NEWS: Report Details RFID’s Growing Pains

A new report from consulting firm AMR Research (Boston) suggests that many companies, including those in the pharmaceutical industry, do not view radio-frequency identification (RFID) as a good “strategic investment.”

The report shows that the top 100 suppliers to retail giant Wal-Mart Stores, including companies like Johnson & Johnson and Procter & Gamble, have some doubts about whether or not RFID investment is worth the cost. Despite having already spent a total of $250 million to meet the retailer’s now-passed January deadline for putting RFID tags on packages, suppliers have each only spent between $1 million and $3 million on RFID, barely enough to purchase tags, readers, and basic software, says the report.

“Many of these suppliers aren’t seeing a return on investment from RFID, which is why they have only spent the minimum amount,” says Kara Romanow, research director at AMR. “If they want to realize the full benefits, they have to integrate the technology into existing applications, change software, and store huge volumes of data. That could cost each supplier between $13 million and $23 million.”

The AMR study lists the following reasons companies aren’t so high on RFID:

• Cost: Hardware, software, and tag costs are reportedly all higher than expected, according to suppliers quoted in the report.
• Poor Investment: Many manufacturers have limited RFID spending, citing a lack of return on investment as the reason.
• Limited Implementations: Most companies have limited RFID implementation thus far, meaning they see limited benefits.

The original Wal-Mart mandate required the top 100 suppliers to tag each case and pallet of goods with an RFID tag. But according to Romanow, Wal-Mart is also requiring suppliers to ensure 100% readability of the RFID tags. Such a demand presents additional challenges, considering that the technology for tags and readers has yet to be fully explored. “Dealing with liquids and metals has particularly proven difficult,” says Romanow. “That’s one reason why very few of Wal-Mart’s suppliers met the January deadline.”

Last spring, Wal-Mart also reported that many of its 18 pharmaceutical suppliers couldn’t meet a March 31 deadline that the retailer had mandated for putting RFID tags on warehouse packages of Class II narcotics. Wal-Mart then changed that deadline to June 30. “It’s clear that the technology just isn’t quite ready,” says Romanow. “The standards are still being worked out, and many of the systems integrators are not yet fully equipped to handle the customer loads. The learning curve is just too large at this point.”

However, she adds, pharmaceutical companies in general are still fairly positive about RFID. And that’s for good reason. “Drugs really represent one of the few areas that could see a very positive business case for RFID investment,” she says. “Pharmaceuticals are seen as a high-value product area, which makes a higher investment potentially worth it in the long run.”

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