RFID Adoption

IS THERE A METHOD to the madness in the way RFID technology is being purchased and deployed? Apparently so, says a recent report from Forrester Research Inc., and it means more hard work ahead for RFID providers. According to the report, companies that adopt RFID are much tougher IT negotiators than their industry counterparts, and RFID vendors can expect to have to fight tooth and nail for every technology dollar.

Forrester analyzed technology spending in the retail, consumer products, and transportation industries — those in which RFID is most likely to be used — paying particular attention to companies that plan increased RFID spending during the coming year. What they found was enough to make even the best RFID marketer reach for the Tums, Rolaids, Prevacid, and Nexium. While companies in the target industries as a whole spend 4.8% of their annual revenues on IT, the 37% of those companies that actually plan to increase their RFID efforts in the next 12 months spend only about half that — 2.6% of annual revenues — on IT. What’s more, says Forrester, this kind of frugality means that these firms will expect to begin seeing some RFID payback before proceeding to the next stage of RFID deployments.

The report, “How RFID Adopters Buy Technology,” points out that RFID is not cheap; it will require consumer goods manufacturers to invest an estimated $2 million to $20 million over the next few years, in order to meet retail mandates coming not only from the well-publicized requirements of Wal-Mart, but also from Best Buy, Target, and UPS. So while the percentage differences in procurement methods between those companies ready to implement RFID now and their peers may not be huge, the dollar amounts they represent certainly are. For example, 35% of RFID adopters express interest in alternative pricing models, compared with 31% across all companies studied in these industries. Because of this, Forrester Research expects to see some innovative pricing and remote management services from infrastructure vendors such as IBM and Hewlett-Packard. Another four-point spread is reflected in the 70% of companies with current RFID plans that have centralized procurement groups within IT, versus 66% of companies on the whole with this structure. As the researchers see it, this is good news for users, since they already have the organizational structure in place to aggregate the purchase of tags and readers. The report predicts that with tag expenditures coming from operational budgets, there will be a higher degree of cooperation between business and IT procurement groups.

Another finding is that significant percentages of the client bases of major IT implementation and software vendors are among those companies adopting RFID. Over 50% of vendors Capgemini, EDS/AT Kearney, and Siebel’s customers are RFID adopters, as are over 40% of customers of such vendors as IBM and IBM Global Services, Oracle, Accenture, J.D. Edwards, Deloitte, and SAP. However, Forrester Research cautions that these numbers won’t necessarily make generating revenue from RFID any easier, as RFID initiatives may be confined to small pilots.

QUICK STAT

Revenue Spent on IT

Base = 235 respondents; percentage of total revenue

Companies increasing RFID deployment 2.6%
All companies in relevant industries 4.8%

Source: Forrester Research Inc.

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