Executive Summary

As a technology emerges into a mainstream business process enabler, the trail of successes, mistakes and learning blazed by early adopters becomes a roadmap for those who follow. RFID standards organizations, affiliations of technology vendors, and large enterprise users have brought a common language, educational materials for developers, security acceptable to some of the most sensitive organizations, and a level of mainstream awareness and understanding that has business line managers and corporate IT departments asking a new question:
What is the ROI model for RFID?

Key Business Value Findings

Achieving positive ROI in an RFID initiative depends greatly on the business problem, the approach taken, the commitment of the organization to leveraging the technology, and the ability of the enterprise to turn RFID data into business intelligence. Aberdeen research shows that the overall, cross-industry average time it takes a best-in-class organization to recover an RFID investment is about 30 months and falling, with the low being 18 months and high estimated at about 4 years (Figure 1).

Implications & Analysis

New developer toolkit technology and intelligent edge devices, growing adoption of standards across industries, and the falling cost of tags and sensor hardware, are shortening the expected time to positive ROI. In particular, the once hidden costs associated with sometimes dramatic organizational changes brought about by (or necessary to) a successful RFID implementation can now be anticipated and managed.

Technology Usage (Industry "Ah-ha")

Across all polled industry categories, RFID adoption is increasing. Tag and platform costs are top of mind for a majority of the companies using the technology. Mandates and regulatory compliance is waning as a primary driver, highlighting an increased focus on ROI as the major driver. Tag technology standards are emerging and the tags themselves are getting stronger and more reliable as well as less expensive. Active tags, hybrid tags and EPC Class 2 passive tags are enjoying double digit adoption rate increases, as projected over the next two years (Table 3).

Pressures, Actions, Capabilities, Enablers (PACE)

We have shown that there is a clear relationship between the pressures companies identify and the actions they take, and their subsequent competitive performance. All participants should examine their prioritized PACE selections and determine whether there are valuable perspectives to be gleaned by comparison with the PACE priorities of Best in Class companies.

Process and Organization

.In the process category, firms that consider RFID to be a part of an overall strategy for performance improvement and involve partner organizations in the design and implementation of the systems realize better longterm ROI.

In otherwise similar implementations, the firm that trains for internal expertise is better positioned to apply the technology beyond the original objective.

Firms the share the design and implementation between business line management and IT enjoy a 26% shorter average time to positive ROI than firms that take a less collaborative approach and achieve positive ROI in 35% less time the companies whose business operations group out-sources management of the project. (Figure 6).

Firms the share the design and implementation between business line management and IT enjoy a 26% shorter average time to positive ROI

What is behind this increased focus and priority? ROt. 76% of enterprises indicated that positive ROI was the highest priority behind their decisions to adopt and expand an RFID initiative, a marked change from the state of the industry less than one year ago.

Cost, revenue, profitability, and competitive benefits await all firms that are committed to optimizing their use of RFIO. The aggressiveness of recommended improvement activities is true across industries, for companies large and small, whether competing in the supply chain, in health care, in field service, or elsewhere.

In certain industries - such as high-volume consumer packaged goods, pharmaceuticals, and distribution of perishables - where efficient use of Auto-IO and sensor technology is critical to business continuity, the competitive advantage will be won and lost based on differentiated operations. Thus, firms in these industries should constantly strive to improve their organizations. (Figure 9).

Whether a company is trying to gradually move its contact center from "Laggard" to "Industry Average," or "Industry Average" to "Best in Class," the following actions will help spur the necessary performance improvements:

Laggard Steps to Success

1. Look beyond compliance.

ROI is elusive when the primary objective for RFID implementation is compliance. Perhaps ROI isn't a concern; but it is never irrelevant. Once the technology decision has been made, steps can be taken to identify opportunities for production and workforce efficiency.

2. Encourage collaboration between departments and with trading partners.

Even if RFID is being employed in a very limited scope to solve a specific business challenge, the implications of the technology to other parts of the organization and outside the enterprise should not be ignored. Meaningful conversations among line of business managers and the IT groups in partner organizations can yield valuable long-term strategies for improved ROI.

3. The right solution might be the least expensive solution.

New methods for deployment of RFID can make it possible to implement without gross spending. SOA models and intelligent edge devices can dramatically reduce the costs of getting started without sacrificing the opportunities for long term ROI.


Industry Norm Steps to Success

1. Increase collaboration.

Encourage collaboration between business and IT to share strategy and actively seek process optimization. Include trading partner objectives in the architectural design.

