The Cost of a Recall
Few companies factor into their ROI calculations what RFID could save them during a recall. Perhaps they should.
By Mark Roberti
Tags: Food/Agriculture, Retail, Supply Chain
Last week, the U.S. Department of Agriculture's Food Safety and Inspection Service announced that Arizona-based meat producer JBS Tolleson was recalling approximately 6.5 million pounds of "various raw, non-intact beef products" due to an outbreak of salmonella. The service found that JBS beef was the source of 57 cases of salmonella illness throughout 16 states between Aug. 5 and Sept. 6 of this year (see 6.5 Million Pounds of Beef Recalled Due to Salmonella Outbreak).
The reason so much beef had to be recalled, I believe, is that there would be no way to determine which products had been contaminated if the company conducted a more limited recall effort, and thus no way to be sure that all possible contaminated beef was removed from shelves. Of course, it might very well have been feasible to do that had a radio frequency identification tracking system been in place.
Companies rarely, if ever, include the potential savings during a recall when calculating the return on investment (ROI) they could achieve from deploying an RFID system. That's because they assume (or hope) they will never have a major recall. But perhaps businesses, particularly those in the food and pharmaceutical industries, should consider the potential benefits, instead of dismissing RFID outright as too expensive.
If you assume the cost of the beef JBS recalled was $3 a pound at retail, that means the company lost $18 million due to the salmonella outbreak. Add in the expense of logistics and overtime for workers, and the cost may have topped $20 million. The company might also lose business from customers concerned about another outbreak.
An RFID solution might have cost $1 million to $2 million to install (that's a guess, as I don't know how many facilities the firm operates, or what its business processes are). There might be an ongoing cost of $200,000 a year for tags. That's expensive, but if the company were able to recall a third less beef because it had the ability to trace the source of the bad beef and thus only recall tainted products, it might have saved $10 million or more of the $20 million recall cost.
I would not advocate investing in an RFID solution solely to manage a potential recall. But RFID could substantially save a meat producer operational costs on an ongoing basis, and would likely deliver an ROI within a span of two or three years. When you factor in the additional potential benefits during a recall, investing in an RFID system seems like a no-brainer.
Mark Roberti is the founder and editor of RFID Journal.
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