Jul 16, 2007More than a third of the businesses using RFID are doing so to improve the cost, safety and reliability of managing work-in-process (WIP), according to a study released by the Aberdeen Group, a market research and consulting firm. But most companies are finding it difficult to quantify, or even estimate, a return on investment from their RFID deployments. Nonetheless, Aberdeen concludes, for manufacturers and other process-intensive companies that follow "best-in-class" practices, RFID technology can reduce labor costs and improve production throughput.
The study included an online survey and follow-up phone interviews with CIOs or other chief officers (29 percent), VPs or directors (27 percent), managers (22 percent) and staff members or consultants (22 percent) from 220 companies in a diverse set of industries. These firms are using, or planning to use, RFID to manage assets with a focus on WIP. Aberdeen conducted the survey in April and May of this year.
The greatest number of respondents (28 percent) worked for manufacturing and assembly companies, with supply-chain companies accounting for 21 percent. Nine percent worked for health-care, automotive, energy or utilities firms, and the remaining 5 percent included retail, construction/engineering, aerospace and entertainment companies.
The expectation that RFID will help improve a company's bottom line is high: 93 percent of survey respondents said they expect the technology to help reduce the costs of doing business. And 72 percent said the first order of business in optimizing work-in-process is to determine how many items involved in the WIP are on hand, and that RFID can help them collect that information. Managing assets and WIP were cited as the top two pressures driving RFID use (both came in at 57 percent), while managing raw materials ranked third at 41 percent.
Underwritten by RFID technology providers Acsis, Domino Integrated Solutions Group, Reva Systems and TrenStar, the report can be downloaded free from Aberdeen's Web site. Entitled "Where's My Stuff?!," the study was designed to illustrate best practices of RFID applications for managing WIP. Russ Klein, Aberdeen's VP and senior analyst, says RFID's key contribution to improving WIP is that it provides visibility. "Specifically," he states, "you can identify the condition, quantity, movement and movement history of anything without necessarily having line of sight. What that does is allow a much more streamlined automated process."
Aberdeen used key performance indicators (KPIs) to characterize three groups of companies—best-in-class, industry average or laggard—for which the respondents worked. KPIs are quantifiable measurements based on data used to indicate how well a business process or business line is performing.
The characteristics to determine which companies fit into which group were broken into five categories: the ability to adapt existing processes to take advantage of the visibility offered by RFID; a willingness and ability to understand, use and manage RFID-enabled processes; the ability to learn from the collected data and leverage that knowledge to inform key stakeholders; the ability to learn to select and intelligently deploy the appropriate tools; and the ability to measure the benefits of technology deployment—and use the results to further improve key business processes.
Aberdeen categorizes the various respondents, Klein says, to educate companies about best practices. "In the case of emerging technologies, most haven't adopted the technology yet. We want to provide a roadmap, a guideline and some examples of companies that are doing what others are thinking about doing, and doing it very well, so others don't have to make mistakes."
Among the best-in-class companies (which represented 20 percent of the respondents), all reported being able to reduce the incidence of process failure by at least 20 percent through the use of RFID. What's more, all said they were able to improve process throughput by at least 10 percent.
According to Klein, the ways in which companies have used RFID to reduce failures vary, depending on the specific business process and industry. In some cases, for instance, the firms have leveraged RFID to ensure they've set up their production machinery correctly, to avoid costly mistakes. Others have cut packaging errors by making sure boxes have the right products in them before shipping them out. "This is how exceptions are reduced," he says. "And for throughput improvements, many of the same concepts apply."
A large majority (81 percent) of the best-in-class companies reported that RFID has saved them at least 15 percent in labor used to manage work-in-process. Nonetheless, even best-in-class organizations are still struggling to find a return on investment (ROI) in RFID. Only a few respondents indicated their companies had already attained a positive ROI from their deployments, with just 43 percent of the best-in-class firms able to estimate the time it would take to achieve a positive ROI. Furthermore, only 27 percent of industry-average companies, and 9 percent of laggards, could estimate the time to attaining a positive ROI. One half of the respondents were characterized as industry average, 30 percent as laggards.
Several factors make it difficult to achieve and measure an ROI. Most significantly, Klein notes, it can take a long time to integrate RFID with enterprise systems, which is critical to maximizing the payback from an RFID deployment. "It is not something that you can do all at once, in a single project," he says, "so the duration of the overall project is often beyond the horizon for the IT department." Additionally, it is often difficult to quantify the improvements RFID makes, and many companies do not have any pre-RFID benchmarks against which they can measure their returns. "All they can do," Klein says, "is guess."
