RFID pioneers are experiencing such numbers as a 14 percent increase in sales, a 30 percent reduction in labor costs, a 27 percent improvement in inventory accuracy, and ROI in three months.

Written by Sheldon R. Reich

The last time you may have considered whether Radio Frequency Identification (RFID) was right for your organization, you may have found that the costs for tags and equipment was high, implementation was long and complex, ROI was uncertain, and native software for your computing platform was unavailable or costly. If that's the case, it's time for another look because all that has changed.

RFID is growing across many sectors. According to the latest data from ABI Research, the RFID market is growing overall at 5 percent this year and should see 11 percent growth between 2009 and 2010. If you remove the deeply depressed automotive-production segment, the growth rate jumps to almost 16 percent.

"Transponders, readers, software, and services are all showing healthy growth," says ABI's Michael Liard. "Applications include item-level tracking in fashion apparel and footwear, asset management (not only corporate assets, but also returnable transport items, tools/parts, and work-in-process), baggage handling, real-time location systems (RTLS), and electronic identification documents."

The adoption of RFID is across industries—from healthcare, to manufacturing, and even in places you wouldn't expect, like your data center. IT Asset Management (ITAM) is a fast-growing segment, with RFID-tagged assets like laptops, hard drives, and server blades now being tracked efficiently in response to Governance, Risk and Compliance (GRC) initiatives. These include Sarbanes-Oxley (controls the handling of data connected with the financial reporting process), the Gramm-Leach-Bliley Act (protects customers' financial data), and California Senate Bill 1386 (requires customers to be notified if private data security is breached). In addition to regulatory compliance, inventory management and data security are improved with RFID ITAM.

RFID is now geographically widespread as well, with researcher IDTechEx tracking what are now 3,800 projects in 110 countries. In China, the number of RFID projects tracked has more than doubled to 281 in only two years.

Billions Served RFID

More than 2.35 billion RFID tags were sold in 2009. Compare that to 1.74 billion in 2006 and 1.97 billion in 2008. Who is using these tags?

The breakdown is as follows:

The tagging of apparel by companies such as Marks & Spencer is now in rollout phase with 200 million RFID labels being used for apparel (including laundry) globally in 2009. The tagging of animals (such as pigs and sheep) is growing strongly as it becomes a legal requirement, with 105 million tags being used for this sector in 2009. In the public sector, 350 million RFID tickets will be sold in 2009 for transit schemes in cities around the world.

Where are the other 1.7 billion tags being used? In factories, warehouses, hospitals, and organizations like yours.

Real Benefits for Apparel

According to the leading RFID trade publication, RFID Journal, when RFID is used to track clothing items in retail stores, the technology can lead to an increase in sales of 10 percent or higher. In fact, the largest producer of apparel in the United States, American Apparel, has reported a whopping 14 percent increase from RFID.

To see for myself these kinds of productivity gains, I attended last month's RFID in Fashion 2009 at the Fashion Institute of Technology (FIT) in New York. This well-run conference by the publishers of RFID Journal featured case study presentations that demonstrated real, measurable return on investment (ROI) for RFID initiatives. Retailers such as American Apparel and NP Collection have seen real productivity gains and, more important, reduced costs and increased sales.

This is what I learned, for example, about American Apparel's experience with RFID.

According to Zander Livingston, American Apparel's RFID director, the system was fully operational four months from the program's launch and delivered a full return on investment just four months later.

In operation, the system tracks every SKU from the time it is received until it is processed at the point of sale. It also facilitates stock replenishment within minutes of a sale and helps ensure inventory accuracy and the stocking of available product on the selling floor. Because RFID tags do not require a line of sight to be read, a whole-store inventory that once required 120 hours to complete can now be accomplished in 15 hours. Notes Livingston, "I was particularly blown away by the labor time we saved."

American Apparel is realizing solid bottom-line sales benefits with the new item-level RFID system. "The easiest [benefit] to measure is the 14 percent sales uplift we've seen at the RFID-equipped stores compared with our non-RFID stores. This is due to the fact that we have more items on display for the customer and we have improved customer service at the RFID stores."

Livingston explains that the item-level RFID inventory management system boosts customer service by facilitating faster selling-floor replenishment and greater sales-associate availability. The system guides replenishment specialists to the correct areas in stockrooms, which allows them to retrieve merchandise quickly, restock it on the selling floor, and attend to customer needs. As a result, service time has improved 10 percent to 25 percent.

Other key item-level RFID inventory-management-system metrics: The system delivers 99 percent visibility of store inventory and can reduce labor by up to 30 percent and inventory by 15 percent.

