Interim study report - Executive Summary (January 2008)
(The final study report will be available by the end of September 2008.)
This document is an interim report. It contains parts of the sector study on Radio Frequency Identification (RFID) activities in the manufacturing, transportation, healthcare and retail industries. Its objective is to describe how companies in this industry use ICT and RFID for conducting business, to assess impacts of this development for firms and for the industry as a whole, and to indicate possible implications for policy. The analysis is based on recent literature, expert interviews, and case studies. Results of an international survey of enterprises on their RFID use as well as an econometric analysis will be added for the final study.
The manufacturing, transportation, healthcare and retail industries as defined for the study purpose covers the business activities defined in section 2.1.
RFID is neither a single nor a new technology. It essentially represents a new real-time data acquisition platform for enterprises, which improves business visibility and business performances of asset, technology, engineering and brand-oriented value chains.
Automated collection of data attributes, about a certain object or person, including localisation and environmental measurements in integration with sensor networks, a by-design feature, brings material advantages to enterprises.
By carefully designing how business process efficiencies can benefit from RFID-collected data in specific use case scenarios, organisations aim to achieve a new level of excellence and competitiveness compared to barcode or manual data collection and operational execution mechanisms (section 2.2.2).
RFID will become mainstream over the next 5 to 10 years, although the reality of RFID investment has not lived up to the hype, but will ramp up by 2008. In 2007, compared to 2006, a significant increase in the number of implementations is visible, even in the mid-tier segment of the market. Research evidence suggests that RFID penetration and actual spending are on the rise and that Europe is coming in first – as stronger increases in RFID adoption rates are anticipated compared to other regions (section 3.1.7).
Projected growths in RFID adoption will be driven by select business motivations that are expected to overcome potential inhibitors to RFID implementations. In general, industry and technological advancements have enabled greater confidence in RFID-driven business projects during 2007 compared to the more difficult situation that was evident until 2006.
The increasing momentum for investment in 2008 is also a consequence of the fact that RFID will be used not only in the supply chain but also more generally to optimise business processes and drive informed decisions across the enterprise effectively.
The big bet for RFID in the long run across industries will be to enable concrete improvements in the service provided to consumers, patients, and more broadly to citizens. The rising focus on improving customer service-levels, both in the private and public sectors, will also require advancements in the way enterprises and institutions measure customer service performance and customer satisfaction.
Among the key lesson learned from RFID case studies and best practices is that process re-engineering effort is always more than companies would initially expect. This shall not cause enterprises to stop innovation, as RFID is a tangible opportunity to drive business process and business model re-thinking, aiming to improve competitive market positioning.
As illustrated in more detail in section 3.1.4, key drivers to RFID adoption in the short-term include:
Understanding whether a company can achieve concrete competitive advantage from RFID and whether RFID is the right solution to implement requires detailed assessments. The implementation of RFID is a business journey, and as such, enterprises should not position RFID as a new and complex technology project to run, because business performance improvements may result.
Firstly, RFID allows for phased implementations and incremental target benefits. Thus organisations will recognise that RFID is much more than just tags and readers.
What drives companies' performance after the implementation of RFID data collection is the automated use of accurate information that is available in real-time, not the availability of the data in itself.
The following emerge as key facts:
RFID-enabled companies can on average achieve a 12 months competitive advantage. RFID will produce a long term ROI and companies must evaluate their investments using an options approach to enable quicker ROI opportunities (<12 months) while ensuring the big picture (section 2.3). In the medium-term, extending supply chain visibility and performance objectives to the edges will be instrumental to maximising RFID ROI.
The following is a practical and essential guideline to drive successful RFID programmes through 6 fundamental steps:
Creating the business case — Optimisation of identification-alone should yield break-even within 24 months, but with low overall ROI on its own
Options — Identify the 5 to 10 most beneficial processes or product applications in your organisation. This usually involves the evaluation of 20 to 30 business processes' current performance, their operational and business impact, and the measure of efficiency improvements that may result after the integration of RFID
Start from today, but look forward — Determine the point in time, with 80% confidence, when the expected benefit(s) resulting from RFID-based business process optimisation will result in a concrete, a bottom-line impact. The analysis to perform at this stage is usually multi-year, and the time period to take into consideration should not exceed useful life of the RFID investment. A fair assumption is to consider an average lifetime of around 10 years for RFID implementations.
Compare — Calculate the NPV (Net Present Value) over the identified time-period and make sure to compare the calculation if done without the RFID investment.
Sanity check — Be sure the options are aligned with overall business strategy.
"Safe bed" — After taking the decision to invest on RFID, allocate 10% to 15% of the total IT budget to the new investment.
Supply chain/operational execution optimisation represents the quicker payback opportunity for supply chain intensive enterprises. Combinations of RFID with sensor networks or real-time locating systems are highly advisable in specific contexts, for example distribution and logistics.
Going forward into the RFID adoption roadmap, supply chain and merchandise planning advancements will be the sub-sequent area of enterprise focus, sustained by point-to-point collaborative efforts among select value chain partners. This will be driven in the short-term by European retailers' focus on achieving advanced demand intelligence abilities. Therefore, suppliers have the opportunity to reconsider their market positioning, both in relation to retailers and consumers. Consequently, CP manufacturers & retailers will have the opportunity to drive larger transactions, for example by synchronising promotional efforts with supply chain planning and execution in a more effective manner.
The third milestone in the RFID adoption roadmap will be the realisation of collaborative excellent demand value networks, requiring advancements in both collaborative frameworks and predictive capabilities, for example next-generation collaborative demand forecasting applications and their integration with business analytics applications to ensure consistent monitoring of business performance and appropriate reactions to market changes.
The fourth step will be to enable concrete benefits for the people. The "big bet" for RFID to go mainstream is to be found in the next level of experiences and services provided to consumers, patients and citizens.
Based on preliminary research findings, there are several general implications for public policy:
