U.S. retailer Wal-Mart’s decision to require radio frequency identification (RFID) on all shipments from its suppliers is having a ripple effect on manufacturers worldwide.

      Retailers can expect extensive inventory and labor cost savings from the adoption of radio frequency identification (RFID) technology, but some consumer product manufacturers will face higher costs and delayed benefits from adopting the technology. That is the conclusion of a new report on RFID and the Electronic Product Code (EPC) from global management consulting firm A.T. Kearney.

      The analysis was conducted as retailers and manufacturers began to consider the costs and benefits associated with adopting the technology as mandated by retailer Wal-Mart and the U.S. Department of Defense.

      A.T. Kearney estimates retailers will see benefits in three primary areas:

      •Reduced inventory through a one-time cash savings estimated at 5 percent of total inventory.

      •An annual benefit from a reduction in store and warehouse labor expenses of 7.5 percent.

      •A reduction in out-of-stock items resulting in a recurring annual benefit of $700,000 per $1 billion in annual sales for retailers who reengineer their current shelf fulfillment processes.

      The cost of EPC and RFID adoption to retailers is estimated at $400,000 per distribution center and $100,000 per store, with an additional $35 to $40 million needed for systems integration across the entire organization.

      “While these are very significant amounts, the upside is that most of the costs to retailers are fixed,” said Dave Donnan, an A.T. Kearney vice president who conducted the analysis.  “The story for manufacturers, on the other hand, is quite different depending on the type of product they make.”

      Manufacturers will incur the same one-time charges for RFID readers and systems integration as retailers.  But they also ...

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