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    Hidden Costs, Glitches Halting RFID Growth

    CHICAGO -- RFID reality may be further off than most retailers think, according to the results of a recent study conducted by global management consulting firm DiamondCluster International.

    CHICAGO -- RFID reality may be further off than most retailers think, according to the results of a recent study conducted by global management consulting firm DiamondCluster International.

    The study shows that, while the costs of RFID (radio frequency identification) technology are declining dramatically, many companies that have embarked on the investment in RFID are still straddled with inadequate IT infrastructure, face major adoption challenges, and haven't focused on achieving meaningful benefits.

    By comparing various estimates for RFID market growth against conservative return on investment scenarios, DiamondCluster predicted that in some cases it will be possible to achieve a one-year payback on RFID by 2008. That timeframe is the bar set by many companies when considering whether or not to invest in new technology. But while achieving that payback may be possible, companies shouldn't expect RFID adoption to reach critical mass at that same pace.

    "Companies in the health services, particularly pharmaceutical drug makers, high-value consumer goods like electronics and apparel, some select retail channels, transportation, and government agencies are where we'll see the greatest success in the near term," said Darin Yug, a DiamondCluster partner and co-author of a new report, Achieving RFID's Full Potential. "The lack of critical mass, however, in these and other industries makes it a tough investment decision."

    Skepticism about RFID is easy to understand, according to Mark Baum, a DiamondCluster partner who works extensively with consumer packaged goods (CPG) companies.

    "There are plenty of RFID horror stories out there," Baum said. "Companies can't get accurate read rates on pallets in the warehouse, for example. Although tag costs declined some 60 percent in 2005, they haven't declined as much as some expected and the price is still too high for CPG companies with lower case and item values. IT departments are handcuffed in upgrading systems that are too brittle to process the huge amounts of new data RFID generates. Supply chain partners often won't buy in to the process changes RFID demands. And the majority of RFID adopters will still have to maintain their bar code platform for the foreseeable future."

    Despite these challenges, however, Baum, formerly e.v.p. of the Grocery Manufacturers Association, pointed to the grocery industry's adoption of bar codes in the 1970s and 1980s as an indicator of RFID's future.

    "It's hard to imagine a world without bar codes but they have succeeded because the grocery industry got a lot of things right back in the 70s and early 80s," Baum said. "They insisted on labels that were inexpensive and easy to reproduce. The bar codes and scanners had to better enable retailers to do labor scheduling and make life more productive for the cashier, as well as improve accuracy. And the industry focused on a solid business case, insisting that checkout systems would pay for themselves in two and a half years. And, that was before they started realizing the benefits of mining point-of-sale data for consumer insights."

    "The question going forward isn't whether or not RFID will reach critical mass," said Yug. "It's clear that the technology is approaching maturity, and will ultimately pay off enough today to justify well-placed investments. The real question is: Can my company develop and implement an RFID strategy that will achieve specific, measurable benefits, even without my industry having achieved critical mass in the near-term."

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