And some other benefits were apparent, though not measured for the ROI calculation. Employee turnover (and training costs) actually fell at the RFID stores. Staffers who work at the RFID stores are happier and more engaged with the customers because the technology handles the boring part of the job (counting inventory) and it does it faster and more accurately than bar code scanning and manual counting. One could reasonably assume that customers at RFID stores are also happier due to the improved service and always available inventory on the shelves.

Click here to see a video of the American Apparel RFID project.

A Blooming Success

Since the conference, Bloomingdale's was in the news with the promising results of an item-level RFID study published by the Information Technology Research Institute of the Sam M. Walton College of Business at the University of Arkansas. The 13-week item-level tagging experiment was conducted at Bloomingdale's stores last fall and ultimately improved the store's accuracy by 27 percent.

Here's how these results were achieved:

The trial looked at a non-item-level store (the control store) and one item-level store, and the same limited product area (denim jeans) was examined for both.

"The test store was equipped with static readers at all employee and customer entrance/exit doors. Cycle counting (i.e., physical inventory counting) was conducted with handheld RFID readers (in the test store) and with barcode scanners (in both the test and control stores)," the report said. "There were between 9,800 and 10,500 items included in this study. Items were RFID-tagged upon arrival at the store; thus, they could be read when moved from the receiving area to either a stock room or the sales floor. Tags were removed at point of sale and discarded. Returned merchandise was re-tagged by a store associate using a printer/encoder near the department."

The study found that the adjusted overall inventory accuracy improved by more than 27 percent, with a corresponding decrease in understock of 21 percent. The overstock figure accounts for the remainder of the adjustment, decreasing by a little more than 6 percent, the report said.

Beyond greater inventory accuracy, the Bloomingdale's study also quantified how much faster inventory counts were with item-level RFID: 96 percent. The item-level scanning of more than 10,000 items "took two hours, far less than the 53 hours required with barcode scanning. On average, 209 items could be counted per hour via barcode whereas 4,767 items could be counted per hour via RFID."

The study said that this suggests that actual field deployment could have even more dramatic inventory accuracy improvements, as the faster counts would likely enable far more frequent counts.

"Given the substantial reduction in time to cycle count, retailers such as Bloomingdale's could create cycle counting strategies for taking and updating inventory counts more frequently than once or twice per year. With the above example, Bloomingdale's could take inventory counts 26 times with an RFID handheld reader in the amount of time it takes to do one inventory count with a barcode scanner," the report said. "Thus, they could take inventory counts every other week for an entire year (for a total of 26 cycle counts) in the same amount of time it takes them to do an enterprise-wide annual inventory count. Certainly, inventory accuracy is higher when taking and updating inventory counts bi-weekly than it is when taking inventory counts annually."

The report also pointed out that, given the limited nature of the trial, true battlefield condition results could deliver better efficiencies in other ways. For example, "Bloomingdale's did not use RFID to directly affect store-level out of stocks; that is, changes were not made to supply chain replenishment practices and RFID was not used to generate replenishment orders."

To download the complete report from the Information Technology Research Institute of the Sam M. Walton College of Business at the University of Arkansas, click here.

Closed Loop Systems Open Eyes

High-profile apparel companies and retailers are achieving ROI with item-level RFID. What defines these success stories is that these companies decided to see for themselves the benefits of RFID. These are not "open loop" RFID projects involving multiple members of the supply chain. These successes are from "closed loop" projects that impact only the company itself. After all, why invest in a technology unless it benefits your organization?

Here are some "closed loop" challenges that customers have asked me to solve:

• A pathology lab is looking to track slides and vials from preparation, to testing, to short- and long-term storage.
• A watch manufacturer needs to reduce the time required to "check out" samples from inventory and "check in" samples from tradeshows and showrooms.
• A candy manufacturer wants to reduce the time it takes to load pallets onto trucks and eliminate pallets loaded in the wrong trucks.
• A wig manufacturer wishes to track the wigs from manufacture, through washing, styling, and point of sale (POS).
• A paper manufacturer is seeking a way to track job jackets so their high-speed presses aren't idle for a minute.
• A guitar manufacturer wants to use RFID to track solid bodies and necks through various woodworking and finishing steps.
• A film festival is looking for a way to quickly verify attendance at screenings.

In each of these cases, the customers are trying to solve a problem that could not be solved as effectively with bar code or other data collection methods.

Just imagine these kinds of benefits in your process. Will you take advantage of the incredible time-savings RFID offers in receiving? Have you thought how dramatically you could reduce the time it takes to do physical inventory (or cycle counting)?

When you consider the ROI figures others have achieved, maybe it's time for your organization to take advantage of the real benefits that RFID can bring to your enterprise. No matter what business you are in, time is money, and the time-savings of RFID let you do more with less. The bottom line is that RFID is faster and more accurate than the methods you are using today.

What are you waiting for?