An economic feasibility study using a system-dynamics-based archetype of RFID implementation in a manufacturing firm

Industry 4.0 is an emerging manufacturing paradigm that relies on high-speed connectivity and myriad sensors for real-time data collection, defect detection, and cycle time reduction among other things. Radio Frequency Identification (RFID) is one technology within this paradigm that has reliably and affordably enabled Industry 4.0 initiation and eventual adoption by manufacturing facilities owing to its proven ability to track inventory and such. Despite the maturation of the RFID technology, relatively little is known about its overall economic impact on a firm. A paucity of such economic information—that can otherwise be overcome through techno-economic analysis (TEA) based on simulation—on RFID serves as a detriment to its adoption by smaller firms with limited capital, especially in developing countries where the cost of capital is high. That, in turn, delays the advancement of supply chains and ecosystems to the Industry 4.0 paradigm causing inefficiencies and imabalnced development. Ex-Ante TEA simulation affords a holistic approach to compute the cost/benefit ratio of the implementation of new technology. Further, it allows the estimation of critical parameters that helps minimize the risk of investment failure. In this study, we propose System Dynamics (SD) modeling as the basis for such ex-ante TEA. SD simulation confirms that the adoption of RFID, despite its initial capital requirements and availability, is economically feasible and beneficial because of RFID’s potential to reduce operation costs considerably over time.