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RFID Strategic Implementation and ROI, chapter 4: 'RFID Strategy and Implications for a Business'

This book will help you comprehend the basics of RFID, the fundamental technology and components, the potential applications and business issues and the marketplace forces at work in front of and behind the scenes. It will explain the links with supply chain management and develop an outline of costs and benefits.

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Excerpted from the book "RFID Strategic Implementation and ROI: A Practical Roadmap to Success," ISBN 1-932159-47-9, Copyright March 2006. Written permission from J. Ross Publishing is required for all other uses.

Chapter Excerpt:


With a rough cut on the costs and benefits, Figure 4.1 can be used as a beginning point in the strategy development we are espousing. A company embarks with the understanding that the first step in developing a strategy that impacts supply

chain should define, confirm, and refine the common set of business requirements that the firm must satisfy. The second step is to develop a conceptual framework depicting a possible improved future state. Figure 4.2 was drawn for a pharmaceutical manufacturer seeking an improved delivery system and used as the firm developed its RFID/supply chain strategy. The improved state, of course, can be far more detailed, but it should identify the product flows and inventories to be positively affected by the RFID technology.

From this information, again using Figure 4.1, the company should identify the key stakeholders to be impacted by adoption of the RFID technology and decide how success will be defined and measured. In many cases, these constituents will be similar to those previously affected by bar coding or other auto- ID systems. Starting on the demand side of the illustration, but eventually expanding to the supply side, the firm creates a list of the key areas to be considered, like those in the figure. Each part of the developing matrix should include pluses and minuses, as the analysis must provide an honest and frank evaluation of what adopting an RFID strategy will mean to the business and its important stakeholders.

For each of the constituents chosen, the resulting in-depth analysis should generate a point of view on what is intended to be accomplished and what the

basic implementation plan might include. Fitting any plan within the greater context of the overall company strategy and business plan will serve to assure these stakeholders that the adoption of RFID does not change the current business posture, but reinforces the basic tenets. Eventually, each of these stakeholders should find extra values as a return on the effort.

Figure 4.3 goes to the next step and illustrates the processes involved in forming a specific RFID strategy. It begins with a market analysis that reviews the industry imperatives, as understood at the moment and as anticipated in a near-term and long-term time frame. That should include the positives and negatives. A review of what competitors might be doing or planning should be included, with an assessment of what impacts can safely be anticipated from the technology adoption. A few of the most important customers and samples from other parts of the segmented customer base should be analyzed to develop a picture of the expected customer reaction. A projection of RFID hardware costs (tags, antennas, readers, etc.) must be made in order to understand at what point an acceptable return on investment can be achieved. Also, a survey of potential government regulations (e.g., food or pharmaceutical tracing) that could affect the business process of the organization must be incorporated as part of the strategy. Other factors of importance to a specific situation can be included, but the market analysis must reflect an honest assessment of what is going to be a part of the business future.

While this book contrasts the arguments for and against RFID adoption, our premise is that RFID will be an effective tool in supply chain management. Our recent experience has shown that any organization, whether it is under a mandate or not, should evaluate the potential benefits, opportunities, and challenges of RFID as part of its overall supply chain management strategy. In fact, a review of the case study material available to date indicates that early adopters are uncovering real bottom-line benefits from the use of RFID within their own operations and that further benefits arise when incorporating applications with their trading partners. Every business seeking to resolve an RFID strategy needs to answer five critical questions here and for the balance of the strategy development process:

  • How sustainable is the business or how much and what part might be at risk if RFID becomes an accepted business practice in our industry or market?
  • How capable are our existing processes to accept the changes, meet the expected needs and demands of the market, and satisfy key customers with RFID as an enabler?
  • What is the cost/benefit of noncompliance?
  • How can the technology be used beyond compliance to enhance other processes within the supply chain?
  • What is the best strategy to succeed and add value for all constituents?

The answers to these queries will help establish the background against which any decisions will be made. Now the second step in creating an RFID strategy is to develop a business analysis that applies the answers to the questions and begins to fit the emerging concepts with market conditions, without bankrupting the firm. In the business analysis sector of the process diagram, the firm starts with an outline of whatever is known about costs and benefits, drawing on what came out of the first step. Consideration must be given to the anticipated effect on market position of having or not having RFID capability. Then a look is given at the current value proposition being brought to the market to determine if it needs modification or, more correctly, how the RFID strategy can be successfully harmonized to appear as a logical extension of the current approach. Then the business strategy starts to unfold — as an extension of the current strategy and business plan.

When value propositions are considered, the effort moves to another level, and a deep and frank review is made of the opportunities and threats posed by adoption or rejection of the RFID technology. Now the firm considers target market positions and how the opportunities and threats will directly impact important segments. The hardest part of the exercise is to then develop winning value propositions that not only secure the desired market positions but provide a reasonable return on the effort. With these values in hand, the firm then synthesizes the strategy into sellable bullet points, understandable across the business, and begins co-development of an execution plan with key network constituents. Upon thorough review of what has been developed and most likely many iterations, a set of strategic decisions are then made to guide the rollout and deployment — hopefully through risk-mitigating pilots and test to prove the value of the chosen concepts.

Upon verification of these decisions through positive test results, a modified business plan is created, reflecting the new operating model (as an adaptation to the existing model), with a technology roadmap to guide implementation of the RFID strategy. Whatever changes are needed to organizational design are documented and explained, and a final business plan is blessed by all key stakeholders, so execution can begin in earnest. However, it is important to accept early in the planning process that this is a plan that must be constantly updated with new information gathered from pilot tests, proof-of-concepts, new RFID market data, customer requirements, and legislative activity.

Once the operating model has been developed, the firm should determine how the supply chain will be better enabled. That requirement sets up the need to document the enablement options, as described in a generalized case in Figure 4.4. Here we see many of the supply chain constituents arrayed against

the affected process areas and some possible RFID applications. Again, this model must be customized for the specific firm and industry.

chapter 4: 'RFID Strategy and Implications for a Business'

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