The implementation of RFID applications increases every day and is not a trend that has a close ceiling, but rather the opposite, the number of companies that will implement RFID systems in their processes will increase. In this article, we will not go into the reasons why it is so important for companies to optimize the efficiency of their processes thanks to RFID technology. But we are going to focus on how companies can value and quantify the expenses and profits of investing in RFID applications, in a simple and general way.
Three success stories and a “safe bet” that can encourage you to take the step
Without wishing to be exhaustive, we will expose three emblematic success stories of the implementation of RFID technology, in addition to what we would call a safe bet that will positively impact globally, at least, to all people who check in a suitcase, and which will mean a great advance in security thanks to RFID technology when we travel.
In retail, *the case of Zara is one of the greatest successes that demonstrate the profitability of the RFID application for apparel. As of 2016, the Inditex Group implemented RFID technology in 100% of the Zara stores. According to its president, the RFID implementation would mean a saving of working time, the streamlining of logistics work, and real-time knowledge of the availability of garments both in-store and online by all employees. In addition, its system of “RFID-Alarm tags” is reusable, so its alarm hardtags can be erased and recoded up to more than 100 times. A very important fact is that the RFID system allows to control in detail the so-called unknown loss (theft, fraud of suppliers, internal and external errors, breakages…) which can lead to a loss of up to 0.8%, which in Inditex could mean up to 100 million euros. The result of the implementation of RFID in Zara has been so good that all Pull & Bear, Massimo Dutti and Uterqüe stores will have RFID systems in 2020. (*Source: Claudia Espejo Repiso, Estudio de las aplicaciones de la tecnología RFID y su grado de implantación, 2018.)
The field of logistics accumulates more than half of the implementation of RFID in the world, so our next case is also within this area. We talked about the experience with the implementation of RFID of the group of *Éxito supermarkets, leaders of retail in Latin America. Grupo Éxito reported that the cost of inventory management was reduced by 93% thanks to the implementation of RFID technology, and shrinkage was reduced by 60%. (*Source: zonalogistica.com, Implementación de tecnología RFID en Grupo Éxito.)
To finish, a case of the success of RFID applications that many do not imagine is the *RFID application for surgical instruments and hospital disposables. Its use is actually to prevent instruments and gauzes from remaining inside the patient after an intervention. Gauze and needles are the most often forgotten objects inside patients after an operation. The reason is that the manual count is not reliable. So the use of RFID technology is growing to avoid these accidents that can cost lives. Not all the profits of RFID are economic, they are also linked to the improvement of safety in health and other areas. Thanks to the RFID wristbands, each patient is linked to their history and medication errors, allergies or treatments are reduced. (* Source: intramed.net, Foreign objects retained in surgical patients.)
Finally, as a safe bet for RFID technology, we point out the decision of IATA (International Air Transport Association) to implement a global development plan to tag all suitcases with RFID, and in this way, respond to travellers’ expectations to have an exact and real-time tracking of your checked baggage.
The profitability of RFID applications
Calculating the profitability of RFID applications has the difficulty of quantifying predictive variables, such as how many sales do I lose due to stock breakage? How much money do I waste on products that will not leave the warehouse? Let’s see it below.
How to quantify the necessary investment
To calculate the necessary investment for our RFID implementation we will consider at least these costs:
- Acquisition of physical devices (readers, printers, portals …)
- Acquisition of consumables such as RFID tags.
- Acquisition of software.
- Cost of RFID system design
- Reorganization costs.
- Personnel training costs.
All this is calculated in suppliers’ budgets without any difficulty. But what about the profits, with which we want to not only amortize the investment, but add to our current annual profits? let’s keep going.
How to value the profits
Calculating the profits of RFID applications is much more complex. To calculate the profits resulting from our RFID implementation we will consider at least these returns:
- Greater accuracy of inventory with less manual intervention, which means a reduction in working hours.
1.1. In this section, we would calculate the time per item of inventory to know the total annual time of carrying out the inventory, and with that, we would obtain the cost of the manual inventory. Then we would compare it with the time of carrying out the automated inventory with RFID, and thus we would obtain the profit.
- Avoid losses, theft, misplacements, fraud. How much money do the unknown losses represent in your company? The money that you would stop losing while avoiding the unknown losses can be based on the historical inventory figures. As we can see in the table below, Kurt Salmon calculated the reduction of the unknown loss by 33.7% in retail.
- Avoid stock breakage. How can you calculate the sales you lose because the customer does not find your product on the shelf, on the web or you can not serve it on time? This is more complex to calculate. According to the same study by Kurt Salmon for Accenture, the reduction of stock breakage with RFID is 40.6%.
- Reduction or elimination of surplus products. In the same way that we avoid stock breakages thanks to the speed and accuracy of the information provided by an RFID system; we can also avoid providing products that do not have as much output. How much money do the products that do not leave the warehouse mean in our company? We can have approximate figures thanks to the historical. The need to reduce surplus products so that they have output is reduced by 19.6%, according to the aforementioned study.
- Increased response speed to orders. Do we lose sales because we can not respond on time?
- More efficient shipments. Do we lose sales because they do not arrive or arrive too late?
To approach a calculation of the profits we have mentioned the study that Kurt Salmon carried out for Accenture in 2016 on the application of RFID in retail (you can find it on his website kurtsalmon.com). With which we have made the following table:
The profitability of the RFID application in retail according to Kurt Salmon for Accenture, 2016.
All the money that we save added to all the money that we stop losing more the money resulting from the increase of the sales by a greater efficiency thanks to the RFID technology would be the profits of the implementation of the RFID system in the company.
How long is the investment amortized and net profits of the RFID system obtained?
As well as the profits related to the improvement of processes, such as speed, efficiency, real-time updating, global communication, they are noticed immediately after the implementation of the RFID system. The economic profits start from the fact that they have amortized the investment. The desirable thing would be to amortize the investment between the first and second year of implementation of the RFID implementation. Although the implementation of an RFID system is still a big investment for many companies.
Amortization of an RFID system.
A question that you can not continue avoiding:
Does it make sense for my business not to implement an RFID system?
This is a question that each organization must make to itself with a single horizon, that of continuing to be a profitable company and updated in its time tomorrow.
We hope that this article has been useful and we urge you to contact us if you have any questions regarding the purchase of your RFID tags.
Main photo source: Helloquence on Unsplash.