It could cost some companies up to $40 million to enable radio frequency identification (RFID) technology throughout their supply chains, according to a new study from Boston-based Yankee Group. The Yankee Group is advising clients to start with small, incremental RFID investments.
As companies race to meet RFID requirements that have been issued by Wal-Mart Stores Inc., they should first equip warehouses close to the retail giant's main distribution center in Texas, said Michael Dominy, the Yankee Group's senior analyst for business applications and commerce and author of the report.
"There is a wide spectrum of costs for deploying RFID, and those costs are driven by what migration strategy you want to put in place at your distribution centers," Dominy said. "I recommend a phased approach to bringing up each of those distribution centers."
Purchasing and implementation of the technology will begin in the second quarter of 2005 for most Wal-Mart suppliers, with the majority of spending and implementation activity occurring in the third quarter, Dominy said.
SAP's new RFID package will likely be the preferred choice among companies already using SAP software, Dominy said.
The SAP package includes a newly developed SAP Auto-ID infrastructure, SAP Event Management software, and SAP Enterprise Portal, a component of NetWeaver. It is currently available only to pilot customers, but SAP says the package will be generally available in mid-2004. SAP has not announced pricing for the product.
"I have a high degree of confidence that SAP will not lose to the best-of-breed vendors based on price," Dominy said. "They say they are going to be priced competitively."
The average cost of a single RFID tag is between 40 and 60 cents, Dominy said.
Outfitting an entire company can be complex. The RFID software must be tested and integrated with a company's existing ERP system, Dominy said.
In the report, Dominy recommends that companies take a "middle-of-the-road" approach. That means implementing the minimum requirements established by Wal-Mart in the warehouses where it is least expensive and most practical to use RFID technology. A company-wide approach at the start could wind up costing a business millions in wasted dollars, he said.
Dominy said that he spoke with small, medium and large businesses that are still working on deployment plans and business cases for the technology. He said that none of his customers are ready to talk about RFID publicly.
Jeff Woods, a senior analyst with Stamford, Conn.-based Gartner Inc., has made similar estimates about the costs of getting started with RFID. At first, companies should focus on meeting Wal-Mart's requirements. After that, they should develop uses for the data being generated by RFID, Woods said.
"Customers today looking for inexpensive solutions are going to have to be convinced in the beginning that they need robust functionality," Woods said. "There's a lot of functionality being offered that most people don't need today but, once companies build more RFID-centric processes, the enhanced functionality will come into play."
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