Determining Justification for Rfid Technology

Running Head DETERMINING JUSTIFICATION FOR RFID TECHNOLOGY Determining Justification for RFID Technology Bahram Izadi, Master school-age child of condescension Management, University of Isfahan, Isfahan, Iran and John Boyd, BASc, Computer Engineering, University of Ottawa, Ottawa, Canada Abstract What arethebenefits? is acommon enquiry for every memorial tablet considering implementing a new engineering science. This is an oddly important questionfor small or develop companies, where an error ininvestment couldresult in unrecoverableoperating capital loss.As Radio Frequency assignment (RFID) systems are makingdeep and impressiveim turn upments in manufacturing, distri furtherion, and supply chain management and military logistics, it is clock to considerthequantifiable financial and usable benefitsof RFID inan organizations competitive strategic plans. This article ordain review the benefits of RFID instruction execution against its costs, and demonstratehow the introduct ion of an RFID system can reduce production, distri hardlyion, and warehousing costs, while increasethe operational force of an organization.Through financial metrics, pry equations, and numericalanalysis this articlewill demonstratehowRFID implementationcan improve not only anorganizations layabout stage backup, but similarlyintangible benefits such as internal focus, industryleadership, and differentiation from its competitors. A sample wrinkle case study will be presented to demonstrate to the lecturer valuable insight to both real-world advantages and limitations associated with RFID adoption. 1. Introduction The focus of this paper is how to develop an RFID strategic plan to quantify RFID justification by dint of kick the bucket on investment (ROI).RFID offers strategic advantages for businesses, private or state organizations because it can improve efficiency, cost savings, and yield greater resultsin virtually all areas of business processes and operations. However due to the complexity associated with an RFID system, its uncertain proven capabilities, and high costs of implementation, it is crucial to create solid a business case and justification in terms of ROI, either quantifiable or intangible, which offer the greatest benefit to the lodge. 2. Background What is RFID?Radio frequency identification, or RFID, is a wireless automatic information collection technology which uses electronic tags for data storage. An RFID system consists of an RFID tag, a reader/writer unit with antenna, and a computer, as demon in Figure 1. pic Figure 1 RFID System The reader/writer emits radio signals from its antenna to power the tag, and can read or write data to the tag without a direct line of site. Reader/writer units are available in various shapes and sizes depending on requirement or application.Similarly RFID tags are available to suit most any application or environment from unobtrusive paper thin tags suitable for traditional barcode applicat ions, to large heavy-duty brick sized tags to track heavy machinery. The computer or middleware allows communication between the RFID hardware and system applications. 3. RFID Benefits and be RFID offers strategic advantages for businesses because it can improve productivity, efficiency, cost savings, and yield greater returns in virtually all areas of business operations.As an example, Air Canada was losing $2 million USD worth of food carts per year. This initial problem of asset introduce resulted in the deployment of RFID systems which yielded a 2% reduction in total inventory, 5% reduction in maintenance costs, 20% to 50% in trucking charges, 80% reduction in shrinkage, 100% reduction in costs for auditing yearly inventory counts and ROI within 18 months. Internet, 4 In general some of the main advantages of RFID usage are Reduced warehouse and dispersal hollow costs due to increased data automation Reduced inventory by omitting inventory errors Improved forecasting and p lanning due to improvements in profile of supply chain Reduced theft by tracking the products point to pint Reduced out-of stock conditions via better RFID product tracking RFID is used for everything from tracking cows and pets to triggering equipment down oil healthys. The most common applications are payment systems, toll collection systems, access control, track people, assets and products without the need for human intervention or direct line of site. Internet, 5 All of the applications listed have been deployed because they haven proven ROI. . RFID Costs When considering RFID costs a party essential consider the total cost of self-will rather than just the initial RFID hardware and tags costs. A complete RFID system includes not only hardware infrastructure, but also service such as design, development, deployment, maintenance, ongoing support, and training. Also to consider are the future costs as the system is scaled beyond its initial pilot or trial phase. Costs shou ld also be associated with restructuring or introducing new business practices. 