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RFID technology presents a great potential for creating competitive advantage. By automating and simplifying data collection, it lets users more accurately track assets and monitor key indicators, which in turn gives greater visibility to the operations. However, the benefits received from this technology will be determined by how well it is integrated with the business processes and overall information flow. Because of the fact that the decision to deploy RFID technology in an enterprise is a business decision instead of a technology decision, cost-benefit analysis is a key component of this decision. If an RFID deployment cannot be justified in terms of its economic value to the company, it is not likely to help the company; and consequently, it is not likely to remain a viable deployment over the long term.

The Value of RFID describes the business value of RFID and explains the costs and benefits of this technology comprehensively. Different investment evaluation models are proposed to use in various application areas. Techniques to guide the selection of appropriate implementation levels and to handle uncertainty and risk in RFID are explained.

Written for researchers, undergraduate and graduate students, and lecturers working in the field of RFID and supply chain management, readers will learn evaluation practices for RFID investment for different application areas. The book also guides managers in making to accurate decisions on RFID investment to maximize the return.




Chapter 1. The Business Value of RFID

RFID can be defined as a strategic technology tool redesigning business processes, cutting costs, and improving the operational performance. It is used for a wide variety of application areas ranging from retail to manufacturing, healthcare, logistics, and defense. It may improve the potential benefits of supply chain management through increase of the four factors: efficiency, accuracy, visibility, and security. Calculating the return on investments, the impact levels of RFID on these factors should be quantified accurately for each supply chain member. This chapter focuses on the question how RFID adds value to business processes in the context of these factors.
Alp Ustundag

Chapter 2. The Cost–Benefit Models for RFID Investments

RFID technology does not require line of sight and provides fast and accurate reading from a great distance without human intervention. Albeit RFID is superior to other identification systems, such as barcode, complicated cost and benefit structure inhibits worldwide adoption. As a response, there is a wide range of cost–benefit models used by both industry and academy. The aim of this chapter is to review RFID cost and benefit factors and provide a comprehensive overview of RFID cost–benefit models. Besides hardware and middleware cost, service cost factors, including compliance cost, training cost, and transition cost makes up for the total RFID system cost structure. Benefit factors are more complex than cost factors as the limited pilot studies or studies from other application areas are unable to reveal the full set of benefits. Also, intangible benefit factors such as increased customer satisfaction or increased supply chain collaboration are not easily quantifiable. RFID cost–benefit models are classified as conventional models, uncertainty-based models, and decision-making models. Conventional models include return on investment models, break-even models, internal rate of return and net present value analysis. Although practical enough to help during the initial stages of investment analysis, these models are static, rely on oversimplifying assumptions, and ignore the variability of the system. Uncertainty-based models, such as simulation or real options models generate more accurate results, but require extensive modeling and data gathering effort. Decision-making models, on the other hand, facilitate selection among alternatives or help to visualize the underlying structure of decision-making process of RFID investment. Considering the limitations of each model, analysts should take caution when introducing a single type of model and rather utilize a group of different models together.
Serdar Baysan, Alp Ustundag

Chapter 3. Risk Analysis for RFID Investments Under Uncertainty

Radio Frequency Identification (RFID) technology is one of the straightforward technologies being used by a number of both manufacturing and service systems. Investments in RFID technologies are expected not only to reduce costs but also to increase business value. Moreover, integrating achievements and costs of RFID investments in a consistent manner may present additional investment opportunities. That being the case, risk assessment becomes the critical success factor in RFID investments. In this chapter, risk model which considers both costs and benefits of RFID investments is developed. The internal rate of return (IRR) is regarded as the performance measure for investments. Monte-Carlo simulation is utilized for obtaining outputs from the risk model. Hypothetical application of the model is included so as to demonstrate its practicality. Sensitivity analysis is made to review the influence of stochastic variables on IRR. The results indicate that the model is appropriate for real-life applications. Moreover, IRR has shown the highest level of sensitivity to customer demand.
Emre Cevikcan, Alp Ustundag

Chapter 4. Evaluating RFID Investments: A Real Options Approach

Real options theory offers a suitable process to consider uncertainties and flexibilities in taking investment decision. This approach highlight options thinking into contemporary Radio Frequency Identification (RFID) project evaluation and management. In this chapter, we describe the options embedded in RFID investments and tools for quantifying option value. An application case is investigated to show the potential of options thinking and the real options methodology for evaluating and valuing the RFID investments. First, options associated with RFID investment are discovered in the case study. Then the RFID investment options are quantified. Finally, sensitivity analysis is conducted for different components of RFID investment such as initial investment and volatility. Based on the findings, an investment strategy for RFID technology has been found.
Alp Ustundag, Seda Ugurlu

Chapter 5. Decision Making for Determining the Implementation Level of RFID Projects

Each physical item is given an identity and tracked in the supply chain in an automated and timely manner via RFID technology. Tracking physical assets, inventory, and personnel with automated systems improve performance of the system in terms of cost and process flow. It is an important decision for a company to invest RFID technology. Consecutively, it should be decided at which level RFID technology will be implemented in business processes. The aim of this chapter is to select the most appropriate RFID implementation level. The related decision is made among the alternatives of item, box, and pallet levels. Three main criteria are determined to evaluate the alternatives, namely cost, benefit, and implementation aspect. The related criteria are situated in hierarchical structure. Meanwhile, the alternatives are assessed for each criterion with verbal rating categories which have equivalent numerical values. Therefore, Analytic Hierarchical Process (AHP) rating model is developed for determining the implementation level of RFID Projects. The results indicate that the model is practical and validated for real life decision-making problems. The results indicate that item level outperforms other alternatives with respect to the judgements of an information technology expert.
Emre Cevikcan, Alp Ustundag

