RFID ROI – Don’t forget the payback!

Just recently, while visiting a customer wanting to implement an RFID asset tracking solution, it occurred to me that ROI (return-on-investment) should always be the ultimate goal for most uses of RFID. What made this occur to me was that we were discussing technology before understanding what the ultimate ROI goal was. I’m sure you could say that this was a failure from some sales perspective, but also keep in mind that many times the technology seems so promising and exciting in terms of its benefits, that everyone can looses track of why we’re there. Also many times, the technology stage is where equipment suppliers are brought in.

As with most projects of this nature, they get started because someone says something like “why don’t we do ____, it will save us money, time, trouble, loss or get us in compliance” or all of the above and likely more. But this same thought can get lost going through execution. RFID projects are no exception. Many successful RFID implementations show it can bring large benefits in short and long-term ROI not just in asset tracking, but manufacturing, logistics and so on. But the implementor must always keep track of the ROI goal and be willing to share this with their supplier and integration partners to be sure everything stays on track and technology does not take over for technologies sake.

Unfortunately the ROI is not always calculated the same for applications. Typically ROI can be measured in time period until the investment is paid back or the money saved over a given period of time. The most simplistic way of calculating payback or ROI is: Cost of Project (calculated at the beginning) / Annual Cash Revenues (expected savings) = Payback Period. Unfortunately the rub comes in when calculating the two factors. This can be because the cost of the project is not totally encompassing and/or revenue does not take into consideration factors like interest costs or variations in production for example.

Factors in Annual Cash Revenues are factors the implementors needs to understand and grasp as the reasons for undertaking a project and typically involve several aspects of their business, including savings from: greater efficiency, lower cost in storage or inventory, less scrap, higher quality standards (less failure returns), compliance benefits, etc, etc. In fact this part is difficult to encompass here in this forum. But Cost of Project has some factors I can point out. In the example I raised in the beginning, the customer needed to not only address the read/write equipment and tags (including hand-held’s), but also the cost of installing all the possible variations in tag types during manufacture, the common database/software needed, bringing distributors and field service on board, integration providers, training needs, the support cost and so on. In a manufacturing line, it also starts with the equipment, but must include the PLC/database programming, pallet modifications, station installation, spare parts and training for example.

One other possibility toward understanding these factors before implementing a total enterprise solution is to consider a pilot or test/trail program to determine as many factors as possible and test the results before committing to the full investment of the complete project. So in your next project, remember to include your partners in your end goals, try to encompass all the factors and don’t forget the payback!

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One Response

  1. Yes, it is true. Very often it is not I, who blah, blah, the greatness of RFID, but the customers who mentioned about their upcoming multi-millions of dollars projects. Most of the times, I was trying not to be rude by cutting them off, but when the time comes, I had to pull them down to the reality and let them realize the ROI in RFID projects before making further progress.

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