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RFID: The Quiz

Most of the spotlight on radio-frequency identification (RFID) technology is being focused on large corporations, such as Wal-Mart, Target, DHL, and their big partners and suppliers. Increasingly over the next year, however, IT managers at smaller and medium-sized enterprises (SMEs) will be forced to grapple with the question: Is RFID worth the investment for us? (See RFID: A Market in Waiting?.)

The answers are not simple, and deciding whether to take the RFID plunge will be one of an array of complicated wireless-networking questions that SMEs are likely to face in the next 18 months. Based on interviews with RFID vendors, analysts, trade groups and enterprise users, the checklist of questions below should help determine whether it's time to begin planning an RFID implementation -- or whether it's best, for now, to remain on the sidelines.

1. Are your assets valuable enough, and mobile enough, to justify tagging?

This is the essential starting point. The reason RFID is making rapid inroads in the pharmaceutical industry is that drugs are expensive, small, extremely mobile and prone to "shrinkage" -- i.e., theft or loss. For drug companies, the decision to invest in RFID is less about generating a return on investment than protecting patients from harm. (See HIV Drug to Carry RF Tags.)

"Our main focus is not on the benefits that RFID will bring to us, but on how can we ensure our product stays authentic throughout the supply chain to the patient," says Rob Coyle, director of warehouse distribution and RFID for GlaxoSmithKline, which recently announced it would start shipping bottles of Trizivir, an HIV drug, equipped with RFID tags. "We didn’t sell this project based on any ROI specifically."

Some products, particularly liquids or ones packaged in metal, don't lend themselves to RFID tags because the materials interfere with the radio-frequency signal. Value-to-weight, though, is not always a reliable gauge: Denver-based Trenstar, an asset-management company, uses RFID to track hundreds of beer kegs in the United Kingdom, simply because the kegs are highly mobile, shared assets that generate revenue only when they're in use. (See Brewers Tap Into RFID.)

2. What are your competitors, customers and partners doing?

Many companies, even small ones, will be compelled to adopt RFID solutions because of mandates from giants like Wal-Mart or the Dept. of Defense. Most SMEs, however, exist in a tightly knit ecosystem of customers, suppliers, and partners, and if the environment is moving toward RFID tagging then you could rapidly be left behind if you delay too long.

"Don’t forget about the benefits that RFID might bring to your current or prospective customer base," advises Dan Mullen, president of AIM Global, an industry association focused on electronic asset management. "Can RFID technology and the information it provides bring competitive advantages to you or your customers?"

3. How does RFID fit into your overall business strategy?

Too often a new technology like RFID is looked at in isolation, when in fact the ripple effect of installing RFID systems and tagging products and assets will likely ripple throughout the entire organization. The key, says Scott Burroughs, head of sensor and actuator solutions for IBM Corp. (NYSE: IBM), is deciding what sort of organization you want to be.

"You've got to decide if you, as a company, want to be an innovator," explains Burroughs. "It's a basic strategic decision. Do we want to take advantage of this discontinuity of technology, to figure out what it means for how we participate in our market? Or would we rather just ride it out and let somebody else take the bet?"

4. Have you factored in the total cost of an RFID solution?

The term "hidden costs" might have been coined for RFID implementations. It's not just the cost of hardware and software; it's new staff, it's third-party systems integration fees, it's time spent educating partners and customers, etc. etc. In an interview with RFID Journal, Richard Oliver, lean manufacturing manager for Pratt Industries subsidiary Love Box, estimates that a one-year trial of a new RFID system would cost the company $300,000 plus salaries and benefits for three full-time employees. There may be more efficient ways to spend that money -- either on a managed RFID service or a less sophisticated technology, such as barcodes. If RFID scanners generate large amounts of information that goes unused, it's worse than an underused investment.

"It's about handling and getting value from that additional information," says Gary Deets, manager of development for Lego. "You invest a little in hardware, a little more in software, and that's great but if you're not doing anything with that information, at the end of the day what are you really getting out of this?"

5. Can it be implemented effectively and painlessly?

Don't invest in an RFID solution until you've fully examined the ramifications across all your business processes.

"Understand your business processes completely and look for places where this wireless technology can provide greater visibility, control, or service to you and your customers," recommends AIM Global's Dan Mullen.

Often that means hiring a systems integrator or consultant to walk through the RFID solution and its impacts on upstream and downstream processes.

"We work with companies to identify the processes that can be executed more effectively with RFID technologies," adds IBM's Burroughs "How can I do something better? If you're just automating what you already have, it's not clear that's going to win."

6. Can you afford not to do it?

This is a classic case of "Not to decide is to decide." Research firm Gartner Inc. has identified RFID as one of the Top 10 strategic technologies for the coming year. At a bare minimum, says Mullen, IT managers should stay abreast of the rapidly evolving technology so as not to fall behind competitors. Far from being a retail-centric technology, RFID is going to spread through many sectors of the economy in the next three to five years. Waiting and seeing is a viable approach, for now; ignoring it is not.

— Richard Martin, Senior Editor, Unstrung

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