2. Innovate for real-time visibility.

Reward for innovation and focus on turning real-time business process data visibility into actionable business intelligence. Engage performance analytics and process monitoring to catch and handle exceptions before they become problems.

3. Build in-house expertise.

Industry consultants with deep domain expertise are invaluable in the early stages of any RFID initiative. Continue to watch the industry and communicate with experts but focus on building in-house expertise. The long-term ROI of RFID is more achievable when internal experts are maintaining the systems, evaluating the opportunities, and monitoring performance.

4. Leverage existing RFID infrastructure to solve process inefficiencies beyond the original scope of deployment.

Once RFID is in use in the organization, look for ways to leverage the technology. ROI can be found in areas as disparate as security, loss prevention, pedigree tracking, aftermarket service, marketing, product development, and data sharing.

Best in Class Next Steps

1. Continue to innovate.

A well-designed RFID solution opens new opportunities for intelligent and proactive business process improvement. As laggards and average companies begin to adopt best practices, RFID in the production line will stop being a differentiator which competition for added-value in visibility and collaboration will become more important. Study the opportunities for value-added extensions of RFID in the enterprise.

Assume the barriers to entry will disappear.

The average and laggard companies are not far behind and gaining quickly. As the cost of technology comes down and as standards and methods solidify, leaders must remain flexible and adaptable. Once RFID is fully integrated into the business process, it is easy to get entrenched and become too rigid to adopt innovative ideas. Like all enabling technology, RFID is still developing. Don't miss the opportunity to leverage a position of leadership.

Focus on the long-term ROI

Train the development, production, management, and line of business staff to focus on the long-term ROI of RFID. Integrate the enabled systems into corporate reporting and encourage trading partners to leverage the data and the visibility that RFID provides to improve extra-enterprise collaboration.


Appendix A:

Research Methodology

During August and September, 2006, Aberdeen Group examined the procedures, experiences, and intentions hundreds of enterprises in retail, supply chain, hightech, transportation, health care, pharmaceutical, and other industries.

Responding business line managers, IT executives, and corporate application developers completed an online survey that included questions designed to determine the following:

The degree to which ROI impacts technology decisions;

Current and planned use of RFID technologies;

Risks and challenges in achieving ROI;

The benefits that have been derived from RFID;

The importance and methods for measuring the ROI.

Aberdeen supplemented this online survey effort with telephone interviews with select survey respondents, gathering additional information on RFID strategies, experiences, and results.

The study aimed to identify emerging best practices for achieving ROI in an RFID initiative and provide a framework by which readers could assess their own ROI performance.

Responding enterprises included the following:

Job title/functio11: The research sample included respondents with the following job titles: line of business managers (30%); C-level officer (16%); director (14%); development staff (16%); and consultants (16%).

Industry: The research sample included respondents predominantly from retail, transportation, consumer goods, high-tech, and mining/oil/gas. Retail represented 12%, followed closely by transportation and consumer goods each with 10%, and health/medical, high-tech and software each with 7% of the survey pool. Mining/oil/gas, aerospace and public sector companies each accounted for 6% of respondents. Other sectors responding included automotive, industrial equipment, metals and telecom.

Geography: 51 % of the study's respondents were from North America, 25% were from Europe, and 18% from AsialPacific.

Company size: About 45% of respondents were from large enterprises (annual revenues above US$1 billion); 21 % were from midsize enterprises (annual revenues between $50 million and $1 billion); and 34% of respondents were from small businesses (annual revenues of $50 million or less).

Solution providers recognized as sponsors of this report were solicited after the fact and had no substantive influence on the direction of this report. Their sponsorship has made it possible for Aberdeen Group to make these findings available to readers at no charge.

Appendix B:
Related Aberdeen Research & Tools

Related Aberdeen research that forms a companion or reference to this report include:

.RFID Benchmark Report: Finding the Technology Tipping Point (December 2005)

RFID Benchmark Report: Scaling RFID Implementations from Pilot to Production
(June 2006)

Candid Comments: RFID in Health Care (June 2006)
Service Oriented Architecture is Key to Scaling RFID Deployments (March 2006)

Mandates Temporarily Drive Mid-Size Manufacturer RFID Adoption (March 2006)

Average Change in Mobile Fleet Productivity as a result of Mobile Computing
(January 2006)

RFID's Biggest Non-Issue Now Resolved; Consortium Launched (September 2005)

