Options Thinking RFID Strategy Recommended to Achieve Maximum Long-term ROI

Manufacturing Insights report analyzes the current state of RFID as a supply chain solution, calls for business case to be "living document"

Manufacturing Insights report analyzes the current state of RFID as a supply chain solution, calls for business case to be "living document"

Framingham, MA  August 24, 2005  Manufacturers should focus on the true business value of radio frequency identification (RFID) rather than the cost of compliance, and executives should treat their RFID business case as a living document identifying the company's RFID opportunities (options), according to a new report from technology advisory firm Manufacturing Insights.

The report, "RFID Investment: Cost of Compliance or Strategic Business Benefit?," seeks to educate manufacturers on the current state of RFID initiatives and provide insight on the value of an options thinking RFID investment strategy in place of traditional return on investment (ROI) strategies. In the report, Manufacturing Insights also calls on executives to invest in a scalable RFID platform and empower management with the flexibility to make the needed adjustments to best leverage identified options

The advisory firm believes that the current RFID climate is too overwrought with a sense of urgency (especially in the consumer goods and retail industry) to reap the potential supply chain benefits promised by RFID and comply with the plethora of aggressive mandate timelines. This has forced many manufacturers to implement immature technology in a narrow, compliance-focused scope, the analyst firm said.

Redefining Rules of Engagement

However, according to the manufacturers interviewed for the report, no substitute exists for hands on experience and, while the cost of RFID tags was definitely their greatest short-term concern, long-term issues, further defined in the report, focus on physics, integration and process.

In light of these issues, and the challenges and opportunities they illicit, Manufacturing Insights believes that if RFID is leveraged to its full potential over the next three to five years, it will force companies to redefine the rules of engagement for collaboration, specifically, how supply chain data is exchanged and utilized, increasing operational visibility and providing a clearer picture of available options.

The study also defines and analyzes the potential value of four distinct stages along the RFID lifecycle. While most manufacturers linger in the "compliance" stage and some have graduated to "identification," only a few industry leaders have made progress into the "process" stage, which focuses on end-to-end supply chain integration and transforming both upstream and downstream processes. Manufacturing Insights believes that the true value of RFID lies in the sensor networks of the final stage, "product," postulating that current passive RFID solutions will prove to be the stepping-stone to sensor networks for open end-to-end supply chain applications.

Options Thinking IT Investment Strategy

With all of the uncertainty and risk factors that exist with RFID today, Manufacturing Insights worked with Dr. Robert Fichman, an associate professor at Boston College's Wallace E. Carroll School of Management, to define and introduce the options thinking IT investment strategy to replace traditional ROI strategy when evaluating RFID technology. Key points include:

  1. Recognize and Create Options for RFID Investment: Companies must employ a needs-focused analysis of business processes, systems architecture and resource capabilities to identify all organizational options available, as well as existing risk factors and uncertainties.

  2. Value the Options: Companies must place a systematic, accepted value on each identified option.

  3. Extract Value From IT Project Options: Companies need to establish checkpoints to manage the options approach successfully.
"Waiting for RFID to become 100 percent proven, understood and standardized may seem to be a safe decision on the surface, but it's a losing strategy," said Mike Witty, program director for demand management strategies at Manufacturing Insights. "In general, companies have focused too much on the cost of compliance and not enough on the business value of RFID. Organizations that develop a comprehensive RFID strategy extending beyond mandate compliance will be poised to gain a competitive advantage once the dust settles from the early pilot projects."

In addition, Manufacturing Insights asserts that companies should create a RFID program management office (PMO) before developing an RFID strategy. The report also offers guidance for the PMO's charter creation.

The full report is available through Manufacturing Insights.

Additional Articles of Interest

 To go the distance in business you need to take a disciplined approach. Supply & Demand Chain Executive offers key best practices for making your supply chain hum in the article "7 Habits of Highly Efficient Supply & Demand Chains," the cover story in the April/May 2005 issue of the magazine, featuring an interview with supply chain guru Jim Tompkins of Tompkins Associates.

 Is your company getting the most from its supply management function? For a step-by-step look at how to phase in a successful "end-to-end" supply management strategy, read the article "Roadmap to a Comprehensive Supply Management Strategy," an In Depth article on SDCExec.com.

 In order to perform on a world-class level, companies must redesign the supply and service chains to meet market demands. Dramatic changes are in order. Read more in the SDCExec.com article "Leveraging Supply Chain Logistics: Get Physical and Agile."