1

Developing an RFID Business Case and Calculating the ROI

Harold BoeckYgal Bendavid

(UQAM, Academia RFID)

2

Your presenter

Harold Boeck

Professor at the UQAMCo-Founder & Academic Director of ACADEMIA RFIDBAA, MSc.A., Ph.D.

Harold Boeck

Ygal Bendavid

Preconference seminar Agenda“RFID in Warehouse & Inventory Mgt”

• 9:00 RFID Best Practices for Inventory Management• 10:00 Is RFID the Right Choice for Your Business?• 10:00 Is RFID the Right Choice for Your Business?• 11:00 How to Build Your Own Inventory-Management

RFID Portal• 13:00 Getting Your Project Started & Initiate Your RFID

Business Case• 13:30 Developing an RFID Business Case and

Calculating the ROICalculating the ROI• 14:15 Preconference Seminar Ends

3

Objective of the presentation• How to develop an RFID business case and justify

your investment (Qualitatively /Quantifiably)y ( y y)– Assess the financial impact (costs & benefits) of

your RFID project – Build a “Business case” based on the designed

"business" and technological scenarios– Monitor your performance

Start Your Business case!

Unlock the Business Case for RFID

RFID

4

Project follow up & Operations

Implementation

RFID Business Case in the Project life cycle•Measuring performance and continuous case assessment (TCO)

RFID BPR (To Be)

POC & PilotDesign

development

•Business cases & scenarios sensitivity analysis based on different

•Revision of the Business case: Assess realistic financial impact based on experimentation (Lab & pilot) & Procurement process

Project Frontend

Project definition& Planning

RFID BPR (As-Is)

Source: Ygal Bendavid, Academia RFID, RFID PRO 2010

•High level Business case / value

analysis based on different designs

Methods & tools for ROI analysisExplored on “Is RFID the Right Choice for Your Business?”

5

Quantifying the opportunities/ problemsClassic - Costs of inventory

• Carrying Costs– Facility storage

t d i ti h t

• Ordering costs– Replenishment ($/order)

• rent, depreciation, power, heat, cooling, lighting, security, taxes, insurances, etc.

– Material handling • Equipment

– Labor– Record Keeping– Borrowing to purchase

inventory

p ( )– Requisition, PO, transportation,

shipping, receiving, handling, accounting, auditing, etc.

• Shortage costs– Stockouts costs – loss of sales

& relaitve loss of profits– Customer dissatisfaction

inventory– Product deterioration

• Spoilage, breakage, obsolescence,…

– Reputations…

Quantifying the opportunities/ problems

The strategic profit model with financial data for ABC Company

Source: Source : Lambert D. and Stock J (2001). Strategic Logistics Management, chap 5. Financial Impact of Inventory

6

Quantifying the opportunities/ problemslinking the business case to the Project Goals

Increase Operating

Reduced retailer claims (overages/ shortages)Reduced labor costs (e.g. receiving,

t i ki hi i

…p g

efficiency

Increase Capital

EfficiencyShareholder

Value

Reduce Operating Costs

Reduce Working Capital

put away, picking, shipping, assembling, reworking…)

Reduced inventory Reduction in returns/ unsaleableIncreased in asset utilization

Improved on-shelf availabilityReduced counterfeitingImproved customization options

Increase RevenueIncrease Market

Share

Source: Adapted from GS1 Canada, 2007 & IBM & EPC Global

Increase Volume Increase …

Improved customization options… Share

Improved promotional planning and executionImproved shrink management

Cost impacts & ROI Analysis Operations/business process performance assessment

Enterprise Management processes

Core Business Processes

Source material

& services

MakeAssemblematerial

& services

Core Business Processes

Supply chain management

PlanMaterial & services

ReturnDispose Material

& services

Product Life cycle management

Deliver material

& services

Source: Bendavid, 2007– adapted from Aris Toolset

.. .. .. ..

Customer services

7

Data analysis & Sol. DevelopmentAn example – to assess the “As Is” performance

ManufacturerActivities

Assembling

DistributorsActivities

Storage & distribution

RetailersActivities

Storage & distribution

Other SCMmember

Planning

Deliver

Sourcing

Unload products Employee A

Products Unloaded

Verify BOL vs.delivered products

OK

Employee A

BOL

SignedBOL

Mismatch

•On time parts delivery percentage•% of receipt authorized by PO•% of orders released with full lead time

Supplier sys.

ERP

OK

Enter data to compareWith the PO

electronicdata

Mismatch

Source: Ygal Bendavid, MET 4261 Gestion des operations, UQAM

•Put away accuracy•Put away cycle time•Average picking time•Etc.