RFID-Enabled Logistics Asset Management: Improving Capital Utilization, Increasing Availability, and Lowering Total Operational Costs (June 2004)

RFID in the Consumer Industries: Being a Winner, Not a Follower (March 2004)

Information on these and any other Aberdeen publications can be found at www.Aberdeen.com

To read more articles on Textile, Fashion, Apparel, Technology, Retail and General please visit www.fibre2fashion.com/industry-article

To promote your company, product and services via promotional article, follow this link: https://www.fibre2fashion.com/services/featrued-article/featured_article.asp

As a result, enterprises are enjoying shorter design and pilot phases, scalable solutions, smoother rollout, and less challenging integration tasks. This benchmark report demystifies the technology options, reveals the ROI, and provides a roadmap to best practices in the development, management and optimization of an RFID solution.

Recommendations for Action

In addition to the best-in-class actions, companies should evaluate their RFID initiative planning using the following guidelines:

Start early. The sooner you get an RFID initiative into the design phase, the more likely it is you will get a jump on your competition.
Understand your objectives. Start small but think about how the solution will scale across business processes throughout the enterprise.

Pick the right partners. Selecting the proper "flavor" of RFID and technology vendors
with domain expertise is essential to a successful program.

Don't "self-integrate" unless you happen to be a data integration specialist. Your information architecture will make or break the long-term ROI.

Run a pilot. It is easy to miscalculate during the design process or underestimate the costs. A validation exercise greatly reduces the time to ROI.

Test "what-ifs". RFID is a powerful way to reduce the cost of exceptions. If you design using the "80% rule" the other 20% can negate the ROI.

Look beyond compliance. If you are implementing RFID to satisfY a compliance requirement and do not think about what you would do if the cost of tags were zero, then you are compromising the value of the effort.

This report will discuss each of these points and many others in detail. Given the state of the RFID industry today, every organization has the opportunity to emerge as a best-in class company and achieve positive ROI.

As a technology emerges into a mainstream business process enabler, the trail of successes, mistakes and learning blazed by early adopters becomes a roadmap for those who follow. RFID is not a new technology, however its use has until recently been confined to narrow applications, experimental labs, and pilot programs, awaiting a tipping point and slowly maturing. In December, 2005, Aberdeen produced a report, called Finding the Technologv's Tipping Point, citing six significant milestones that would have to be achieved before it was safe to say that the tipping point was reached. In the nine months since then, all six have come to pass.

Standards have emerged;

Pilots have been shown to be scalable and replicable;

Broad, cross-industry and government initiatives have gained acceptance and begun to achieve their goals;

Enterprise technology vendors offer products and services to support the technology and translate it to a larger audience;

Analytics and software application vendors have product offerings that take advantage of a wide range ofRFID capabilities;

And an ever increasing number of retailers are announcing RFID initiatives, not to mention many other industries that have discovered and begun adopting the technology.

It is safe to say that RFID has graduated from an "emerging technology" to an "enabling technology" and it is time for mainstream businesses to learn from the early adopters.

In June, 2006, Aberdeen produced a second report, called Scalimr RFID Implementations From Pilot to Production, which documented some of the challenges of and lessons learned from early pilot projects as their architects attempted to roll them out into the business environment. Most of the common challenges were focused on the technology itself: interoperability, lack of expertise, poor administration, security issues, and general lack of understanding. In the short time since then, standards organizations, affiliations of technology vendors, and large enterprise users have brought a common language, educational materials for developers, security acceptable to some of the most sensitive organizations, and a level of mainstream awareness and understanding that has business line managers and corporate technology departments asking a new question: What is the ROI model for RFID?

The ROI of an RFID initiative depends greatly on the business problem, the approach taken, the commitment of the organization to leveraging the technology, and the ability of the enterprise to turn RFID data into business intelligence. As of the publication of this report, our research shows that the overall, cross-industry average time it takes a best-inclass organization to recover an RFID investment is about 30 months, with the low being 18 months and high estimated at about 4 years (Figure 1).

Despite these findings, it should be noted that even as this report goes into publication, new developer toolkit technology, RFID-aware vertical applications, robust middleware, intelligent edge devices, growing adoption of standards across industries, and the falling cost of tags and sensor hardware, are shortening the expected time to ROI. In particular, the once hidden costs associated with sometimes dramatic organizational changes brought about by (or necessary to) a successful RFID implementation can now be anticipated and managed. Technology vendors and 3rd_party integrators are acquiring domain expertise which goes beyond making the proper technology choices; they are familiar with the impact RFID can have on business process management and can help guide a company through the organizational changes required for successful adoption, with minimal pain.