Chapter 6. RFID in Supply Chain: The Tagging Cost Sharing Approach

Sharing the tagging cost among supply chain members is an important issue for item-level implementation of RFID in an open-loop where the tags can only be used once. In this chapter, an economic analysis by calculating the net present value (NPV) of an RFID investment on a three-echelon supply chain is presented and the effects of sharing the tagging cost among supply chain members on the NPV at the echelon level are examined. In the proposed model, NPVs for the retailer, distributor, and manufacturer are calculated for two cases. In the first case, the tagging cost is shared equally between supply chain members while in the second case the tagging cost is shared according to the expected benefit of each supply chain member using the tagging cost sharing factor.
Alp Ustundag, Mehmet Serdar Kilinc


Chapter 7. RFID Adoption in Healthcare and ROI Analysis

RFID is becoming one of the major enabling technologies being considered and adopted into healthcare logistics applications. In this chapter, the authors deliver an overview of the role of RFID in the healthcare industry and introduce some of the basics of sound business case development. To this end, samples of case studies prepared over the past 5 years are presented. In addition, an actual RFID implementation business case and its ROI analysis are included to demonstrate the benefits of the technology in greater detail.
Nebil Buyurgan, Sylvain Landry, Richard Philippe

Chapter 8. Economic Evaluation of RFID Investments in Cargo Operations

Third-party logistics providers (3PL) store and transport large volumes of different goods and deal with a number of logistics services clients simultaneously. Due to the increasing demand for automatic identification, 3PL providers turned to RFID to help them improve total product traceability and increase accuracy. However, the implementation of RFID within a 3PL company is a complex process. Evaluation of both operational performance and economic feasibility is necessary to appropriately assess the value of RFID technology. This chapter focuses on this aspect of RFID implementation in cargo operations of 3PL providers.
Alp Ustundag, Ozgur Kabadurmus, Mehmet Serdar Kilinc

Chapter 9. Value of RFID Technology in Construction Supply Chains

This chapter provides an overview of RFID applications and related benefits in the construction industry, and describes a case study that investigated a prefabricated concrete wall panel supply chain for determining the benefits of RFID. In the case study, simulation models were developed to compare the current manual approach with semi-automated RFID process. The simulation results are used to calculate the related cost savings of each supply chain member, and to determine a cost sharing ratio for distributing RFID investment cost among supply chain members. The results show that RFID provides cost savings in terms of (1) reduced labor time, (2) reduced remanufacturing cost by eliminating missing components, and (3) reduced transfer costs by improving the material identification and tracking processes.
Gursans Guven, Gokhan Demiralp, Esin Ergen

Chapter 10. Economic Potential of RFID Use in Apparel Retail Industry

The apparel retail sector is especially confronted with challenges and problems in logistics processes such as shrinkage, counterfeiting, out of stock situations and needs to find solutions for improvements. With the help of the Radio Frequency Identification (RFID) technology, the services for apparel supply chain will be able to provide data or information about products along different stages of this supply chain. The wide adoption of RFID across the supply chain will bring significant benefits leading to reduced operational costs and hence increase profit. In this study, the economic potentials of RFID implementation in apparel retail industry are examined and a cost–benefit analysis is carried out for a Turkish apparel retail company which plans to implement reusable RFID tags in all of its two hundred stores.
Alp Ustundag, Aylin Ustundag, Mert Bal

Chapter 11. Value of RFID Enhanced Maintenance in Aerospace Industry

RFID technology can find a wide range of application areas in many sectors, such as automotive, logistics, retail, etc. Nowadays, RFID becomes more important in aerospace industry. Especially, in aircraft maintenance activities, RFID improves productivity and makes processes faster which reduces cycle times and inventories. In addition, it helps avoid manual errors and thus improve quality. In this study, the recent RFID applications for maintenance activities are explained to reveal the potential of improvement. Next, a case study for RFID enhanced maintenance in aerospace industry is explained, and then a cost-benefit analysis of RFID implementation at this case is carried out. In this analysis, the NPV method is used with Monte Carlo simulation to consider different uncertainty levels of cost savings provided by RFID implementation.
Sule Itir Satoglu, Alp Ustundag

Chapter 12. Value of RFID in Library Management System

Radio frequency identification (RFID) technology can find a wide range of application areas in many sectors such as automotive, logistics, retail, healthcare, and libraries. RFID can provide long-term benefits to libraries in process, traceability, and security. It can enhance existing barcode systems by providing additional features such as automatic checkout and return while adding security against theft. RFID will reduce lost books and create savings in time spent searching for books shelved in incorrect locations. Stock-taking can be reduced to a simple walk down an isle as the RFID tags are read while they are still on the shelf. In this study, the architectural framework and the functionalities of components of an RFID-based library information system are described. A theoretical cost–benefit analysis of RFID application in libraries is presented. The application of this technology in a major Turkish library will be analyzed with respect to its costs and benefits.
Sule Itir Satoglu, Alp Ustundag, Mehmet Serdar Kilinc


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