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Building the Business Case
To achieve a return on investment in RFID, companies need to have different departments work together to solve the many minor, low-level problems that contribute to a big issue, such as excess inventory. Here’s how to build a bottom-up business case.
Another way to define a project is by a particular area of operations—for example, within the manufacturing facility or at the warehouse and beyond. This might make sense for manufacturers that are required to tag goods for their customers. But in general, limiting the use of RFID to a particular area of operations limits the potential benefits that can be achieved.
It’s also important to narrow the scope of a project in terms of the level of tagging (pallet, case or item). In most cases, the cost of a project rises as you move from pallet- to case- to item-level tagging because the tags represent a more significant cost. At the same time, the benefits tend to increase as you move toward item-level tagging. So it’s a question of determining what benefits can be achieved and at what cost.
5. Analyze operations and processes.
Next, the team needs to itemize the business processes associated with the macro-level issue. Here’s where the ROI will be revealed. “When you start quantifying processes, the potential savings often become very clear,” says Duncan McCollum, a principal focused on auto-identification technologies with the supply chain practice of Computer Sciences Corp. (CSC), an El Segundo, Calif.–based IT consulting and outsourcing company. “How much labor is required to manage an asset or certain goods? If you’re using labor to search for goods in your D.C., you can use RFID to set up hot zones or choke points so you know the product has moved to a particular area. That cuts costs right away.”
Companies are often not as efficient as CEOs think. More than 80 percent of 885 midsize companies surveyed by ChainLink Research said administration had to intervene at least once to complete a customer order. The number of interventions in the warehouse was far higher.
If less-than-perfect shipments to stores contribute to out-of-stocks, examine how orders are handled. What percentage comes in by fax (and therefore has to be processed manually)? What percentage has errors that must be resolved manually? How long does it take to fill an order?
Break down all the processes related to a macro-level problem, not just the ones where there are clearly inefficiencies. Some companies avoid looking at potential applications, because they don’t have a glaring problem in a particular area. But by itemizing the processes, they may learn that some steps can be eliminated through RFID tracking. For instance, companies might be able to eliminate cycle counts or redeploy warehouse employees who do nothing but count boxes.
6. Prioritize projects.
After breaking down all the processes, the cross-functional team will likely have a list of five to seven projects where RFID can help solve micro-level issues that contribute to a macro-level problem, and another three to five projects that could cut costs or boost efficiencies associated with the same macro-level problem. It would be difficult and costly to try to tackle them all at once, so companies need to prioritize these projects.
BearingPoint, a McLean, Va.–based management consulting and systems integration company, has come up with a four-quadrant grid that it uses to evaluate potential projects. The X-axis shows the complexity, effort and risk involved in a project, from least to most complex. The Y-axis shows how central a project is to optimizing a company’s supply chain. This approach can be used to prioritize projects that can resolve micro-level issues and lead to achieving the macro-level goal.
Place all of the potential projects on the grid. Consider whether the same RFID infrastructure can be used for more than one project. For instance, can readers installed at choke points be used to help reduce theft as well as improve inventory accuracy and reduce cycle counts?
Related projects that are easiest to achieve and do the most to advance the macro-level goal are the ones you should do first. These projects are the most likely to deliver an ROI, and they will also give the cross-functional team the experience they will need to tackle more difficult implementations.
7. Assess the financial impact.
RFID is an enabling technology that must be coupled with other technologies and process changes to deliver benefits. So quantifying the benefits of an RFID system is difficult. And it’s even harder when that technology is immature, and standards and equipment costs are changing rapidly. But it can be done.
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