While working as a management consultant for a $1 billion consumer products goods (CPG) company, I discovered that Wal-Mart was not only their largest account (~$125 million annual sales), there was no other account that was even $10 million. So when their vice president of sales said that when Wal-Mart asked them to "Jump", all they asked was "How high?" This story illustrates exactly what is happening with manufacturers who are trying to incorporate RFID technology due to pressure from retailers. (Related article: How to develop a RFID strategy?)
It is no secret that the push from retailers is coming primarily because of the billions of dollars in expected savings from using RFID tags. However, at this time, incorporating RFID into the business operations of a supplier is added cost (which includes not only the cost of tags, but also associated hardware). For some suppliers, this cost per unit can be anywhere from $0.10 to $1.00. Or in other words, considering how small the profit margins are when you supply to Wal-Mart, this additional cost means that either they will have to sell to Wal-Mart at a loss or stop selling to Wal-Mart, at least till the cost of RFID tags drops. Unfortunately, very few suppliers, like my client, have the choice of not selling to Wal-Mart. (Related article: Pharmaceutical firms to incorporate RFID)
How to take advantage of RFID technology?
Yes, RFID technology today is expensive and no company wants to incorporate something that has no ROI. But whether you like it or not, RFID is here and very soon, it will become as widespread as a bar code. So while you might be able to delay embracing RFID, you can not avoid it. So why not use the excellent opportunity that Wal-Mart is providing and actually gain competitive advantage from it?
It is no secret that the push from retailers is coming primarily because of the billions of dollars in expected savings from using RFID tags. However, at this time, incorporating RFID into the business operations of a supplier is added cost (which includes not only the cost of tags, but also associated hardware). For some suppliers, this cost per unit can be anywhere from $0.10 to $1.00. Or in other words, considering how small the profit margins are when you supply to Wal-Mart, this additional cost means that either they will have to sell to Wal-Mart at a loss or stop selling to Wal-Mart, at least till the cost of RFID tags drops. Unfortunately, very few suppliers, like my client, have the choice of not selling to Wal-Mart. (Related article: Pharmaceutical firms to incorporate RFID)
How to take advantage of RFID technology?
Yes, RFID technology today is expensive and no company wants to incorporate something that has no ROI. But whether you like it or not, RFID is here and very soon, it will become as widespread as a bar code. So while you might be able to delay embracing RFID, you can not avoid it. So why not use the excellent opportunity that Wal-Mart is providing and actually gain competitive advantage from it?
- Use the opportunity to add RFID tags as an opportunity to redesign your business processes. (Related article: Framework for business process redesign)
- Complete process review to identify opportunities for cost reduction.
- Leverage data provided by RFID technology to improve your business processes. RFID generates data that is several times better than what other technologies provide. While managing this vast amount of data is still a work-in-progress, you must try to figure out how you can use this data to your advantage.
- Partner with your suppliers and other customers to help them transition to RFID. As you learn to implement RFID, you can provide a service/solution to other companies that can learn from you. RFID implementation is an emerging revenue opportunity for early adopters.
- Every time there is a significant technological shift, there are new opportunities for growth and value. RFID adoption might very well be an opportunity for you to transform your business model.
Recommended article: Key account management