Developing an RFID Business Case and Calculating the ROI Harold Boeck Ygal Bendavid (UQAM, Academia RFID) 1
Your presenter Harold Boeck Ygal Bendavid Professor at the UQAM Co-Founder & Academic Director of ACADEMIA RFID BAA, MSc.A., Ph.D. 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? 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 ROI 14:15 Preconference Seminar Ends 2
Objective of the presentation How to develop an RFID business case and justify your investment (Qualitatively /Quantifiably) 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 3
RFID Business Case in the Project life cycle Measuring performance and continuous case assessment (TCO) Project follow up & Operations Revision of the Business case: Assess realistic financial impact based on experimentation (Lab & pilot) & Procurement process Business cases & scenarios sensitivity analysis based on different designs RFID BPR (As-Is) RFID BPR (To Be) POC & Pilot Design development Implementation High level Business case / value Project definition & Planning Project Front end Source: Ygal Bendavid, Academia RFID, RFID PRO 2010 Methods & tools for ROI analysis Explored on Is RFID the Right Choice for Your Business? 4
Quantifying the opportunities/ problems Classic - Costs of inventory Carrying Costs Facility storage rent, depreciation, power, heat, cooling, lighting, security, taxes, insurances, etc. Material handling Equipment Labor Record Keeping Borrowing to purchase inventory Product deterioration Spoilage, breakage, obsolescence, Ordering costs Replenishment ($/order) Requisition, PO, transportation, shipping, receiving, handling, accounting, auditing, etc. Shortage costs Stockouts costs loss of sales & relaitve loss of profits Customer dissatisfaction 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 5
Quantifying the opportunities/ problems linking the business case to the Project Goals Reduced retailer claims (overages/ shortages) Reduced labor costs (e.g. receiving, put away, picking, shipping, i assembling, reworking ) Reduced inventory Reduction in returns/ unsaleable Increased in asset utilization Improved on-shelf availability Reduced counterfeiting Improved customization options Reduce Operating Costs Reduce Working Capital Increase Market Share Increase Operating efficiency Increase Capital Efficiency Increase Revenue Shareholder Value Improved promotional planning and execution Improved shrink management Increase Volume Increase Source: Adapted from GS1 Canada, 2007 & IBM & EPC Global Cost impacts & ROI Analysis Operations/business process performance assessment Enterprise Management processes Core Business Processes Product Life cycle management Plan Material & services Source material & services Supply chain management Make Assemble material & services Deliver material & services Return Dispose Material & services Customer services........ Source: Bendavid, 2007 adapted from Aris Toolset 6
Data analysis & Sol. Development An example to assess the As Is performance Manufacturer Assembling Distributors Storage & distribution Retailers Storage & distribution Other SCM member Unload products Employee A Planning Sourcing Deliver Products Unloaded On time parts delivery percentage % of receipt authorized by PO % of orders released with full lead time Put away accuracy Put away cycle time Average picking time Etc. BOL Signed BOL electronic data Mismatch Verify BOL vs. delivered products Enter data to compare With the PO OK Employee A Supplier sys. ERP Source: Ygal Bendavid, MET 4261 Gestion des operations, UQAM Data analysis & Sol. Development An example Design & assess the "business" and technological scenarios Manufacturer Assembling Distributors Storage & distribution Retailers Storage & distribution Other SCM member Unload products Employee A Planning Sourcing Deliver Products Unloaded For Yet, any Performance business case, measurement measures and metrics are needed to test and reveal the viability continues of strategies to present without a challenge which a clear to direction operations for improvement managers and as well realization as of researchers goals would be Melnyk highly difficult et al. (2004) Gunasekaran and Ngai (2005), JOM JOM 23(5):423 451 22:209 217 RFID&EPC data RFID&EPC data Automatically Read RFID&EPC tags Tags Automatically Read Automatically Transfer Info. Into ERP Reader Tags Middleware ERP/WMS Source: Ygal Bendavid, MET 4261 Gestion des operations, UQAM 7
Data analysis & Sol. Development KPIs for RFID impact assessment Benefits. How will your company benefit from RFID-driven visibility across the supply chain? Costs. How will your company pay, both in hard costs and resources, for RFID-driven visibility? Source: 2008, Forrester Research On time parts delivery percentage Percentage of receipt authorized by PO Percentage of orders released with full lead time Put away accuracy Put away cycle time Average picking time Shipping accuracy Inventory availability Average back order length Inventory accuracy Inventory turnover Obsolete inventory percentage What are your Priorities? How RFID can help you in addressing these challenges and opportunities Source: Adapted from Bragg S. (2004), Inventory best practices Data analysis & Sol. Development An example Scenarios Impact analysis & trade-off Unload products Employee A Middleware RFID&EPC data RFID&EPC data Products Unloaded Automatically Read RFID&EPC tags Tags Automatically Read Automatically Transfer Info. Into ERP Reader Tags Middleware ERP 8