5. Creating Justification for RFIDThe authorisation applications and benefits of RFID are only constrained by a companys level of innovation. However, before rushing to adopt RFID technology a company can ensure the greatest rate of return and success by having in buns a comprehensive strategic plan which quantifies all encompassing aspects of RFID including technology and business processes in exhibition to deliver its benefits for maximum grade. In separate to loose the costs of an RFID system it is vital a companies RFID strategic plan contains quantifiablemetrics assigned to care fors of each area which RFID contacts.Therefore when a company does decide to implement RFID, such a strategic plan will allow them to proceed confidently to their strategic objective while ensuring the maximum potential value areas are achieved. By contrast a poor RFID strategic plan without careful and insightful s tudy, risks to dilute the focus and resources of the business and may prove to be detrimental and wasteful, instead of beneficial. Each RFID deployment will have its unique application varying with the application of the company and the companys goals so there is no single ROI or total cost of ownership criteria for RFID.On the other hand, ROI in many cases is not only found financially but also in intangible factors. For example a dispersal center may place value on increasing efficiency doneput in order to save money on labor and reduced shipping errors, where a hospital or healthcare center would place value on increasing visibility of surgical equipment so to have a better chance to save a persons life due to increased response time scotch cost would not be so much as a constraint in this case, but rather the service is of more importance than at once financial justification. . Creating a RFID strategic plan to determine ROI justification As previously mentioned, there are often uncertainties and reservations when an organization first considers introducing RFID, such as concern of high price or hesitation at the risks of being an early adopter and risking mistakes and learning costs. This is usual behavior in small companies and especially in developing countries wherean error ininvestment couldresult inunrecoverableoperating capital loss.To overcome this uncertainty and to proceed confidently with the company-wide adoption of RFID deployment, a plan must(prenominal) include strategic thinking and financial justification. Sweeney, Patrick J II, Chapter 16 By thinking strategically, we uncover the hard data and information that enables members of organization to make informed decisions and to communicate the rationale of RFID deployment effectively. Performing an ROI study on RFID will allow a company to become reacquainted with current business processes and to mention opportunities for optimization (if RFID is decided to be used or not. Through analysis and calculations, in this process we examine every RFID abnormal area and assign to them associated value metrics in terms of quantifiable or intangible returns. However in order to obtain the information and data necessary to perform ROI calculations and value equations it is necessary to create a solid and detailed rich strategic plan comprised of but not limited to the following sections, Figure 2. pic Figure 2 Involved Steps of an RFID Strategic Plan 6. 1 Form Business TeamSince an RFID implementation will affect business process as well as technological change, it is beneficial that the business team up includes internal management personnel capable of RFID analysis from all related functional departments. Internal team members, working closely together with external experts and consultants, will be able to offer valuable procedural insight to the development and design of an RFID system. 6. 2 ascertain Scope and Assumptions A strategic plan should clearly define ho w RFID will affect the business and define key elements of RFID operation.A clear understanding of affected processes, departments, and areas of coverage, is essential. Assumptions are necessary to ensure a common understanding of how the RFID system will be implemented and what processes will be affected. 6. 3 Identify Strategic and Economic Benefits Benefits represent one of the most important factors in building an RFID business case. To determine justification and feasibility of an RFID system a company must summarize its expected strategic impacts and quantifiable benefits obtained through more efficient RFID enabled processes.Since strategic or intangible benefits can not be easily quantified, it is important for the company to articulate why an RFID introduction is important to business and have a clear understanding of its associated value. This is especially important for companies which place value on product or data visibility. Examples of strategic benefits include inter nal focus, industryleadership, and differentiation from its competitors, and product visibility. Quantifiable economical benefits can be tested through metrics and measured with calculations.Quantifiable benefits will vary with industry and RFID application but will generally be attributed to time or process improvements through automation and improved efficiency. 6. 4 Develop Business Process Models Process modeling consists of creating business-flow diagrams and use-cases to determine and quantify how RFID will impact those processes and associated applications. Adoption of RFID technology will most likely create new additional processing steps, and therefore modified business use cases will be introduced to reflect optimized RFID use.Some crampfish processes tycoon get streamlined and thus provide efficiency gains, whereas some other sub processes might need to include additional processing steps, which might impact their efficiency rates. The use cases associated with the impa cted and newly introduced processes can then be analyzed for benefit Lahiri, Sandip, Chapter 8. 