suppliers could see payments just 72 hours after the government receives the RFIDtagged cases and pallets.
The contract award is a coup for ODIN. The company, which is only four years old, beat out 10 other finalists (including giant IBM Corp.) for the contract. The initial contract is worth about $7 million, with two one-year options estimated at $3.8 million apiece. It represents ODIN's largest contract ever.
Sweeney, who is ODIN's founder as well as its CEO, says the firm may consider going public in the future. "We are definitely interested in solid business growth and growing with the speed of the market and with the demands of our clients," he says. "If we need to look at the public markets to expand that growth, that's certainly an option that we'll consider."