Price and Performance

"The recorded prediction in year-over-year growth in spending on RFID systems is consistent with consumer packaged goods (CPG) companies complying with customer requirements. In 2005, we saw relatively few CPG clients actively moving forward with RFID deployments; in the first half of 2006, we have seen a significant increase in activities, both in respect of clients newly affected by 'mandate requirements,' and those early adopters that are now increasing the number of SKUs tagged. Clients appear to be selectively tagging goods at the most forward point of their supply chain, but, encouragingly, using increased levels of automation for tagging as the volume rises, with view to minimizing labor costs. The most enlightened clients are now working to discover what internal value can be derived by managing their inventory flow differently, leading to process changes enabled by the application of RFID systems and sophisticated data analytics applied with a keen eye to business context.

The split in spending on hardware, software and services is interesting. Three key points should be noted:

1) The cost of tags is a significant portion of spending -- cost analysis should take account of fully loaded cost of tags if there is a significant manual labor component of the tagging process;
2) There has been a tendency to loosely couple the front-end RFID functions to enterprise business applications, reflected in the relatively low percentage spend on distinctly identifiable 'RFID software';
3) There has been a need engage subject matter expertise to ensure proper 'performance testing', hardware integration and software applications modifications. Since RFID system components remain far from 'plug 'n use,' we anticipate that spending on professional services will remain a significant component of the total solution cost." - Chris Hook, Deloitte