6. 5 Determine Costs When considering ROI, one must consider the total cost of ownership rather than just the initial RFID hardware and tags costs.A complete RFID system includes not only hardware infrastructure, but also service such as design, development, deployment, maintenance, ongoing support, and training. Also to consider are the future costs as the system is scaled beyond its initial pilot or trial phase. Costs should also be associated with restructuring or introducing new business practices. 6. 6 Create an Implementation Road Map An implementation roadmap breaks up the complete RFID solution into a series of objective milestones within set time-frames.The main tasks involved in completing this step are developing a scale of implementation from trial or pilot stages to full deployment, and assigning associated metrics of costs and benefits with each stage of milestone. 6. 7 Crea te Business Case Finally all information should be compiled to form a business case. Each benefit should be associated with a level of impact and time to realization. The level of impact takes three factors into account whether a benefit generates revenue, mitigates risk, or reduces cost.We may assign low-impact to benefits that meet one factor and high-impact to benefits that meet dickens or more factors. Time frame is a time period in which the business will see benefit. Short term could be one to two years and long term three to five years. It is difficult to forecast beyond five years. 7. Criteria and Justification Metrics to Justify ROI In order to excuse the costs an RFID system it is vital a company complete RFID strategic plan contains quantifiablemetrics assigned to values of each area RFID impacts on including procedures and personnel to ensureRFID investments yield the greatestrate of return.Through study numerical analysis value equations and modeling, thevalue of vari ous RFID systems can be make apparent and determined to be financially feasible orcost prohibitive. It is important to present a cost benefit analysis in order to justify the investment in an RFID system and establish a clear ROI. Upon the closedown of the strategic plan, the quantified figures and resultant findings can be processed through value equations to justify and determine feasibility of an RFID system.However, ROI in many cases is not only found financially but also through intangible factors. In this case, VOI (Value of enthronement) should also be considered. Value of Investment is much more holistic approach to the benefits delivered and includes, next to the hard costs figures, the soft and difficult to measure benefits such as improved quality, staff moral and service perception, and customer loyalty. 8. Sample of RFID Justification through Case Study 8. 1 IntroductionThis example will show the Return on Investment (ROI) of an RFID solution for a company which sends shipments from its manufacturing plant to its distribution center. The system will be closed loop which means that the tags and their data will be limited to internal company use and will not be used beyond the limited area of distribution center. RFID technology will be used to help automate the transfer process. The overall objectives are Demonstrate how RFID technology may be utilized to improve the efficiency of the transfer of shipments. Demonstrate a case which is justifiable in cost due to positive ROI analysis. 8. 2 Background A companys distribution center is plagued by errors and inefficiencies when receiving shipments from the manufacturing plant. Especially problematic areas are delay in receiving palettes and loss of pallettes to be returned. 8. 3 Assigning Metrics to Processes Estimation time to extent (ETC) of items entering the distribution center, without and with RFID is described as in Table1. No. Process ETC Process with RFID ETC with RFID - - - Precondition RFID tags are0 sec affixed to pallets and individual items at the manufacturing plant. 1 Personnel scans barcode on pallet30 sec pallet is placed in RFID 5 sec to soundate order and manually reader portal and scanned compares to expected manifest along with all contained list. items.Order is checked automatically. 2 If pallet is valid expected 3 min If pallet is valid but found3 min personnel enters pallet as to have exception it is get and breaks open the broken own, all items are pallet automatically scanned and noted, and extra item is brought to return area. 3 Else pallet is disable it is 4 min Else pallet is invalid it is4 min moved to return area. moved to return area. 4 Personnel scans all individual 6 min - - bar-coded items to validate the pallet contains all ordered items 5 If item is invalid personnel 2 min per item - - manually notes this and places item in return section. 