RFID and Recession: Not a Good Mix

The recession and discretionary IT spending just don't mix. Discretionary spending cuts are one of three strategies that companies use to narrow the growing gap between demand for IT services and IT budgets, found The Hackett Group. The former will grow 8.6 percent between now and 2011, while the latter will increase just 1.3 percent during the same period.

That doesn't bode well for RFID, a technology that remains firmly mired in the discretionary column despite decades of trying -- and failing -- to achieve more mainstream appeal. When I wrote about it last summer, I noted that big wins for RFID have been few and far between. Rather than meeting original, overheated expectations that it would magically repair breaks in supply chains, RFID is proving more successful in relatively small-scale, closed-loop places like hospitals.

A CRM Buyer article published last week appears to draw pretty much the same conclusion, as can be deduced by its title, "RFID: Revolutiion in a Holding Pattern." It mentions the same sticking points I cited in my post: costs not yet low enough to make the numbers work for many of its proposed applications, issues with reader reliability rates, privacy concerns and difficulties integrating RFID data with other systems.

Two of RFID's highest-profile supporters, Walmart and the Department of Defense, have made scant progress in implementing RFID, said Bob Novack, an associate professor of supply chain management for Penn State. Walmart has experienced more success with RFID in back rooms of stores rather than in its distribution centers, where computers, trucks and metal shelving can wreak havoc with read rates.

According to Novack, before RFID can be broadly deployed in supply chains, costs will need to drop to less than a penny per tag. The technology also will have to surmount cultural barriers, since it challenges suppliers and their customers to collaborate more closely than ever before. A Staples executive mentioned both factors in remarks following a beta test in which it used RFID to track items in a warehouse. I mentioned the Staples pilot in a post from 2007, in which I also shared comments from Ronan Clinton, managing director of Irish systems integrator Heavey RF, whom I had just interviewed. Bar-coding still beats RFID in broad implementations, Clinton told me:

When you analyze a lot of problems, you can see that bar coding does work and is relatively economically viable. When you consider all of the implementation costs and the technical difficulties that remain with RFID, it just doesn't add up. It doesn't make sense to spend a lot more money on a lot more complicated technology that's not necessarily going to give any verifiable benefit.

Lino Casalino, a partner with PricewaterhouseCoopers interviewed in the CRM Buyer article, said many companies will take a pass on RFID projects, at least until the economy improves. He said:

...We're already seeing people delaying those "nice to have" technology decisions. Times are tough, so the whole mood is one of caution. We're seeing a lot of clients focused on staying fiscally responsible, and RFID has simply not matured enough for them to take it on right now.