Fuzzy rule-based system for the economic analysis of RFID investments Alp Ustundag, Mehmet Serdar Kılınç * , Emre Cevikcan Department of Industrial Engineering, ITU Management Faculty, 34367 Istanbul, Turkey article info Keywords: Fuzzy rule-based system RFID implementation abstract Radio frequency identification (RFID) technology introduces the opportunity for increased visibility by facilitating easy tracking and identifying of goods, assets and even living things. The number of RFID applications and users in various fields are growing. However, high investment cost and inadequate tech- nical capability still remain as challenges for RFID system implementations. That being the case, fair eval- uation of savings associated with increasing performance and investment costs has a great role in the success of RFID projects. In this study, a systematic framework for the economic analysis for RFID invest- ment is proposed. In this method, the elements of cost and benefits are determined in order to measure the value of an RFID investment. The expected increase of customer order is determined in terms of deliv- ery accuracy and delivery time via a fuzzy rule-based system. The Monte-Carlo simulation method is used to determine the expected net present value (NPV) of RFID investment. A case study is constructed on the basis of expert conception to illustrate the proposed method. Ó 2010 Elsevier Ltd. All rights reserved. 1. Introduction Radio frequency identification (RFID) is a technology that incor- porates the use of electromagnetic or electrostatic coupling in the radio frequency (RF) portion of the electromagnetic spectrum to uniquely identify an object, animal, or person. The principal advan- tages of RFID system are the non-contact, non-line-of-sight charac- teristics of the technology. Tags can be read through a variety of visually and environmentally challenging conditions such as snow, ice, fog, paint, grime, inside containers and vehicles and while in storage. RFID systems are emerging as a practical means of auto- identification in a wide variety of applications from access control to animal tracking. RFID systems are likely to supersede bar codes in some applications and complement bar codes in others (Roberts, 2006). An RFID system consists of three components: an antenna and transceiver (often combined into one reader) and a transponder (the tag). The antenna uses radio frequency waves to transmit a signal that activates the transponder. When activated, the tag transmits data back to the antenna. The data is used to notify a pro- grammable logic controller that an action should occur. The action could be as simple as raising an access gate or as complicated as interfacing with a database to carry out a monetary transaction. Radio frequency identification (RFID) systems is regarded as key to the success in supply chain management, no matter which prod- uct or industry is considered. Therefore, RFID systems gained pop- ularity and implemented for distribution, manufacturing, warehousing processes, even in industries such as defense and healthcare. The history of this technology goes back to 1939. During World War II, the British wanted to distinguish between their own return- ing aircrafts and those of the enemy, thus they placed transponders on their aircrafts which would be able to respond appropriately to interrogating signals from base stations. This was called the iden- tity friend or foe (IFF) system and is widely considered the first use of radio frequency identification (Dittmer, 2004). The first com- mercial use of the RFID began in the 1960’s with the development of the electronic article surveillance (EAS) equipment by the com- panies Sensormatic, Checkpoint and Knogo to prevent the theft of merchandise. In the 1970s developers, inventors, companies, aca- demic institutions, and government laboratories began working actively on RFID, and notable advances were being realized at re- search laboratories and academic institutions. In 1990’s RFID saw the wide scale deployment of electronic toll collection in the Uni- ted States and the installation of over three million RFID tags on rail cars in North America (Landt, 2005). Subsequent to the announcement of US. Department of Defense that RFID technology held the potential to revolutionize ‘‘In-Transit-Visibility” and the ‘‘Total Asset Visibility” in supply chains, many technology vendors were encouraged to push forward RFID development for commer- cial purposes (Liard, 2003). However, the value of RFID technology for managing business supply chains has only been recognized in recent years. The business press has since proclaimed that RFID marks a commercial innovation with the potential to soon replace barcode technology in the supply chains of numerous industries. 0957-4174/$ - see front matter Ó 2010 Elsevier Ltd. All rights reserved. doi:10.1016/j.eswa.2010.01.009 * Corresponding author. Tel.: +90 212 293 1300; fax: +90 212 240 7260. E-mail address: serdarmehmet@gmail.com (M.S. Kılınç). Expert Systems with Applications 37 (2010) 5300–5306 Contents lists available at ScienceDirect Expert Systems with Applications journal homepage: www.elsevier.com/locate/eswa