Analyst Predicts Two Years to RFID ROI

It is inevitable that people deploying radio-frequency identification systems will see cost increases before savings roll in. Companies have to pay for the new infrastructure, after all. But some companies may not see RFID efficiencies for at least two years, said one analyst firm.

In fact, ARC Advisory Group suggests that delayed returns on investments could end up actually raising costs for retailers that are uninvolved with RFID.

ARC has issued a report that said early adopters of electronic-product-code RFID systems will wait for a return on investment longer than perhaps they would anticipated. Some companies have deployed RFID because of Wal-Martas tagging mandate. Steve Banker, service director for supply-chain management at ARC, said those companies may be reluctant to recoup their investments by charging Wal-Mart higher prices. So they might charge more of other retail customers instead, Banker said.

ARC said it polled 24 companies that are investing in EPC RFID and only one company said it anticipates getting an ROI in less than two years. Virtually all of the rest predicted that payback would begin after two years.

Banker said a company that spends US$10 million on infrastructure and tags cannot earn back more than US$1 million to US$1.5 million a year and, therefore, will have a payback period of more than two years, he said.

RFID has a lower ROI for manufacturers and distributors selling to large retailers than for their retail customers, Banker said. Retailers run a highly automated distribution chain and they expect the manufacturers to pay for RFID tags without being reimbursed. Passing on tag costs, in fact, is the main reason retailers have a higher chance of achieving ROI in less than two years, he said.