Executive Briefings

The Lessons of RFID: After Three Years of Pilots, Companies Still Search for Elusive ROI

Radio frequency identification technology was the subject of much excitement-some might say hype-between 2004 and 2006. During that time, the average consumer-products company spent $800,000 on RFID pilots, according to Lora Cecere, a research director with AMR Research Inc. What did they gain as a result? The answer is mixed. There's no doubt that Wal-Mart Stores, the driver behind much of the recent RFID activity, has seen some benefits. Last year, it reported that RFID pilots had led to a 16-percent reduction in stockouts. And the efficiency of moving products from backroom to store shelf increased by 60 percent. Still, a number of industry observers say that RFID hasn't really delivered the goods-not, at least, in line with original expectations. Most consumer-goods companies haven't properly evaluated the payback on RFID, Cecere says. Only eight out of 70-plus manufacturing clients of AMR submitted return-on-investment (ROI) summaries. "Most CP companies just are not measuring sales lift and the impact on out-of-stock levels," Cecere writes in a recent AMR report. "Instead, the focus has been on cost and compliance. As a result, after three years of testing, there is no answer for the industry on the benefits of RFID."

There is plenty of opportunity in RFID, Cecere says. Those eight pilots suggest that up to 27 percent of stockouts can be eliminated by improving the supplier's response to retailer needs. Currently, it takes between seven and nine days to correct a stockout, resulting in a substantial amount of lost sales. Inventory inaccuracy is also a problem, further delaying critical store replenishment. But RFID remains far from a common practice among most suppliers. AMR had predicted that the technology would see widespread adoption in 2008. "This will not happen," Cecere says. "We predict that even over the next five years that the industry will still be learning through ... focused pilots."

Visit www.amrresearch.com.

Radio frequency identification technology was the subject of much excitement-some might say hype-between 2004 and 2006. During that time, the average consumer-products company spent $800,000 on RFID pilots, according to Lora Cecere, a research director with AMR Research Inc. What did they gain as a result? The answer is mixed. There's no doubt that Wal-Mart Stores, the driver behind much of the recent RFID activity, has seen some benefits. Last year, it reported that RFID pilots had led to a 16-percent reduction in stockouts. And the efficiency of moving products from backroom to store shelf increased by 60 percent. Still, a number of industry observers say that RFID hasn't really delivered the goods-not, at least, in line with original expectations. Most consumer-goods companies haven't properly evaluated the payback on RFID, Cecere says. Only eight out of 70-plus manufacturing clients of AMR submitted return-on-investment (ROI) summaries. "Most CP companies just are not measuring sales lift and the impact on out-of-stock levels," Cecere writes in a recent AMR report. "Instead, the focus has been on cost and compliance. As a result, after three years of testing, there is no answer for the industry on the benefits of RFID."

There is plenty of opportunity in RFID, Cecere says. Those eight pilots suggest that up to 27 percent of stockouts can be eliminated by improving the supplier's response to retailer needs. Currently, it takes between seven and nine days to correct a stockout, resulting in a substantial amount of lost sales. Inventory inaccuracy is also a problem, further delaying critical store replenishment. But RFID remains far from a common practice among most suppliers. AMR had predicted that the technology would see widespread adoption in 2008. "This will not happen," Cecere says. "We predict that even over the next five years that the industry will still be learning through ... focused pilots."

Visit www.amrresearch.com.