6 Else item is valid and is placed 6 seconds per itemElse pallet valid and all 1 min into real area to be moved contained items are present, into inventory section. (Pallet entire pallet is placed in contains 20 individual items. ) received area to be moved to inventory. Time to unload a pallet with no 11min, 30sec - 1min, 5sec invalid items Table 1 Estimated time to completion to process pallet at distribution center From Table 1, the estimated completion times (ETC) of Time to unload a pallet with no invalid items is 11min, 30sec without RFID, compared to 1min, 5sec with an RFID system. 8. 4 RFID Solution and Process Detail Placing RFID reader portals at the distribution centers dockside gate allows for automatic identification of all pallets and included pallet items to be scanned upon arrival.This would eliminate the manual steps of unpacking and checking each individual item separately before adding to inventory. An additional processing step of placing RFID labelin g on items and pallets before them leave the manufacturing plant would be occurred tho this would not affect distribution center processing time. 8. 5 RFID Benefits Incorporating RFID into the distribution center process provides the following quantifiable and intangible benefits Quantifiable benefits include Pallet processing time increased of 90%, Reduction of loss as all pallets due to total visibility, Labor savings, and Reduced keyboard entry errors Intangible benefits Neater mooring area, Improved work atmosphere 8. 6 Risks and complexityPotential risks and complexity associated with RFID implementation may include Tag Misread due to damaged tag, moisture on the pallet tag, or proximity to metal surfaces. Site evaluation and proper RFID technology can minimize this risk as well as running barcodes in parallel with the RFID tags. 8. 7 RFID Components and System Costs The proposed RFID system will require estimated infrastructure and services consisting of the following Desc ription Costs depleted $ Costs High $ Hardware/Software RFID gate portal reader (4) 28,000 40,000 RFID handheld readers (4) 6,000 8,000 Accessories Cables, etc 1,000 1,000 Servers and Accessories (5) 10,000 15,000 Software 30,000 50,000 RFID tags (10,000) Closed loop system, tags can be recycled 2,000 5,000 Integration Engineering, founding and Integration services, training, 60,000 100,000 maintenance (60 person days) Business Process Modification RFID tag application retooling at the manufacturing plant 35,000 55,000 Total 172,000 274,000 Table 2 Estimated RFID Costs 8. 8 Summary of Results Through RFID implementation if you compare the pallet processing times of Table 1, you can see that a savings of 10min, 25secs can be established per pallet. This is equivalent to a 90% increase in processing throughput times with the condition of a valid pallet and items. If the distribution center receives 500 pallets per day it can realize investment between 10 and 16 months depending on RFID costs, with assumed personnel costs of $10 hour and a 261 working-day per year calendar. If the distribution center is free of invalid pallets 95% of the time return on investment can be seen as in Table 3, as follows Pallets received perSavings per day Savings per day Savings per year ROI with low RFID costsROI with high RFID costs day (in $USD) (in $USD) (in months) (in months) (in hours) 300 49. 5 495 129,140 16 26 500 82. 5 824 215,234 10 16 700 115. 5 1155 301,328 7 11 Table 3 Time to ROI Sample calculations are as follows for 500 pallets received per day 11min,30sec * 500 pallets = 690sec * 500 = 345000sec. 1min,30sec * 25 pallets = 690sec * 25 = 17250sec. 1min, 5sec * 475 pallets = 65sec * 475 = 30875sec 17250+30875 = 48125sec 345000sec 48125sec = 296875sec 296875sec/3600 = 82. 46hr, round to 82. 5hours 82. 46hr*$10=$824. 65/day , round to $824 824. 65*261=$215,233. 65/year 215,234. 38/172,000=1. 27 0. 79*12=9. 58, roun d to 10months 215,234. 38/$274,000=0. 799 1. 27*12=15. 27, round to 16months Once RFID familiarity has been gained and estimated metrics have been realized, RFID may be moved to other areas of the company such as the picking from inventory at the distribution center, or some other RFID application at manufacturing center itself.However, the processes, equipment, results, and lessons learned will be applicable to other distribution centers, and acquired knowledge may be applied to other potential cost saving areas. 9 Conclusion The capabilities and limitations of RFID much be understood on a technical level, but also on a business procedural level to determine how RFID will ultimately impact on business. The decision to implement an RFID system must be carried out diligently with ROI equations. Also important to consider is intangible value which may not be apparent on a balance sheet. RFID is ultimately a business tool like many other IT options and to access its maximum capability, a company must have solid business procedures and plans in place. References Lahiri, Sandip (2005, August). RFID Sourcebook. Prentice Hall PTR.ISBN 0-13-185137-3 Larsson, Bjorn & Qviberg, Ola (2004, December). Evaluation and Justification of an RFID Implementation Pilot at IKEA node Distribution Centre. Master thesis LiTH-EKI-EX04/083SE Institute of technology Linkoping University Department of Management and Economics Industrial Engineering and Management Sweeney, Patrick J. II (2005). RFID for Dummies. Wiley Publishing, Inc. ISBN 0-7645-7910-X Ustundag, A. Cevikcan, E. (2007, October). Return on Investment Analysis for Evaluation of RFID Implementation on Cargo Operations, Istanbul Tech. 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