Chapter8.Creating Business Justification for RFID

Chapter 8. Creating Business Justification for RFID

Business justification is strongly recommended before rolling out RFID in an enterprise because it enables you to accomplish the following fundamental goals:

• Provide objective data about the benefits of RFID. Objective data enables you to determine whether to use the technology. Indeed, if RFID shows substantial benefits, objective data might accelerate adoption of RFID in the business. Business justification will also build realistic expectations of the technology.

• Maximize return on investment (ROI). Through a careful analysis of business cases, you can quantify the benefits and the resources needed to implement an RFID solution. You can select the areas that offer the maximum ROI as the potential candidates for RFID use.

Even if the business has received an RFID mandate from its clients or business partners, it might need to justify the use of the technology. After the goals listed here are achieved, it will become apparent how and where RFID needs to be applied. Design and implementation of appropriate RFID solutions can then proceed. In summary, successfully executing these goals will set a solid foundation on which the RFID technology adoption can be built upon.

In general, you cannot determine ROI accurately just by making high-level assumptions regarding benefits. If the shrinkage in a certain type of business accounts on average for 20 percent of sales, for example, a business of this type might be incorrect in assuming RFID will result in savings of 20 percent. First, the actual shrinkage of this particular business might be greater than or lower than this number. Second, introduction of a nontrivial RFID solution in a business operations environment impacts the operations and business flows. Therefore, the final benefit numbers might be off the mark. This important factor shows that an RFID solution cannot be designed in the technical space alone; business impact and analysis need to be performed, too.

An RFID system is a data-collection technology. After the data-collection part is done, you must address the fundamental question of how to use this data. The answer lies in refactoring the business processes so that you can extract maximum advantage from the available data. Therefore, business process change will offer the ultimate benefit in using RFID technology. So that you learn how to determine the benefit effectively, this book uses a bottom-up approach. In this method, the business process changes for using RFID are determined first, and then the impact of these changes is analyzed and the benefit determined as a result of this analysis. This approach can lead to accurate determination of ROI and hence realistic expectations regarding the use of the technology.

This chapter provides a practical guide to understanding and analysis of the RFID variables involved in creating the business justifications. This chapter helps you avoid many common and not-so-common mistakes when determining the business justification of your RFID solution.

The business justification method discussed here comprises the following five steps (see Figure 8-1):

1.	Forming the business justification team
2.	Determining the potential application areas
3.	Building business cases
4.	Determining priorities
5.	Determining roadmaps

Figure 8-1. A method for determining RFID business justification.

Before delving into a discussion about business justification, you need to understand an important RFID application type called slap and ship, which represents probably the most common application type currently implemented by businesses to meet their RFID mandates.

NOTE

This chapter assumes that you are already well versed in general analysis artifacts such as how to create business-flow diagrams, use cases, and so on. Therefore, this chapter does not discuss these topics in detail.