September 21, 2005
The cost of RFID tags
It is widely accepted that the availability of RFID tags at a rate of around 5 cents apiece for bulk quantities will be the catalyst for large-scale RFID adoption. However, it appears that in order to implement RFID tagging at the item level across the supply chain, the cost of the tag may have to be lower than 5 cents per piece. Consumer goods are sold at minimum margins, with the producers depending upon volume sales to bring in the profits. An increase of 5 cents per unit may be more than what they can afford. Since it is the manufacturer who pays for the tag, he has to try and negate the additional cost by making maximum use of RFID in the supply chain. Rfidjournal.com reports:
With OOS representing the percentage increase (converted to a decimal) in sales due to a reduction in out-of-stocks, the equation looks like this: Total profit = quantity X (profit margin – tag cost) + (quantity X OOS) X (profit margin – tag cost)
Read More: Finding RFID's Break-even Point
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