RESEARCH NOTE D119 ROI ANALYSIS YOU CAN TRUST T M
RFID-Enabled Manugistics:
A Catalyst for RFID ROI
THE BOTTOM LINE On October 27, 2003, Manugistics Group, Inc. announced a host of
Though an RFID-enabled radio frequency identification (RFID)-enabled supply chain software
Manugistics system can products. These include software to poll RFID systems to monitor
increase returns from an and detect specific supply chain events, to manage order and
RFID deployment, the delivery processes, and to help with fulfillment, transportation, and
cost and reliability of pricing optimization.
RFID technology need to
improve. Most companies Combined, these software products provide a solid foundation for
need to use pilot projects companies to take advantage of the wealth of data delivered from
to identify problematic RFID solutions. But that assumes that companies have already
business processes deployed their RFID systems, which — as a recent Nucleus study
before they can begin pointed out — is not the case.
implementing large-scale
RFID systems. Before considering what to do with RFID data, companies need to
answer some fundamental questions about deploying RFID systems
and reaching a positive ROI if that deployment occurs. For most
companies, a number of barriers still stand in the way of a positive
ROI. Detailed in Research Note D107, RFID: An ROI Black Hole,
these include:
• Technological immaturity. Several issues with RFID tags need to
be worked out, including their reliability rates (now well below
98%) and their ability to transmit through materials such as
water and thick metals.
• Cost. With RFID tags still between 50 cents and $1.00, the cost
of implementing large-scale RFID systems, especially at the
product level, is prohibitive.
• Trading partner adoption levels. Real benefits from RFID can be
realized only when companies upstream and downstream in the
supply chain also implement the technology. It’s a classic
network effect that needs all partners on board for real ROI to
occur.
• Existing investments. Many companies have large investments in
optical barcode scanning technologies that they are not about to
discard. Companies with these technologies will see a lower
© 2003 Nucleus Research, Inc. incremental ROI from RFID deployments.
Reproduction in whole or in part without
written permission is prohibited. Nucleus
This is not to say that companies should wait for all of these
Research is the leader in the return on
investment analysis of technology. Please problems to be resolved before developing an RFID strategy. As the
visit www.NucleusResearch.com. Manugistics announcement and RFID mandates from Wal-Mart and
the Defense Department show, RFID is the future of the supply
RELATED RESEARCH chain. Companies should follow a few simple strategies to get ready
for RFID. Most important of them is identifying areas of their
D107 RFID: An ROI Black Hole
businesses where RFID can provide clear value. These are areas
D57 The Real ROI from Manhattan
Associates with the following problems:
D16 The Real ROI from Manugistics • Stock-outs. Manufacturers can avoid parts stock-outs when they
D1 The Real ROI from i2 Supply Chain
Management
have visibility into their suppliers’ inventory, and retailers can
avoid stock-outs with a real-time view of products on the shelf
and in the warehouse. RFID systems can help solve stock-out
problems by automating the process of providing this data.
• High labor costs. Labor costs are often highest when companies
have manual inventory and product scanning processes. RFID
can help cut these costs by automating inventory counts and by
eliminating the need for manual barcode scanning.
• Theft. Companies with employee and customer theft problems
can reduce the associated costs with real-time data on the
whereabouts of products and parts.
• High inventory levels. Running a tighter supply chain with less
inventory is a goal that companies can achieve by always having
an up-to-date and accurate inventory count from the RFID data
stream.
When a company identifies business areas impacted by these
issues, it can begin a limited pilot RFID program to address them.
This is where a company with an existing Manugistics system can
benefit from that company’s RFID-enablement announcement.
Without the intermediate stage of looking at the problems caused
by current business processes, there is no way to justify the cost of
implementing RFID and there is no method to gauge its ROI. But
with these areas in mind and with a system like Manugistics to act
on RFID data and to measure improvements, a company can gather
the information to make a pilot successful.
If the returns from the pilot are positive — and it shouldn’t take
long to realize this — a major hurdle to implementing RFID has
been overcome. Now the company can look at the TCO of an RFID
system (which is constantly falling) as well as the reliability levels
(which are constantly improving) available to make an informed
decision about whether to proceed.
Only at this point does Manugistics’ RFID announcement truly make
an impact on a company’s ROI. If the business processes for which
RFID can make an impact are identified, if a pilot program shows
that those processes can be improved, and if the RFID technological
and cost hurdles are overcome, companies can — and should —
implement a large-scale RFID system to tie into their Manugistics
supply chain system.
Nucleus Research, Inc. D119
www.NucleusResearch.com Page 2