Other SCMmember

Data analysis & Sol. DevelopmentAn example – Design & assess the "business" and technological scenarios

Unload products Employee A

ManufacturerActivities

Assembling

DistributorsActivities

Storage & distribution

RetailersActivities

Storage & distributionUnload products Employee A

Products Unloaded

Automatically Read RFID&EPC tags

Tags Automatically

RFID&EPCdata

Reader

Tags

Planning

Deliver

Sourcing

•For any business case, ‘‘measures and metrics are needed to test and reveal the viability of strategies without which a clear di ti f i t d li ti

•Yet, “Performance measurement continues to present a challenge to operations managers as ell as

Middleware

ERP/WMS

Read

Automatically Transfer

Info. Into ERP

RFID&EPCdata

Source: Ygal Bendavid, MET 4261 Gestion des operations, UQAM

direction for improvement and realization of goals would be highly difficult’’ Gunasekaran and Ngai (2005), JOM 23(5):423–451

operations managers as well as researchers’’ Melnyk et al. (2004) JOM 22:209–217

8

Data analysis & Sol. DevelopmentKPIs for RFID impact assessment

Benefits. How will your company benefit from RFID-driven visibility across the supply chain?C t H ill b th i h d t d

On time parts delivery percentagePercentage of receipt authorized by POPercentage of orders released with full lead timePut away accuracyPut away cycle timeAverage picking timeShipping accuracy

Costs. How will your company pay, both in hard costs and resources, for RFID-driven visibility? Source: 2008, Forrester Research

•What are your Priorities?

•How RFID can help you inShipping accuracy

Inventory availabilityAverage back order lengthInventory accuracyInventory turnoverObsolete inventory percentage

Source: Adapted from Bragg S. (2004), Inventory best practices

help you in addressing these challenges and opportunities

Data analysis & Sol. DevelopmentAn example – Scenarios Impact analysis & trade-off

Unload products Employee A

Products Unloaded

Automatically Read RFID&EPC tags

Middleware

Tags Automatically

RFID&EPCdata

Reader

Tags

Middleware

ERP

Read

Automatically Transfer

Info. Into ERP

RFID&EPCdata

9

Data analysis & Sol. Development(Extended) Impact analysis & trade-off/ Sensitivity Analysis

• RFID Technologies– RFID tags & sensors– RFID readers &

Antennas

RFID Technologies

Antennas– RFID printers & appli.– RFID Middleware

• Wireless Network– WLAN to WWAN– Wi-fi, Zegbee…

• Enterprise Information Systems

– ERP, WMS, LES, MES

Wireless Technologies

E-Commerce Technologies

20Source: Bendavid, Academia RFID – RFID PRO 2008

ERP, WMS, LES, MES– PRM, SCM, PLM

• E-Commerce Techno.– Private IOS– Electronic market places

Enterprise InformationSystems

Project/Infrastructure Cost AnalysisCost of RFID project (1 of 2)

Project PreparationOpportunity AssessmentBusiness Case DevelopmentRFID Strategy Development

RFID Infrastructure (hardware)RFID Tags (Pallet, case, item, medical devices, staff, patients…)Readers and AntennasRFID Strategy Development

Use Case GenerationProcurement Management (planning and sourcing)Solution Architecture DevelopmentSystem Integration AssessmentBusiness Process AssessmentExperimentation/Testing (validation of the business case)

Readers and AntennasMounting AccessoriesRFID printers and label ApplicatorsAncillary devices (motions sensors, horns, lights, …)Other Infrastructure Costs (new servers and computers, infrastructure upgrade, additional points based on required location accuracy)

21

Installation CostsInitial Site SurveyDesign selectionHardware installationTesting and trouble shoot…

Source: Adapted from EPC Global

10

Project/Infrastructure Cost AnalysisCost of RFID project (2 of 2)

Other expensesPhysical Shop floor/warehouse Modification/Expense

RFID Software CostsRFID Middleware SolutionMiddleware System Integration (with WMS, ERP, Track& trace sol.)

Other labor related to RFID adoption:requirement for new resources: e.g. business analystsTraining for all employees including workers (shop floor clerks, security…)

WMS, ERP, Track& trace sol.)Interface CustomizationEngineering/Business Process Change including Implementation of New business processesNew Information flow, Staff & patient flow…

Ongoing System Maintenance/Admin.

22

Network Management SystemReader Firmware Upgrades Damaged Readers/AntennasPerformance MonitoringEtc.

