November 10, 2003, 12:00 AM

RFID better for retailers than for suppliers, study says

While retailers stand to gain substantial savings in inventory and up to a 7.5% cut in labor costs from RFID product-tracking technology, some suppliers will incur higher costs and realize delayed benefits, management consulting firm A.T. Kearney says.

While retailers stand to gain substantial savings in inventory and labor costs from RFID product-tracking technology, some manufacturers will incur higher costs and realize delayed benefits, consulting firm A.T. Kearney says in a recent study.


RFID, or radio frequency identification, is being rolled out by Wal-Mart Stores Inc. and others to track products as they move from suppliers’ warehouses to distribution centers and stores. Retailers stand to benefit from an approximately 5% reduction in the amount of inventory they need to hold, a 7.5% reduction in labor expenses, and a significant increase in sales by avoiding out-of-stock situations in stores, Kearney says. Shipments whose containers and pallets are identified with RFID can be more quickly scanned for their product data than shipments identified with bar codes, experts say.


Kearney adds that the cost of adopting an RFID system with tags and readers for storing and transfering product data, plus the cost of making an RFID system compliant with Electronic Product Code data standards, is estimated at $400,000 per distribution center and $100,000 per store, plus up to $35 million to $45 million to integrate systems across an entire retail organization. Operating under EPC standards will make it possible for retailers and manufacturers to share RFID data over the web.


"While these are significant amounts,the upside is that most of the costs are fixed," said Dave Donnan, vice president of A.T. Kearney and author of the study. "The story for manufacturers, on the other hand, is quite different depending on the type of product they make." For example, he said, manufacturers will face the recurring cost of placing RFID tags on pallets and cases, which Wal-Mart is already mandating many of its suppliers to do.


Nonetheless, Donnan noted that both manufacturers and retailers will realize long-term benefits from RFID through expedited movement of goods as well as a better view into the status of inventory throughout the supply chain.


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