As a result, enterprises are enjoying shorter design and pilot phases, immediately and rapidly scalable solutions, smoother rollout, and less challenging integration tasks. Some companies are actually finding that ROI begins on day one. It begins with setting the right objectives.

In this study, asset tracking and supply chain visibility emerged as the two dominant applications of RFID technology (Figure 2),

The fact that these applications have surpassed compliance as a primary motivator shows that companies are learning an important lesson about RFID: the business case for and the economics of RFID for the sake of compliance are not compelling. Compliance is a good excuse to begin thinking about RFID; but the ROI is likely to be discovered elsewhere.

Security applications of RFID enjoy a relatively short time to positive ROI, largely because the results are immediately measurable and easily quantifiable. In addition, security applications tend to be applied to high-value items where a slight reduction of theft or loss can have a significant impact on the bottom line. Not surprisingly, the survey results show that RFID applications to valuable asset protection from theft, tampering, loss and unauthorized use will rise dramatically over the next 6-to-12 months.

Second to compliance, marketing campaign management applications of RFID suffer from a relatively slow time to positive ROI. In follow-up interviews with companies using RFID to track the effectiveness of marketing and product promotion campaigns it was revealed that there is a substantial gap between the RFID data and the kind of business intelligence that can make a significant contribution to the effectiveness of such a campaign. Retailers said that the information was useful for demonstrating to manufacturers and suppliers that the promotions were executed as promised. But the value to the retailer was limited to minimal workforce management optimizations. The lofty objective to understand what products customers are looking at but not buying is, for the most part, still unrealized.

Three years is not an unreasonable time to positive ROI for an initiative as aggressive as enabling supply chain visibility with RFIO. In a recent Aberdeen benchmark report, Collaboration Excellence: Content Management. Data Integration and the Enterprise Portal (August 2006), it was reported that collaborative portal applications are more expensive to deploy by virtue of the fact that multiple organizations or departments are involved in the solution. The same is true for collaborative (or open-loop) RFIO initiatives, of which the supply chain is certainly one. In fact, visibility itself is not the real source of value; the ROI is locked in the real-time, actionable business process data such as changes in environmental conditions that help the organization adjust proactively and handle exceptions before they become problems. It is only through the combination of technologies (sensors, data capture, analytics, and alerting) in a flexible organization that an open-loop RFIO system can deliver positive ROI.

Clearly, there is still risk. Organizational, strategic, technical, and environmental challenges still deter many companies from seriously considering the technology. In these areas, education and standards become crucial to the continued growth of RFIO.

Key Summary Point 1

Setting realistic expectations for the time to positive ROI is an important step in developing a strategy for deployment. As the risks and the costs shrink and the technology matures, adoption rates grow and new techniques for achieving positive ROI more quickly continue to emerge.

Even though RFIO has recently reached a tipping point, the technology is not new. In this study, 10% of the companies surveyed have had an RFIO initiative in place for more than five years. Among those early adopters, over half are larger than $5B in annual revenue and have invested an average of $1.5 million in RFIO technology which is about three times the average. Eighty-five percent of them achieved positive ROI in the first five years. However, all of them, when asked, considered the bulk of the benefit of the ROI initiative still in the future.

Short-term ROI is important since it is easier to measure and sets the stage for further development and the realization of the longer-term value. The most popular place to look for quick return is in improved process efficiency (Figure 4).

Costs are a Consideration

All of the respondents were concerned with the cost of integration and the cost of tags. Best-in-class companies were much more concerned about the software implications, personnel, new hardware acquisition, and training; whereas, average and laggard companies were more concerned with the cost of the solution platform, the ongoing cost of ownership, and lost revenue from non-compliance.

The differing attitudes toward the cost of implementation are a reflection of the objectives and concerns overall. In particular, the attention placed on compliance by the laggard organizations reveals a lack of insight into the sources of ROI. Non-compliance can translate into lost business in some cases; but, compliance is unlikely to translate directly into positive ROI. Laggard organizations would be wise to study their motivation for adoption and adjust their strategy to focus on ROI.

Combating the Cost

There are several methods for reducing the cost of an RFIO implementation:

Use intelligent edge devices;
Use flexible, standards-based middleware;
Use a pay-per-use model.

