November 23, 2006
Does Wal-Mart Have Scale Advantages For RFID?
Imagine you are in a group of tired, chained beasts pulling a wagon and being whipped if you stop. That's what I imagine some suppliers to Wal-Mart, the US DoD (Dept of Defense), and other influential organizations may feel regarding RFID mandates. The latter organizations are seeing (or claiming) a high ROI (return on investment) on RFID implementation, the suppliers they have mandated to join the RFID club have not seen similar returns.
It's easy to say suppliers see no incentive for implementing the technology, but no doubt some of them feel that they might as well go out of business if they don't accomodate retail giants such as Wal-Mart. Wal-Mart has also indicated that, aside from helping prepare their suppliers to be compliant, companies have to find their own ROI in RFID. Which I think might be part of the problem of adoption.
As I haven't seen the balance sheets for any of these companies, I'm hypothesizing. Wal-Mart may have an "economies of scale" advantage over their suppliers in terms of cost of radio frequency technology. Though I'll admit I'm not sure whether Wal-Mart sources RFID technology for their suppliers, but I doubt it. That would mean, then, that suppliers pay higher prices for the same technology and likely cannot have the same type of ROI.
Even if Wal-Mart had a "Sam's Club" for RF tech for their suppliers, the latter are still at a disadvantage because implementing radio frequency technology cuts into heavily into the bottom line of smallest suppliers, who are already supply on slim margins for the bargain atmosphere of Wal-Mart. Where's the ROI in this scenario? Such a cost means bottlenecks in implementation.
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