EPCGlobal members, U.S. educators calculating the ROI of RFID
by Staff -- Manufacturing Business Technology, 8/1/2005 6:00:00 AM
EPCGlobal, MIT, and Stanford University's Global Supply Chain Forum recently launched EPC Value Model, a calculator for midsize and large manufacturers that determines potential ROI from implementing RFID technology. The tool was developed based on study results generated by nine EPCGlobal members—among them Gillette, Hewlett-Packard, Johnson & Johnson, and Wal-Mart.
"Previous studies have tried to predict an average ROI," says Dr. Hau Lee, codirector of the Stanford forum, "but our analysis demonstrates that benefits are an evolving landscape, dependent on different scenarios faced by different companies. The EPC Value Model takes these scenarios into account."
Says Dick Cantwell, VP of Boston-based Gillette Company, which is working with the calculator, "By applying the EPC Value Model to our business, we believe EPC [electronic product code] will allow us to achieve about 20 percent in operational savings per distribution center. When combined with greater retail availability for our products, the ROI could be as high as 25 percent."
Development of the EPC Value Model involved analyses of six business issues and five business drivers common to most manufacturers, all of which are subject to improvement by applying RFID technology. The tool is comprised of Excel spreadsheets for arriving at potential ROI based on inputs such as annual revenue, profit margin, expected business growth rate, annual cost of capital, and average inventory level as a percentage of sales.
Manufacturers also must identify and input key areas wherein they think RFID will be of benefit, including out-of-stocks, shrinkage, and counterfeiting. The tool generates analyses of estimated benefits in terms of added revenue and profit, reduced costs, and improved services levels. It also generates five-year perspectives on both RFID implementation costs, and discounted net-present-value calculation.
"The more a company hunts for value, the more it will find," says Mike Meranda, president of EPCGlobal US. "The process savings and the supply chain visibility only begin after using EPC, so the earlier you get started, the earlier you'll start to see a return."
