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The Value of RFID Alp Ustundag Editor The Value of RFID Benefits vs. Costs 123 Editor Alp Ustundag Isletme Fakultesi Endustri MuhendisligiBolumu IstanbulTeknik Universitesi Macka, Istanbul Turkey ISBN 978-1-4471-4344-4 ISBN 978-1-4471-4345-1 (eBook) DOI 10.1007/978-1-4471-4345-1 SpringerLondonHeidelbergNewYorkDordrecht LibraryofCongressControlNumber:2012943955 (cid:2)Springer-VerlagLondon2013 Thisworkissubjecttocopyright.AllrightsarereservedbythePublisher,whetherthewholeorpartof the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation,broadcasting,reproductiononmicrofilmsorinanyotherphysicalway,andtransmissionor informationstorageandretrieval,electronicadaptation,computersoftware,orbysimilarordissimilar methodology now known or hereafter developed. Exempted from this legal reservation are brief excerpts in connection with reviews or scholarly analysis or material supplied specifically for the purposeofbeingenteredandexecutedonacomputersystem,forexclusiveusebythepurchaserofthe work. Duplication of this publication or parts thereof is permitted only under the provisions of theCopyrightLawofthePublisher’slocation,initscurrentversion,andpermissionforusemustalways beobtainedfromSpringer.PermissionsforusemaybeobtainedthroughRightsLinkattheCopyright ClearanceCenter.ViolationsareliabletoprosecutionundertherespectiveCopyrightLaw. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publicationdoesnotimply,evenintheabsenceofaspecificstatement,thatsuchnamesareexempt fromtherelevantprotectivelawsandregulationsandthereforefreeforgeneraluse. While the advice and information in this book are believed to be true and accurate at the date of publication,neithertheauthorsnortheeditorsnorthepublishercanacceptanylegalresponsibilityfor anyerrorsoromissionsthatmaybemade.Thepublishermakesnowarranty,expressorimplied,with respecttothematerialcontainedherein. Printedonacid-freepaper SpringerispartofSpringerScience+BusinessMedia(www.springer.com) Preface In the contemporary world, the efficient management of supply chains is very critical. The most important problems encountered in supply chain management result from the information flow. In this context, RFID is the most important technologyprovidingreal-timeinformationandensuringsupplychaintraceability. RFID has become of importance in the mobile and wireless communication technologies, and has influenced various industries. Nowadays, it is used for a widevarietyofapplicationareasrangingfromretailtomanufacturing,healthcare, logistics, and defence. The developments in the semiconductor industry and cost decrease trigger the mass usage of RFID in the global business world. However, there aresomechallenges toconsider whendecidingtoinvest inRFID. Themost important one is the determination of the real value of RFID. Several years after the first releases, studies indicate that it is not easy to quantify the expected benefits of RFID integrated systems since many are strategic and intangible. RFID is a strategic key technology which adds value throughout the supply chain and increases the competitive advantage of a company. It improves the business process by increasing the process efficiency, accuracy, visibility, and security. These are four dimensions that managers should concentrate on to quantifythebenefitsofanRFIDinvestment.Sincetheinvestmentcostishighand the business processes are restructured, RFID investment should be seen as a strategic business decision and not a technology one. To ensure the RFID project success, the cost and benefit values should be calculated most accurately. This book brings together the opinions of a number of leading academics and researchers about the evaluation of RFID investments. They tried to find answers as to which methods and techniques can be used for RFID valuation and how RFIDaddsvaluetobusinessprocessesinvariousapplications.Throughindividual chapters in this book the authors present their views, approaches, concepts, and developed analytical tools. Readers from the business and academic world will learnthekeyissuescurrentlybeingaddressedinvaluationofRFIDthroughoutthe world. Thisbookiscomposedoftwoparts.Thefirstpartfocusesonthemainconcepts, methods, and techniques used in valuation of RFID. The second part deals with v vi Preface RFID valuation examples in different application areas of retail apparel, cargo, library, aerospace, healthcare, and construction. I would like to thank all the authors for contributing to this book: • Serdar Baysan, Istanbul Technical University • Sule Itir Satoglu, Istanbul Technical University • Emre Cevikcan, Istanbul Technical University • Seda Ugurlu, Istanbul Technical University • Mehmet Serdar Kilinc, University of Arkansas • Nebil Buyurgan, University of Arkansas • Sylvain Landry, HEC Montréal • Richard Philippe, Logi-D • Ozgur Kabadurmus, Auburn University • Esin Ergen, Istanbul Technical University • Gursans Guven, Istanbul Technical University • Gokhan Demiralp, Istanbul Technical University • Aylin Ustundag, Niederrhein University of Applied Sciences • Mert Bal, Yildiz Technical University I would also like to thank my colleague Serdar Baysan for his support to prepare the final format of the book. And finally I thank my parents and my wife Nihan for her moral support and endless patience. Istanbul, 2011 Alp Ustundag Contents Part I Understanding the Costs and Benefits of RFID 1 The Business Value of RFID. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Alp Ustundag 2 The Cost–Benefit Models for RFID Investments . . . . . . . . . . . . . 13 Serdar Baysan and Alp Ustundag 3 Risk Analysis for RFID Investments Under Uncertainty . . . . . . . 23 Emre Cevikcan and Alp Ustundag 4 Evaluating RFID Investments: A Real Options Approach . . . . . . 35 Alp Ustundag and Seda Ugurlu 5 Decision Making for Determining the Implementation Level of RFID Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Emre Cevikcan and Alp Ustundag 6 RFID in Supply Chain: The Tagging Cost Sharing Approach . . . 