RFID: Sticker shock still a sticking point

As e-commerce continues to boom and consumer shopping patterns shift in the wake of the pandemic, inventory accuracy has never been more important. Having a precise accounting of the amount of goods in a store, on a truck, or in a warehouse helps companies quickly locate merchandise needed to fill orders, avoid stockouts, and provide better customer service in general.

Suppliers, retailers, and third-party logistics service providers (3PLs) are all seeking ways to improve their inventory management practices. But in a lot of these efforts, one tool is conspicuously absent—radio-frequency identification (RFID) tags.

First introduced as a way to identify Allied airplanes during World War II, the technology slowly expanded into other applications, such as identifying rail cars and pallets of goods. By 2000, the U.S. Department of Defense was widely using RFID to track inventory, and in 2003, the tiny tracking tag hit the big time when retail giant Walmart decreed that its 100 largest suppliers must be ready to attach RFID tags to cases and pallets shipped to its DCs by 2005.

Manufacturers scrambled to comply. Buying the tags and readers was expensive, to be sure, but they risked losing access to Walmart’s marketing might if they refused.

But before that vision came into focus, the movement lost momentum, Walmart quietly shelved its mandate, and RFID began to fade from the headlines.

“With the Walmart initiative, RFID came out of the chute with a bang, but then it fizzled out,” says Doug Sampson, senior vice president at Acme Distribution Centers Inc., an Aurora, Colorado-based 3PL and supply chain solutions provider. “The reason it failed was because of cost and performance; other than that, it was a great idea.

FINANCIAL REALITIES RULE

As Sampson’s comment suggests, one of the primary reasons the vaunted RFID revolution stalled out was cost. In a sector where companies are constantly seeking ways to cut their transportation, labor, packaging, and other costs, few could justify the added expense for tags, especially when they already had a cheaper (albeit less-capable) method of tracking, the bar code.

“The cost never made sense,” says Simon Ellis, program vice president in the supply chain strategies practice for the analyst group IDC Manufacturing Insights. At the time, a consumer packaged goods (CPG) company might have spent 3 to 4 cents per item on the secondary packaging it used for logistics and retail display purposes. “But RFID tags were 10 cents, so they would be looking at quadrupling the cost for benefits that weren’t that great,” he says.

The cost of RFID tags has fallen in recent years to close to 5 cents per unit—especially for the most popular passive tag design (meaning the tag has no power source and cannot actively broadcast a signal)—but that still represents a significant overhead expense, particularly for an item that might cost 99 cents. For that reason, the technology is mainly found today on high-value merchandise, like $200 or $300 items of apparel, Ellis says.

Jordan Speer, a research manager in IDC’s global supply chain unit, echoes that assessment. RFID holds plenty of promise for retail applications, she says, noting that it can bring inventory accuracy up to 97% to 99%—far above the 60% typically found in busy retail stores where shoppers handle the merchandise. But there’s a limited universe of items that merit that level of precision, she says. “It still doesn’t make sense for a bottle of salad dressing, but it might work for apparel from Nike, Adidas, or Lululemon.”

In addition to tagging high-value items, some companies are using RFID for specialty applications such as serialization—where they need to identify each specific instance of a product instead of just the SKU (stock-keeping unit) type. Others are using recyclable tags that are removed by the sales clerk after purchase and returned to the manufacturer for re-use, she says.

Even in some of those cases, operations may still experience performance problems with RFID tags when they’re used with certain goods, Acme’s Sampson says. The radio signals from passive RFID tags can be blocked by the liquids in pharmaceuticals or food and beverage products, by the metal in warehouse racking, or by interference from other wireless systems, he explains.

As for the overall outlook for RFID, “it makes sense for some specific applications, like restocking a supply cabinet at a hospital,” Sampson says. “But the problem is that with mass-market consumer goods and warehouses, there’s just not enough return on investment.”

The technology itself has long since proved its value, Sampson says, citing its use in applications ranging from passports and credit cards to the transponders that allow vehicles to bypass highway toll booths. “But while the technology is getting used, it just doesn’t work well on mass consumer goods, with what we’re doing in logistics,” he says. “It’s just a matter of some company finding the right application to really drive down the cost of the tag, and then it could really be a solution in logistics. But until then, it’s just too expensive except for these specific cases.”