Assessing the business value of RFID under uncertain conditions Prof. Dr.-Ing. Bernd Scholz-Reiter Dipl.-Wi.-Ing. Marco Lewandowski M.Sc. Christian Gorldt Dipl.-Wi.-Ing. Patrick Dittmer BIBA - Bremen Institute for Production and Logistics, Bremen, Germany Abstract Radio Frequency Identification (RFID) and other wireless technologies are currently transitioning from proto- type application towards real productive systems. Possible investments into these new technologies must meet economic criteria and generate a certain business value. Anyhow, estimating all cost factors and saving opportun- ities is difficult due to uncertainty in input data. This paper presents a review of current approaches to determine the business value of RFID systems. Moreover, it points out the most important factors that influence the busi- ness value and proposes additional concepts to handle uncertainty in the calculation of the business value of an RFID system. 1 Introduction Due to new structures and shorter distances between production sites as well as increased velocity in pro- duction and transport, supply networks must operate more efficent. Especially the automobile industry taught us that modern logistic processes should be lean. Nowadays, enterprises of all kinds run their business under high competitive pressure due to changes in market constellations and customer de- mand. This led to the necessity of improved quality and faster delivery times. In addition, price pressure forces companies to cut costs. [3] RFID and other wireless technologies promise to make logistic processes more reliable. Within the last years and under the influence of comprehensive stan- dardizations, RFID developed from prototypes to real business applications. [12]. However, it is still of ut- most importance that RFID systems meet economic criteria. Thus, calculating the business value of an RF- ID system for a particular enterprise or application is an important step within the whole planning and inte- gration process that must be elaborated. In that con- text, entrepreneurial decisions of managers who judge the operating efficiency of RFID technologies and systems are based on such calculations. [11]. 2 Known approaches for calculat- ing the business value The implementation of an RFID system into the processes of an enterprise leads to the question whether to invest into the particular technology or not. At first glance, this decision is based on the RFID sys- tems’ ability to help reach projected goals. In order to make decisions based on quantitative data different methods for investment appraisals are known. Those include standard static and dynamic models as well as advanced models [5]. All these models request certain input variables especially including investment costs, annual costs and savings. Using these variables, the business value of an RFID system can be calculated and the economic profitability evaluated. Normally, this is expressed by a return-on-investment (ROI) or a payback period. 2.1 RFID specific considerations regard- ing the business value Several authors have been engaged in determining the business value of RFID systems. Reyes & Jaska 2007 [11], for instance, presents an implementation process for RFID systems that enables responsible managers to answer the question whether an RFID system is ap- propriate for their business or not. Regarding the myths of RFID that promise a superior value for many businesses, these have to be examined first so that one can build a ROI business case. Requirements analysis, prototype testing, implementation, monitoring and continuous improvement are further steps within this process. Nevertheless, the paper does not provide a more detailed framework for a business case calcula- tion. In order to compare and evaluate the circumstances of a companies’ RFID project, case studies can deliver an appropriate data source. In that context, Tzeng et al. 2008 [16] for instance, gives an overview of qua- litative advantages of RFID in five case studies. How- ever, Tajima et al. 2007 [15] abstracts the qualitative aspects and assigns them to a general supply chain