How to build a business case for RFID

Radio Frequency Identification (RFID), which can be used to identify and track products as they move through the supply chain, is becoming increasingly important to managers who wish to increase the efficiency, and therefore the bottom line, of their companies. 

Companies that have deployed RFID to better manage their supply chain have yet to see any real documented ROI. Still, these same companies are finding value in the technology's capabilities.

So how can RFID and ERP work together to help your business? How do you get an honest evaluation? And if you decide to spring for RFID, what is the best approach? This guide gives a general overview of where to begin.

How to build a business case for RFID
Table of contents:
 

What is RFID?
RFID evaluation: Can RFID technology work for you?
Determining the benefits of RFID for your business
Selecting the right RFID software vendor for your business needs
SAP and RFID: Incorporating RFID in ERP software
What other companies are implementing RFID technology?
What factors are holding up RFID adoption?
How do I calculate ROI for RFID?
 

RFID (radio frequency identification) is a technology that uses microchips to identify an object, animal or person. The technology has been in use since the 1970s, although it is relatively new to the commercial market, as it was previously too expensive. There are many examples of RFID technology currently in use, including the EZ-Pass transponder in your vehicle.

RFID technology provides a more efficient way of identifying and tracking products as they move through the supply chain. The technology is becoming increasingly important to managers who want to increase the efficiency -- and therefore the bottom line -- of their companies. Specifically, as products make their way through the supply chain, the RFID chips automatically capture product data, which then becomes available in real time to other supply chain processes, such as Advanced Shipping Notice (ASN), stock management and billing.

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An increasing number of manufacturers and suppliers are choosing to incorporate RFID technology into their supply chain management (SCM) system -- either voluntarily or because they must comply with regulations from the U.S. Department of Defense, the Food and Drug Administration, or large retailers such as Wal-Mart.

"A lot of companies are looking at how to use RFID to improve their processes, which is a very, very complex thing to do," said Jeff Woods, an analyst with Stamford, Conn.-based Gartner Inc. "The processes themselves have already been optimized considerably, and so to go even further requires quite a bit of ingenuity."

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In the supply chain, RFID technology is like an advanced bar code system. But unlike bar codes, RFID chips can track individual products in an effort to prevent or reduce product loss -- whether from misplaced orders, theft, or human error -- as well as improve stock management. Once fully implemented, RFID applications can reduce labor costs, as they minimize the need for human interaction.

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There are infrastructure vendors, software vendors, and those who combine both, according to Woods.

IBM: Big Blue offers mainly infrastructure services for RFID for many industries, including: automotive, aerospace and defense, manufacturing, chemicals and petroleum, forest and paper and electronics. It has been working closely with standards groups to develop standards for privacy issues, RFID tags and readers. IBM works combines technology from partners with its WebSphere platform to manage data generated from RFID use.

Oracle: Oracle offers a Sensor Edge Server that is designed to integrate with Oracle Fusion Middleware 10g Release 3. It manages data from RFID tag readers, antennas, tags and printers. Oracle's Sensor Edge Server competes directly with SAP's Auto-ID program and also includes capabilities designed to manage data from various sensor-based systems.

Specialty RFID vendors:

T3Ci: T3Ci develops software that includes RFID analytics using EPC data as well as a suite of applications for retail suppliers, pharmaceutical companies, and major retailers. Applications include Out-of-Stock Management, Promotions Execution Management, Deductions Management, and Product Authentication. The software is sold as subscription services, software-as-a-service (SaaS), and enterprise software; it is hosted either at the vendor's secure site or behind the customer's firewall.

OatSystems Inc.: OatSystems calls its OAT Foundation Suite 4.5 an RFID data management platform that captures and filters raw RFID data and adds business context and consistency logic to create an accurate record of inventory and goods movement in supply chain operations. OatSystems' software suite contains analytics and reporting capabilities, as well as adapters to import EPC data. The company also sells software that provides a design environment to test RFID scenarios for a company's specific business processes.

TrueDemand Inc.: TrueDemand says it uses both point-of-sale and RFID data for analytics and reporting within its software suite. The software uses analytics to predict future orders and provide a mixture of promotion management, proactive analytics and replenishment capabilities.

In 2004, SAP rolled out its Auto-ID infrastructure, which mixes RFID technology with enterprise resource planning (ERP) applications. SAP has spent the last decade developing RFID technology in an effort to enhance its SCM software. In fact, SAP was the first to develop a complete RFID software package.

"SAP is certainly one of the innovators out there with the infrastructure that can deal with RFID," Woods said.

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Who else has tried implementing RFID technology, and how did it work for them? Implementing RFID can overhaul a company's business practices. For prescription drug maker Purdue Pharma, who incorporated RFID into its supply chain in 2003, it took months of experimenting to figure out the best way to place the microchips on its pill bottles. The drug manufacturer continues to assess how RFID technology is helping to reduce the number of stolen shipments.

Tyson Foods is another company that switched to RFID tracking to meet Wal-Mart's requirements. The food distributor determined that it wouldn't be financially viable to put an RFID tag on every box being shipped out of its centers. Instead, it uses a 'slap and ship' method, which allows companies to meet the minimum requirement.

"It's not difficult to become compliant," Woods said. "The bar for compliance is not that high."

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Investments in RFID technology are falling short of several corporate concerns. Most software and hardware vendors are rallying around the UHF Generation 2 specification, validated by EPC Global, the organization charged with commercializing the Electronic Product Code, (EPC). So far, there isn't enough adoption of high-frequency tags to make much of a difference, Woods said. While RFID tag prices were once considered a factor in holding up adoption, tag prices are always coming down and there are tag vendors who sell inexpensive tags, Woods said.

"The real issue is whether a vendor can sell inexpensive and sustainable tags that a company can rely on. So far that hasn't happened yet," Woods said.

While privacy issues are concerning, RFID security issues are more important, Woods said.

"We are currently looking at a lot of deployments that don't take enterprise-class security seriously," Woods said. "Security should be the primary concern. If deployments are not secured initially and security is not built in, then an RFID project could fail."

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So far, there hasn't been any clear documented case of ROI from a company that deployed RFID technology across its supply chain.

The cost of RFID technology depends on which method you choose to implement in your supply chain. For those who just want to meet RFID compliance, the price tag will be cheaper. Of course, the total cost increases for suppliers who wish to further invest in the technology's capabilities—cleaning and analyzing all the data that will be stored in the RFID chips, for example.

One estimate from Wal-Mart put the cost of RFID implementation at $50,000 to $100,000 per location for the software alone. A study from Forrester Research put the price tag at $9 million for a typical supplier. And yet a study from Yankee Group estimated $40 million to enable the technology through a manufacturer's supply chain.

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