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USA:AMR research finds Wal-Mart RFID investment low on ROI |
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2004-12-30
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AMR Research in a press release stated that return on investment (ROI) on the world’s leading retailer Wal-Mart investment in Radio Frequency Identification (RFID) project was low.
The top 100 Wal-Mart suppliers invested only $250 million on Radio Frequency Identification (RFID) systems to meet the minimum requirements for the January 2005 Wal-Mart mandate deadline, informed the release.
The new AMR Research study shows that the 100 suppliers do not view RFID as a strategic investment and have patched systems together just enough to meet Wal-Mart’s compliance deadline.
Wal-Mart suppliers have spent $1M to $3M each on RFID, which is enough to purchase tags, readers, and minimal software. In order to see any significant benefit, suppliers must integrate RFID into their applications, change existing software and enable large volumes of data to be stored. AMR Research estimates this would cost each supplier $13M to $23M.
“There were too many hurdles to overcome in too short a period,” said Kara Romanow, Research Director at AMR Research. “Many of Wal-Mart’s suppliers are more convinced than ever that there is no ROI, and even worse, consider their technology investments to be a throwaway thus far. Because of this, they’ve only spent the bare minimum needed to comply.”
Wal-Mart’s mandate requires its top 100 suppliers to tag each case and pallet of goods with an RFID tag by January 2005. By adhering small RFID tags to products, retailers and manufacturers hope to track goods from the warehouse to store shelf. Complete RFID systems will help reduce out-of-stocks, theft, labor costs, and counterfeiting.
While there is no question that RFID will have an impact on business processes in the future, the transformation will take time. AMR Research’s study found:
High Costs – The cost of hardware, software and tags is still higher than the industry expected. As a result, most companies are spending the bare minimum necessary to comply with mandates. No Return on Investment – The current lack of ROI for low-value consumer products (CP) is exactly why many CP manufacturers have limited their spending on RFID.
Isolated Implementations – Because of the lack of ROI and high costs, most companies have limited RFID implementations, and as a result, see limited benefit.
Fast followers, both retailers and manufacturers not in Wal-Mart’s top 100, should pay careful attention to the lessons learned thus far,” Romanow continues, “While cost still prevents positive business cases for low-value products, retailers and manufacturers should look at high-value product areas like consumer electronics, DVDs, pharmaceuticals, high-end apparel or sporting goods where there is a strong, positive business case.”
AMR Research provides world-class research and actionable advice for executives tasked with delivering enhanced business process performance and cost savings with the aid of technology. They provide customer service to support their most critical business initiatives, including supply chain transformation, new product introduction, customer profitability, compliance and governance, and IT benefit realization. More information is available at www.amrresearch.com. |
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