RFID the way to go, but not yet

Johannesburg, 10 Jun 2008

RFID is on the agenda of most large organisations, particularly in the retail and manufacturing sectors - but the time for practical implementation is not quite here. Best estimates for the large-scale take-up of RFID in South Africa are hovering around five years.

According to SAP Africa solution manager - for cross-industry solutions including supply chain management, Doug Hunter, the reasons for companies not going with RFID just yet, have less to do with cost of tags than they do with the difficulty of finding a valid business case with ROI better than bar codes and scanners.

There is significant cost, effort and discipline required to rearrange processes not only in warehouses and distribution centres - but also entire supply chains to make the case for RFID.

"The cost of tags is dropping monthly, so that's not really an issue any more. But tag readers are sensitive to certain environmental conditions as well as the orientation of the tags on individual items and pallets. So unless you're running a highly disciplined distribution centre in which goods or pallets travel only along specific routes with their tags placed in order to be read easily, and scanners setup at the right doors or "portals", you're either going to need a very large number of readers everywhere or you're going to have to redesign the distribution centre - to ensure products follow the controlled "routes" through scanners and not through open doors.

"Not that those sorts of things can't be overcome when the will is there. And, long-term, for the sake of reducing shrinkage, greater efficiency, stock visibility, and, consequently, a greater ability to improve customer service, RFID will be the way to go.

"Right now, though, organisations are bedding down other systems, including their enterprise resource planning (ERP) solutions, and warehouse and transport management systems that will give a quicker return on investment across a broader base of activities without RFID."

SAP South Africa, industry solution manager for retail and consumer products, Brandon Shaban agrees. "Most retailers, even quite small ones, have RFID in their strategies but technology generally has been a very recent focus for the retail industry. As a result, most retailers are still in the process of moving from best of breed or home-grown business solutions to off-the-shelf, one-stop-shop, pre-integrated solutions that give them end-to-end control of their businesses.

"Specifically, they're moving to solutions designed specifically for retail and that therefore include functionality such as replenishment, forecasting, and category management in addition to staples such as warehouse management and financials.

"Clearly, the primary focus in all of this is to enhance the consumer's experience - and RFID, with the high order of convenience it will add to shopping both behind the scenes and in the shop, has a significant role to play. But retailers understand that they must get the technology basics in place before adding specialised capabilities.

"They've also realised the importance of equipping themselves with solutions that are already RFID capable, so that when the time comes to adopt that technology, it will be a question of simply switching on the functionality rather than ripping and replacing, for instance, an entire ERP solution. So, retailers are turning to retail software vendors who are investing heavily in retail-focused research and development and, therefore, next-generation capabilities."

Hunter makes the point that for customer-facing organisations to implement RFID, all the other companies downstream in the supply chain, including third-party logistics providers, must also equip themselves with readers and tags. "That raises the question of who in the supply chain carries the greater cost and who gets the greater benefit from RFID. In the end, though, because they're the ones who are held responsible by the consumer or customer, it's the customer-facing organisations who will dictate RFID implementation to their suppliers."

Even with this, Hunter says, everyone needs to be up to speed with the pros and cons of RFID, just as software vendors like SAP have enabled their WMS and other systems ready for RFID. So when the business proposition makes sense, everyone is well down the learning curve already and the time to ROI is minimised.

Shaban says that most of the large retailers globally are indeed taking the lead on encouraging RFID usage in the supply chain. "Many are already gearing up to use RFID in their in-house distribution centres and warehouses, paving the way by example for more extensive use of RFID among their suppliers."


SAP is the world's leading provider of business software (*), offering applications and services that enable companies of all sizes and in more than 25 industries to become best-run businesses. With more than 47 800 customers (excludes customers from the acquisition of Business Objects) in over 120 countries, the company is listed on several exchanges, including the Frankfurt stock exchange and NYSE, under the symbol "SAP". (For more information, visit

(*) SAP defines business software as comprising enterprise resource planning and related applications.

Editorial contacts

Lerato Moeletsi
Ogilvy Public Relations
(011) 709 6843