Intelligence at the Edge

Event processing is the primary trigger for all Auto-IO systems, including RFIO. The extent to which a reader can keep up with the flow of tags through the choke-point, sensibly route the event data into the workflow application, and, in some cases, write data back to the tag as is passes, is the extent to which the system as a whole benefits from the routing of data, and scale intelligently, simplifies deployment and reduces the time to positive ROI.

Flexible. Standards-Based Middleware

Vertical application developers are beginning to incorporate RFID-enabled visibility into their core offerings. Unfortunately, the standards are still immature and each application has its own expectations and demands on the format and delivery mechanism for the transaction data. Middleware is the intelligence layer between the edge devices and the back-end systems. A middleware platform can take a complex integration challenge and make it relatively simple if it is architected correctly, According to Aberdeen research, the average and laggard RFID adopters are concerned about the cost of the RFID platform, its ability to scale, and the possibility of obsolescence as edge devices become more intelligent and vertical applications more mature. However, middleware is maturing as well.

Flexibility and strict adherence to standards makes the "glue layer" a development necessity in any environment where there is cross-application integration, extraenterprise collaboration, or communication with many different kinds of edge devices. While it might seem like an attractive option to strike middleware from the RFID deployment budget, an investment in a flexible, standards-based integration layer can reduce overall development time, result in a more robust and scalable cross-enterprise solution, and shortcut the time it takes to achieve the long-term ROI objective.

SOA in RFID

Intelligent, active tags are still expensive. Re-usable totes, containers and other logistical assets can often cost an order of magnitude more than their contents. They need to be serviced periodically and tracked and traced throughout the supply chain. A company which is not in the technology, transportation, or service business can find these challenges daunting and distracting, but a necessary burden. It is now possible to leverage SOA, the popular new "pay-per-use" model of software delivery that is transforming traditional packaged software business. At little or no upfront cost to the customer, the vendor delivers and installs edge, middleware and back-office technology required for the RFID initiative and charges an incremental fee per read or per tote, taking all the burden of deployment and maintenance off the back of the customer. In such a solution, deep domain expertise on the part of the vendor is essential to a successful program. It should not be necessary for the customer to modify core processes or differentiating methods to accommodate the technology; but this is only possible when a trained industry-expert is available to customize the edge-ware and applications to fit the process.

Key Summary Point 2

Cost is half of the equation for calculating the short-term ROI of any initiative. The key to reducing installation cost is to select the right combination of edge devices, middleware, and application technology. Once the system is functional, standard measures for reducing the cost of ownership for any critical system apply to RFIO, such as staff training, hardware maintenance,

Challenges and Responses

Standing in the way of a successful RFIO initiative, according to survey respondents, are insufficient metrics to understand whether the solution is working, difficulty quantifying the improvements, the perception that the ROI is a moving target, and that it is still maturing.(Table 1).

All of the challenges cited by survey respondents centered on Business line managers' difficulty measuring the performance improvement as a result of an RFIO implementation. No clear response to this challenge emerged in the research. However, in one form or another, education is the answer. Whether that means internal knowledge-building, contracting with outside experts, or lab-testing to develop performance benchmarks prior to and post-deployment, organizations across the board, from laggard to best-in-class, agree that education is key to success. Best-in-class companies prefer developing internal expertise, understanding that the long-term ROI depends on turning data into actionable business intelligence, a challenge best undertaken by internal experts.

Key Summary Point 3

The industry leader has a long-term plan for the RFID initiative, an integrated and strategic system designed to improve performance throughout the organization and deliver actionable business intelligence into the enterprise. Followers adopt tactical measures to Benchmark Report: Finding the ROI in RFID combat the specific problems, measuring the results in incremental labor, loss or processing efficiencies. Leaders will spend the time and resources to develop internal expertise and leverage performance analysis to improve and innovate. In some cases, RFIO can begin to deliver positive ROI immediately upon implementation.

As shown in Table 2, survey respondents fell into one of three categories - Laggard, Industry Average, or Best in Class - based on their characteristics in four key categories: (1) process (ability to address exceptions, turn data into actionable business intelligence, and to innovate); (2) organization (collaborative strategy, design expertise, and staff training); (3) knowledge (enterprise data management strategies, visibility, and real-time process management); and (4) technology (intelligent routing, infrastructure excellence, analytics and performance improvement).

In each of these categories, survey results show that the firms exhibiting best-in-class RFIO usage characteristics also enjoy best-in-class financial performance.