With RFID, Does Anyone Truly Know What Anything Costs Anymore?

Written by Evan Schuman
December 21st, 2007

Reader reaction to a recent piece we did on a Staples reusable active-tag RFID trial was strong and raised a wonderful question about how costs are determined.

The arguments raised are similar to the total cost of ownership (TCO) strategies that were all the rage a few years ago, but they take it one step further.

The Staples trial essentially took active tags and placed them on high-theft items and then removed them at the POS. The first question involved how difficult the removal process is. The easier it is at checkout, the less time the removal task takes, the less time (ca-ching) it forces the cashier to spend dealing with it. Of course, the customer-facing Yin to that checkout Yang is that the easiest the tag is to remove, the easier it will be for crafty shoplifters to do it on their own. (Good-bye, Tag. Hello, Shrink.)

But a potentially even more interesting issue is looking at the other cost issues. Staples said that with repeated usage projected over years, it had calculated the per-tag cost at eight cents. One reader—who asked to remain anonymous—had his own questions. "Does that include the cost of tagging the item and entering the data into a database server?" the reader asked. "Active tags require maintenance, battery failure, physical damage, shrinkage, etc.. Are these costs accounted for?"

The readers at RetailWire made some more intriguing comments about the Staples story, many of which are quite worth checking out.

The point of the TCO movement was to get executives and managers to think about the hidden costs that permeate most large corporations. "Instead of outsourcing Project 82, we could bring it in-house and save $400,000," said the hypothetical manager, without calculating how many hours would be spent by people internally to accomplish it and, more importantly, what more-profitable efforts would they have otherwise been doing?

Retailers and consumer goods manufacturers have invested far too much in RFID to abandon those efforts but those circumstances really lend themselves to TCO and ROI calculations that have more reaches and rationalizations than a presidential primary debate.

Part of the problem with many large retail chains is the revolving door of the CIO’s office, with that role quickly becoming the world’s best paid temp gig. Until longevity starts becoming a common Fortune 500 retail CIO attribute, the desire to have creative and unrealistic TCO projects will be almost irresistible.

After all, the arguments sound good to the executive committee and the board of directors. By the time reality proves them wrong, it’s likely a new CIO who won’t be responsible for his/her predecessor’s arguments. But when those TCO eggs start to hatch while the CIO is still in charge of her nest, that’s when the real payback kicks in.


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