69 Alp Ustundag and Mehmet Serdar Kilinc Part II Justifying RFID Investments in Different Application Areas 7 RFID Adoption in Healthcare and ROI Analysis. . . . . . . . . . . . . 81 Nebil Buyurgan, Sylvain Landry and Richard Philippe 8 Economic Evaluation of RFID Investments in Cargo Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 Alp Ustundag, Ozgur Kabadurmus and Mehmet Serdar Kilinc vii viii Contents 9 Value of RFID Technology in Construction Supply Chains . . . . . 111 Gursans Guven, Gokhan Demiralp and Esin Ergen 10 Economic Potential of RFID Use in Apparel Retail Industry . . . . 129 Alp Ustundag, Aylin Ustundag and Mert Bal 11 Value of RFID Enhanced Maintenance in Aerospace Industry. . . 141 Sule Itir Satoglu and Alp Ustundag 12 Value of RFID in Library Management System. . . . . . . . . . . . . . 155 Sule Itir Satoglu, Alp Ustundag and Mehmet Serdar Kilinc About the Authors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169 Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173 Part I Understanding the Costs and Benefits of RFID Chapter 1 The Business Value of RFID Alp Ustundag Abstract RFIDcanbedefinedasastrategictechnologytoolredesigningbusiness processes,cuttingcosts,andimprovingtheoperationalperformance.Itisusedfor a wide variety of application areas ranging from retail to manufacturing, healthcare, logistics, and defense. It may improve the potential benefits of supply chain management through increase of the four factors: efficiency, accuracy, visibility, and security. Calculating the return on investments, the impact levels of RFID on these factors should be quantified accurately for each supply chain member. This chapterfocusesonthequestionhowRFIDaddsvaluetobusinessprocessesinthe context of these factors. 1.1 Introduction RFID (Radio Frequency Identification) systems have gained importance in the mobile and wireless communication technologies, and have influenced various industries. Nowadays, it is used for a wide variety of application areas ranging from retail to manufacturing, healthcare, logistics, and defense. RFID can be definedasastrategictechnologytoolredesigningbusinessprocesses,cuttingcosts, andimprovingtheoperationalperformance.Furthermore,anincreasingvarietyof enterprises are employing RFID to strengthen their managers’ ability to enhance organizational change and to manage growth in an increasingly competitive environment (Chao et al. 2007). A.Ustundag(&) DepartmentofIndustrialEngineering, IstanbulTechnicalUniversity,Macka, 34367Istanbul,Turkey e-mail:[email protected] A.Ustundag(ed.),TheValueofRFID,DOI:10.1007/978-1-4471-4345-1_1, 3 (cid:2)Springer-VerlagLondon2013 4 A.Ustundag Incontemporarybusiness,theefficientmanagementofsupplychainsacrossthe globe is very critical. The most important problems encountered in supply chain management are not caused by the material flow but rather result from the information flow. The lack of accurate and real-time information related to order status, inventory levels, and delivery times creates uncertainty and variability in the supply chain. Therefore, RFID technology has a critical role providing the accurate and real-time information. In supply chain management, RFID provides great benefits in tracking the products and materials in unit, case, or pallet levels. From a supply chain point of view, we can identify the benefits of RFID as the increase in process efficiency, visibility, accuracy and security. Using RFID, the labor costs are decreased by increasing process efficiency and; moreover the product availability is raised with the increasing visibility. Additionally, supply chain coordination is improved, forecast errors are diminished, and also the gap between the actual and system inventories is reduced. Thus, the inventory quan- tities are decreased. Furthermore, the increase in accuracy provides an efficient decision-making environment for supply chain members. Increased security level decreasesthetheftrate,besides,theratesofstock-outandlostsalesaredecreased and the customer satisfaction is increased. The widespread use of RFID could automate the tracking of pallets, cases, individual products, as well as reusable assets such as bins and containers throughout the supply chain. Many companies in various industries opt for implementingRFIDtechnologyinthelogisticsprocesses.Wal-Mart‘encouraged’ theirsupplierstoattachRFIDtransponderstocasesandpallets.Metroequippedits Cash & Carry supermarkets, Real hypermarkets, and the distribution centers that serve them with RFID capability and have its suppliers tag the cases and pallets. Kaufhof installed in its shop in Essen Germany ‘smart clothing shelves’, ‘smart try-outcabins’,and‘smartmirrors’.LeviStrauss&Co.haslaunchedanitem-level radio frequency identification (RFID) pilot at one of its retail stores in Mexico (Ilie-Zudor et al. 2011). Celebration health, a Florida hospital facility, is employing a real-time locating system (RTLS) to measure the operational efficiency of its new patient tower, which opened in mid-August 2011. At the tower, nurses wear RTLS badges enabling the hospitalto gather and analyze data regarding the movements of staff members, and—based on that information—to ascertainhowtheunitcouldbemoreefficient(Swedberg2011a,b).TheU.S.army logistics innovation agency (LIA) is installing more than 6,500 active radio frequency identification tags as part of its next generation wireless communica- tions (NGWC) program for logistics applications, to track military vehicles and otherequipmentinKuwait(Swedberg2011a,b).Examiningalltheseapplications indetail,wecannoticethateachRFIDprojectaddsvaluestotheprocessesinthe context offour main factors: process efficiency, accuracy, visibility, and security. TounderstandthebusinessvalueofRFID,weshouldevaluateRFIDprojectsin the business process re-engineering (BPR) context. In RFID implementation projects, ‘‘As-Is’’ and ‘‘To-Be’’ business processes will help us to determine the expected cost savings and operational performance increase. This chapter focuses onthequestionofhowRFIDaddsvaluetobusinessprocesses,soitisdividedinto