Data analysis & Sol. Development (Extended) Impact analysis & trade-off/ Sensitivity Analysis RFID Technologies RFID Technologies RFID tags & sensors RFID readers & Antennas RFID printers & appli. RFID Middleware E-Commerce Technologies Wireless Technologies Wireless Network WLAN to WWAN Wi-fi, Zegbee Enterprise Information Systems ERP, WMS, LES, MES PRM, SCM, PLM Enterprise Information Systems E-Commerce Techno. Private IOS Electronic market places Source: Bendavid, Academia RFID RFID PRO 2008 20 Project/Infrastructure Cost Analysis Cost of RFID project (1 of 2) Project Preparation Opportunity Assessment Business Case Development RFID Strategy Development Use Case Generation Procurement Management (planning and sourcing) Solution Architecture Development System Integration Assessment Business Process Assessment Experimentation/Testing (validation of the business case) RFID Infrastructure (hardware) RFID Tags (Pallet, case, item, medical devices, staff, patients ) Readers and Antennas Mounting Accessories RFID printers and label Applicators Ancillary devices (motions sensors, horns, lights, ) Other Infrastructure Costs (new servers and computers, infrastructure upgrade, additional points based on required location accuracy) Installation Costs Initial Site Survey Design selection Hardware installation Testing and trouble shoot 21 Source: Adapted from EPC Global 9
Project/Infrastructure Cost Analysis Cost of RFID project (2 of 2) RFID Software Costs RFID Middleware Solution Middleware System Integration (with WMS, ERP, Track& trace sol.) Interface Customization Engineering/Business Process Change including Implementation of New business processes New Information flow, Staff & patient flow Ongoing System Maintenance/Admin. Network Management System Reader Firmware Upgrades Damaged Readers/Antennas Performance Monitoring Etc. Other expenses Physical Shop floor/warehouse Modification/Expense Other labor related to RFID adoption: requirement for new resources: e.g. business analysts Training for all employees including workers (shop floor clerks, security ) 22 Source: Adapted from EPC Global Project Preparation RFID Tags RFID Hardware Other infrastructure costs 4 Assess the Financial Impact: RFID cost: Building a simple tool Installation costs Tag Application Costs (labor) RFID Software Costs Business Process Change Physical Plant Modification Ongoing System Maintenance/Admin. Misc. Costs Etc. Source: EPC Global Canada 10
Developing an RFID Business Case and Calculating the ROI Supply chain frameworks to assess the performance Data analysis & Sol. Development Supply chain frameworks to assess the performance http://supply-chain.org/ 11
Data analysis & Sol. Development Supply chain frameworks to assess the performance The 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 plan, source, make, deliver and return See for instance: www.supply-chain.org/ or www.gsb.stanford.edu/scforum / Data analysis & Sol. Development Supply chain frameworks to assess the performance Some Reference Model Supply Chain Operation Reference Model (SCOR) (Supply chain Council, 2007 ) Global Supply Chain Forum (Lambert et al., 2005 ) Balanced ScoreCard (Kaplan et Norton,1992 ) See for instance the SCOR model on http://supply-chain.org/ 27 12
Data analysis & Sol. Development Performance 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) manufacturers, Vertical KPIsdistributors, and retailers Vertical have KPIs markedly Vertical different KPIs e.g. days of inventory, perspectives inventory carrying as cost well as mutual dependence e.g. replenishment on the e.g. value XXX. from the cycle time, inventory (raw material in storage RFID-enabled carrying cost, product capacity utilization, visibility. These varying perspectives can make the forecast accuracy, availability, OOS, etc. financial outlook frequency and quality of each organization s individual costs, benefits, and of delivery, etc. risks very blurry. (Forrester, 2008) 1 st level KPIs Vertical KPIs e.g. days of inventory, inventory carrying cost; replenishment cycle time, purchase order cycle, put away cycle time, Manufacturer Distributors Retailers Assembling Storage & distribution Storage & distribution XXX Supply chain members [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. Development KPIs for RFID impact assessment: A case The case of American Apparel Source: ABI Research RFID Item-Level Tagging in Fashion Apparel and Footwear 13
Process Organisation Knowledge Technology Performance Data analysis & Sol. Development Using RFID Maturity Framework AREA ACTION Assessment Criteria Aberdeen Group, Winning RFID Strategies for 2008 Conclusion An RFID business case should be a living, i breathing document Continuous RFID developments ( price, performance) Implementing RFID is just the start Source: GS1 Canada 14
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? 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 ROI 14:15 Preconference Seminar Ends Harold Boeck HaroldBoeck@HaroldBoeck.com Ygal Bendavid YBendavid@RFIDacademia.com Thank you! UQAM, Management & technology Department, School of business 315 Ste-Catherine est Local R-3570 Montréal (Québec) Canada H2X 3X2 Tel: 514-987 3000 (x 2429) Web site: www.mantech.uqam.ca Academia RFID 9916 Côte de liesse, Montréal QC Canada H8T 1A1 Tel: 514 631 8282 Fax: 631 9696 Web site: http://www.rfidacademia.com 15
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