Determining Justification for Rfid Technology

Topics: RFID, Cost-benefit analysis, Rate of return Pages: 13 (3560 words) Published: March 28, 2010

Determining Justification for RFID Technology

Bahram Izadi, Master Student of Business Management, University of Isfahan, Isfahan, Iran and
John Boyd, BASc, Computer Engineering, University of Ottawa, Ottawa, Canada


"What are the benefits?" is a common question for any organization considering implementing a new technology.  This is an especially important question for small or developing companies, where an error in investment could result in unrecoverable operating capital loss.  As Radio Frequency Identification (RFID) systems are making deep and impressive improvements in manufacturing, distribution, and supply chain management and military logistics, it is time to consider the quantifiable financial and operational benefits of RFID in an organization's competitive strategic plans. This article will review the benefits of RFID implementation against its costs, and demonstrate how the introduction of an RFID system can reduce production, distribution, and warehousing costs, while increasing the operational efficiency of an organization. Through financial metrics, value equations, and numerical analysis this article will demonstrate how RFID implementation can improve not only an organizations bottom line, but also intangible benefits such as internal focus, industry leadership, and differentiation from its competitors. A sample business case study will be presented to demonstrate to the reader valuable insight to both real-world advantages and limitations associated with RFID adoption.    

1. Introduction

The focus of this paper is how to develop an RFID strategic plan to quantify RFID justification through return on investment (ROI). RFID offers strategic advantages for businesses, private or state organizations because it can improve efficiency, cost savings, and yield greater returns in virtually all areas of business processes and operations.  However due to the complexity associated with an RFID system, its uncertain proven capabilities, and high costs of implementation, it is crucial to create solid a business case and justification in terms of ROI, either quantifiable or intangible, which offer the greatest benefit to the company.

2. Background - What is RFID?

Radio frequency identification, or RFID, is a wireless automatic data collection technology which uses electronic tags for data storage. An RFID system consists of an RFID tag, a reader/writer unit with antenna, and a computer, as shown in Figure 1.


Figure 1 RFID System

The reader/writer emits radio signals from its antenna to power the tag, and can read or write data to the tag without a direct line of site. Reader/writer units are available in various shapes and sizes depending on requirement or application. Similarly RFID tags are available to suit most any application or environment from unobtrusive paper thin tags suitable for traditional barcode applications, to large heavy-duty brick sized tags to track heavy machinery. The computer or middleware allows communication between the RFID hardware and system applications.

3. RFID Benefits and Costs

RFID offers strategic advantages for businesses because it can improve productivity, efficiency, cost savings, and yield greater returns in virtually all areas of business operations. As an example, Air Canada was losing $2 million USD worth of food carts per year. This initial problem of asset tracking resulted in the deployment of RFID systems which yielded a 2% reduction in total inventory, 5% reduction in maintenance costs, 20% to 50% in trucking charges, 80% reduction in shrinkage, 100% reduction in costs for auditing yearly inventory counts and ROI within 18 months. [Internet, 4] In general some of the main advantages of RFID usage are: • Reduced warehouse and distribution labor costs due to increased data automation • Reduced inventory by omitting inventory...

References: Lahiri, Sandip (2005, August). RFID Sourcebook. Prentice Hall PTR. ISBN: 0-13-185137-3
Larsson, Björn & Qviberg, Ola (2004, December)
1 Association for Automatic Identification and Mobility. What is RFID? Retrieved September 2, 2008
2 Axios Systems. (2007, March) Return on Investment: Fact or Fairy Tale? White Paper. Version 1.1.0
Retrieved September 5, 2008 from
Retrieved September 5, 2008 from
4 RFID Journal
5 RFID Journal. FAQ - What are some of the most common applications for RFID? Retrieved September
8, 2008 from
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