Use RFID Only If It’s Intrinsic to the Business Case

Gartner Research Analyst Jeff Woods

Many of the business cases currently being publicized as justifying radio frequency identification actually have nothing to do with RFID. You can often achieve superior return on investment by eliminating RFID from the project.

WHAT YOU NEED TO KNOW

Most business cases that have people excited about radio frequency identification are only tangentially related to the deployment of RFID. You should aggressively assess RFID business cases to determine if this technology is an intrinsic part of your project or whether the costs of RFID could be eliminated while maintaining return on investment. You should immediately reevaluate all RFID projects that cannot independently justify its use, and you need to recognize which projects are experimental and do not require RFID.

ANALYSIS

One of the most-important problems you face when evaluating business cases that involve radio frequency identification (RFID) is the difficulty in finding benefits that intrinsically flow from RFID tagging. Many of the commercial business cases being promoted have focused on business benefits that are not intrinsic to RFID. Often, the return on investment (ROI) from these business cases flows from data synchronization or systems integration that can be achieved without RFID. In many such cases, RFID is superfluous.

You should always compare the incremental benefits of RFID tagging to the incremental costs of RFID tagging. That is, RFID must be intrinsic to the benefits of the project or it isn’t a sensible business decision to use RFID. Absent the intrinsic benefits that flow directly from RFID in a project, you should not invest in it, because you’ll still get the same benefits with reduced cost. You should aggressively assess each business case presented to determine if RFID is intrinsic to the benefits claimed. If RFID is not intrinsic, it doesn’t mean that the project shouldn’t be pursuedit just means that the enterprise should re-evaluate the project without the use of RFID.

The real returns from RFID will come when you begin to re-engineer business processes around RFID—what Gartner refers to as “creating RFID-centric business processes.” At this point, the most-appropriate venues for focusing on creating RFID-centric business processes are in manufacturing, warehousing and, in the longer term, at retail stores. You need to be skeptical about RFID projects that are based solely on its ability to share data across enterprises. Don’t construe this argument to mean that enterprises shouldn’t invest in learning about RFID. In pilot projects, the lessons learned about how RFID works can be intrinsic benefits.

Just Because RFID Is the Impetus for Examining a Problem Doesn’t Mean It’s the Solution

RFID can be used to get people thinking about certain types of business problems—it is, in essence, a conversation starter. However, you shouldn’t be afraid to jettison RFID if you determine it’s not essential to your project. This is better than wasting large sums of money on RFID solutions that don’t improve the ROI of an initiative.

A great example of RFID’s power in starting a conversation are the discussions that are taking place about improving point-of-sale (POS) data through the use of RFID. Many people claim that using RFID in a retail store will enable the retailers and manufacturers to see what is actually being sold. This is a weak argument, because POS data already provides this information to retailers and manufacturers. However, this argument has sharpened to the point where some are now claiming that the POS data is riddled with errors and that directly reading the POS data through a savant infrastructure or improving the POS reporting structure would benefit retailers and manufacturers. This might be true; however, it points out that the real problem is with the POS architecture, rather than the data collection technology. If this improvement in data quality is so valuable, it would be just as effective to repair the POS architecture without switching to RFID tags and incurring the costs associated with RFID.

One of the larger problems in POS data sharing is actually an organizational trust issue—retailers sometimes don’t trust the manufacturer enough to give them the POS data, or they have no strategic reason to do so. All of the RFID tags in the world will not solve strategic or organizational trust issues. If that’s true, there really isn’t a reason why this is a business case for RFID. Hence, RFID effectively started the conversation about bad POS data, but it probably isn’t the most-efficient or cost-effective solution.

Problems that have been widely publicized as candidates for a RFID solutionbut could be solved with less-expensive technologiesinclude the following:

• End-to-end supply chain visibilitythis is an integration problem
• Lot traceabilitythis is an integration problem that many users have solved with bar codes; certain types of lot traceability, such as through third parties, could be enhanced with RFID, but most enterprises should focus on integrating their systems first—there is more “bang for the buck” with this approach
• Visibility into receiptsthis problem can easily be solved by focusing on advance shipping notice (ASN) compliance

Key Issues

How will successful enterprises select, deploy and manage SCP and SCE solutions to minimize risk and achieve optimum ROI?

Acronym Key

ASN advance shipping notice

ERP enterprise resource planning

POS point-of-sale

RFID radio frequency identification

ROI return on investment

SCE supply chain execution

SCP supply chain planning

SI systems integrator

© 2005 Gartner, Inc. and/or its Affiliates. All Rights Reserved