(EMAILWIRE.COM, October 27, 2004 ) Dedham, Massachusetts -- The ARC Advisory Group conducted an Emerging Practices study in which ARC talked to 24 companies that were actively investing in EPC RFID (Electronic Product Code Radio Frequency Identification). Only one company ARC talked to believed they could have under a two-year payback period. 95 percent of the respondents believed the payback period would be greater than two years.

As an example, imagine a company that ships 50 million cases a year to Wal-Mart. Even at 20 cents per tag, a very optimistic assumption, that is a $10 million hit. Add a million dollars in expenses to prepare the RFID infrastructure. Furthermore, labor has been added to warehouse processes, adding perhaps another half a million dollars in new operating costs. This company would need to generate about 11 and a half million dollars in new savings merely to break even. Now imagine that this company's analysis of potential payback buckets shows that they might be able to generate a million dollars in lower chargeback fees, if Wal-Mart cooperates with them, and that the other savings buckets could come to, at most, a half a million dollars. This story is typical of the kind of story that ARC heard during the interview process.

Background
Wal-Mart has mandated that by January, 2005, its top 100 suppliers must apply passive RFID tags based on EPC-global standards to cases and pallets headed toward three specific Distribution Centers (DCs) in Texas. Virtually all manufacturers of consumer goods will eventually be impacted by this because Wal-Mart's moves in RFID are being copied by other retailers. Unfortunately for manufacturers and distributors selling to large retailers, RFID has a much lower ROI for them than for their retail customers. Ac-cording to Steve Banker, Service Director for Supply Chain Management at ARC Advisory Group, "The situation is made more difficult because the technology is immature and current suppliers of tags are unreliably supplying a poor quality product."

What Benefits Does RFID Offer?
Even though respondents almost universally believe that EPC RFID has a poor Return on Investment (ROI), companies facing RFID mandates are actively searching for benefit buckets to mitigate the costs of these programs. It is also true that many Wal-Mart suppliers believe that, in many cases, while certain areas have the potential for savings, they will not be able to actually reap these savings for several years.

Certain benefits are not possible until certain preconditions are met. Those preconditions include:
o The reliability of reads needs to improve greatly
o The cost of tags drop
o A critical mass of retailers have RFID mandates in place
o Finally, more efficient warehouse receiving and better management of inbound materials may have to wait until companies have been able to negotiate with their upstream suppliers to engage in more RFID tagging.

ARC Advisory Group is now selling "Emerging Practices in EPC RFID." This study offers information on:
o The status of the Wal-Mart mandate and advice on how to prepare for mandate meetings with retailers
o An analysis of how companies are changing their processes to meet these mandates and the strengths and weaknesses of the various process choices

o An analysis of the three critical inflection processes when it makes sense to move from handling RFID in a certain way to doing it differently

o An analysis of the reliability of RFID technology as well as companies' satisfaction with various RFID solution providers

o The costs of preparing the RFID infrastructure
o The benefits of RFID and what will be necessary to reap those benefits
o 13 key recommendations which can conservatively save your company hundreds of thousands of dollars if you must implement RFID to meet a mandate.

Note to Editors: This document can be used with attribution to ARC Advisory Group. For a graphic outlining the "Main Potential Benefits from EPC RFID", please contact mailto:press@arcweb.com .

Founded in 1986, ARC Advisory Group has grown to become the Thought Leader in Supply Chain solutions. No matter how complex your business issues, our analysts have the expert industry knowledge and first-hand experience to help you find the best answer. We focus on simple yet critical goals: improving your return on assets, operational performance, total cost of ownership, project time-to-benefit, and shareholder value. Further in-formation can be obtained from ARC, Three Allied Drive, Dedham, MA 02026, 781-471-1000, Fax 781-471-1100, E-mail info@arcweb.com, Web www.ARCweb.com.

Contact Information:
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