A VC in Vacationland

Two investment areas interest me in the RFID space at present: software applications development and RFID related consulting:

• Applications attract me because they provide the underlying analysis, optimization and management capabilities needed to organize high frequency RFID/EPC data into useful business tools.
• Consulting interests me because business process redesign, implementation and maintenance to accommodate use of RFID/EPC data and applications are critical to driving ROI creations by businesses.

From an applications perspective, TrueDemand is an example of a start-up in an RFID sweet spot–using RFID and EPC data to do real time forecasting, planning and management in one of the "last frontiers" in supply chain management–executing against optimal in-stock position from retail store delivery to the store shelf.  TrueDemand is developing applications which allow manufacturers and retailers in the CPG space to optimize sales for both promotional and everyday items by ensuring that the right amount of product is on the shelves, in the right stores and at the right time of day. The TrueDemand solution includes a priori messaging to key in-store employees to remind them of impending stock outs on the shelves, or to get promotional items out of the back room and into displays to meet ad drop deadlines.  If execution deadlines are near failure time, additional messages can be sent before actions are overdue to supervisors as well as manufacturer representatives to help them correct the situations so that stock outs do not occur.

From a consulting perspective, xterprise is attractive as an investment because they are creating innovative solutions which use all the new RFID technologies and software to drive value creation in clients.  RFID is a technology that is changing the rules in supply chain management.  Xterprise is creating new processes(such as unattended receipt of goods, providing visibility into inventory in segments of a supply chain, providing real-time measurement of planned and unplanned supply chain events).  The new processes provide opportunities to drive efficiencies both in operations and in inventory management(for example, reducing labor to run a cross dock, and automating order-to-shipment quality checks and balances.  These new RFID supply chain execution applications will sit right under the existing enterprise systems and require a high level of adaptability for each client’s environment, making them excellent candidates for high-margin consulting engagements.

Why is RFID hardware off the list?  At the moment, there are two reasons: major players such as Savi and AlienTechnology control much of the tag/reader market, and numerous tag start-ups with competing technologies and unproven track records.  Significant field tests are required to find out which technologies perform best in a variety of real world situations.  Early adopters, such as Wal-Mart, are engaged in the pilot testing now, and the results are not particularly encouraging, with read rates still below acceptable levels. Major corporate wide rollouts are still years away, making big hardware purchases unlikely over the next two years.