By enlisting a service provider, companies can benefit from RFID technology without investing the capital and manpower necessary to develop and run the systems themselves.

Like any other major IT project, in order to minimise business risk, the retailer should ensure that it has a written contract with the service provider and the contract for RFID technology addresses.

(i) incentives for the service provider to meet performance criteria;

(ii) the retailer's key commercial objectives;

(iii) systems integration issues; and

(iv) adequate legal remedies should the project fail to deliver expected benefits.

Advantages of RFID Implementation

Implementing an RFID system is a big investment and retailers will have to consider whether it will pay off in terms of ROI (return on investment). Executives of more than half UK retail companies predict that RFID will become an accepted part of the business supply chain in the next five years. RFID implementation offers a wide range of advantages but most significantly improved supply chain efficiency. According to a spokeswoman for Marks & Spencer the real benefit of RFID is the way in which it can be used to streamline the retailers' logistics. Scanned information is transmitted to a central database where an automatic comparison with the stock profile for the store triggers a replenishment order. By giving each item of stock its digital identity, Marks & Spencer has reduced stocktaking times in stores from eight hours to one.

A recent survey in the USA by Deloitte Consulting concluded that supply chain inefficiencies are the cause of $40 billion in lost sales, which is equivalent to 3.5 per cent of lost sales revenue. Wal-Mart's experiment in 12 stores in the Dallas area found that RFID technology reduced the chance that its products would be out of stock when a customer reached for it.

Tagging levels

RFID tags have been applied to shipping cases, boxes, pallets and crates of items for some time allowing items to be tracked through the supply chain, from factory to distribution centre to warehouse to store. Item level tagging will allow real time stock taking enabling retailers to re-order specific items the instant they are sold. It will also afford the opportunity to build profiles of customer behaviour, spending habits and preferences so giving the retail company the opportunity to create a more tailored and relevant shopping experience. So far the cost of the individual tags has made item level tagging prohibitive but there is speculation that low cost and smaller tags will be available in the near future. Costing models and benchmarking provisions should be carefully drafted into RFID contracts.

(I adapted this idea with some changes from an article in The Retail Bulletin).