Source: Adapted from EPC Global

Project Preparation

RFID Tags4 Assess the

Financial RFID Hardware

Other infrastructure costs

Installation costs

Tag Application Costs (labor)

Impact: RFID cost: Building a

simple tool

Tag Application Costs (labor)RFID Software CostsBusiness Process ChangePhysical Plant ModificationOngoing System Maintenance/Admin.Misc. CostsEtc.

Source: EPC Global Canada

11

Developing an RFID Business Case and Calculating the ROI

S l h i f kSupply chain frameworks to assess the performance

Data analysis & Sol. DevelopmentSupply chain frameworks to assess the performance

http://supply-chain.org/

12

Data analysis & Sol. DevelopmentSupply chain frameworks to assess the performance

• The SCOR model includes metrics that areThe SCOR model includes metrics that are classified into:– strategic, tactical and operational. – These metrics are also distinguished as financial and

non-financial, so that suitable costing methods based on activities can be applied.

• Selected metrics have to be used at the five basic links that constitute the supply chain namely planlinks that constitute the supply chain, namely plan, source, make, deliver and return

See for instance: www.supply-chain.org/ or www.gsb.stanford.edu/scforum/

Data analysis & Sol. DevelopmentSupply chain frameworks to assess the performance

• Some Reference ModelS l Ch i O ti– Supply Chain Operation Reference Model (SCOR)(Supply chain Council, 2007 )

– Global Supply Chain Forum(Lambert et al., 2005 )

– Balanced ScoreCard (Kaplan

27

et Norton,1992 )

See for instance the SCOR model on http://supply-chain.org/

13

Data analysis & Sol. DevelopmentPerformance measures and RFID impact assessment

Horizontal KPIs (Collective performance optimization)reliability (e.g. quality of deliveries), responsiveness to urgent deliveries, (e.g. order fulfillment lead time); flexibility (e.g. Supply chain response time); asset management efficiency (e.g. cash-to-cash cycle time)

1st

leve

l KPI

s

Vertical KPIse.g. days of inventory, inventory carrying cost (raw material in storage

capacity utilization,forecast accuracy,

frequency and qualityof delivery, etc.

Vertical KPIse.g. days of

inventory, inventory carrying cost;

replenishment cycle time, purchase order

cycle, put away cycle time, …

Vertical KPIs e.g. replenishment

cycle time, inventory carrying cost, product availability, OOS, etc.

Vertical KPIs e.g. XXX.

Manufacturer Distributors Retailers

“manufacturers, distributors, and retailers have markedly different perspectives — as well as mutual dependence — on the value from the RFID-enabled visibility. These varying perspectives can make the financial outlook of each organization’s individual costs, benefits, and risks very blurry”. (Forrester, 2008)

Supply chain members

ManufacturerActivities

Assembling

DistributorsActivities

Storage & distribution

RetailersActivities

Storage & distribution

XXX

[1] The ROI Of RFID For Supply Chain Visibility, by Roy C. Wildeman and Patrick M. Connaughton for Business Process & Applications Professionals, July 18, 2008

Data analysis & Sol. DevelopmentKPIs for RFID impact assessment: A case

• The case of American Apparel

Source: ABI Research RFID Item-Level Tagging in Fashion Apparel and Footwear

14

Data analysis & Sol. DevelopmentUsing RFID Maturity Framework

AREA ACTION Assessment Criteria

Process

Organisation

Knowledge

Technology

Performance

Aberdeen Group, Winning RFID Strategies for 2008

Conclusion• An RFID business case

h ld b li ishould be a living, breathing document

• Continuous RFID developments (↓price, ↑performance)

– “ Implementing RFID is just the start… ”

Source: GS1 Canada

15

Preconference seminar Agenda“RFID in Warehouse & Inventory Mgt”

• 9:00 RFID Best Practices for Inventory Management• 10:00 Is RFID the Right Choice for Your Business?• 10:00 Is RFID the Right Choice for Your Business?• 11:00 How to Build Your Own Inventory-Management

RFID Portal• 13:00 Getting Your Project Started & Initiate Your RFID

Business Case• 13:30 Developing an RFID Business Case and Calculating

the ROIthe ROI• 14:15 Preconference Seminar Ends

Thank you!Harold BoeckHaroldBoeck@HaroldBoeck.com@

Ygal Bendavid YBendavid@RFIDacademia.com

UQAM, Management & technology Department, School of business315 Ste-Catherine est Local R-3570

Academia RFID9916 Côte de liesse,Montréal QC Canada315 Ste-Catherine est Local R-3570

Montréal (Québec) Canada H2X 3X2Tel: 514-987 3000 (x 2429)Web site: www.mantech.uqam.ca

Montréal QC CanadaH8T 1A1Tel: 514 631 8282 – Fax: 631 9696Web site: http://www.rfidacademia.com

16