4 APRIL, 2005

Look at the wider picture

In the words of the song “Money makes the World go around” How true this is, but how it seems to pass me by with regular monotony. And I suspect that I am not alone. But just where is this untold wealth resting?

In the last issue of this publication I raised the question of whether the implementation of RFID would give financial benefit to companies as well as achieving better control of stock, smooth supply chain movements, improved manufacturing flows and a reduction in stock. All of this to result in improved profits and if so who gets the profit?

Whilst I contend most vehemently that RFID is bigger than supply chain it is still the area that seems to be getting the biggest press. But first let’s throw some legal obligations and compliance pebbles into the pool and watch the ripples.

Last issue I asked if we could witness and report on the steps taken the in implementation of a RFID project. It was inevitable that there would be no reply; but I had to ask! However embodied within this request was a hidden motive that will hit all of the supply chain people like a sledge hammer in the fullness of time.

Some of these are called SOX (and everyone must had heard about Section 404 of Sarbanes-Oxley - but have a look at section 302); the eighth and tenth EU directives, Chapter 27 of the Companies Act and many many more!

It is claimed that SOX is only for US companies and that on this a side of the pond we do not have to worry. And even then it is only designed for large companies quoted on the New York Stock Exchange. Hmmm I wonder.

So where are we?
Software companies claim that their system will deliver wonderful ROI. If one accepts these at face value your company’s money can start to go round again.

First one needs to define just what Return on Investment is?

At the risk of being boring (well most accountants are!) you would also need to look at cash flow.

It is important to quantify just how much money has to be invested today to get the project moving and how long will the project take to deliver this return on investment.

Remember that cash today with a promise of profit tomorrow has killed many a good company. Just look at how high IT salaries are today as compared to 10 years ago. Money is worth a lot less.

Some of the questions are (a) would it be better to put the money in the building society (b)what is the cost of the risk of putting in the system when compared to the potential benefit? Answering these questions might stop you from starting the project.

However suppliers to Wal-Mart or Tesco would seem not to have this problem as unless they invest then they do not have a business. So system implementation is virtually obligatory.

And whilst this path is being travelled, as a reminder, one should watch over one’s shoulder at all of the compliance issues.

My first thought was that I did not just want to be a bearer of bad tidings but there are things out there that are really needed to be considered.

RFID offers huge potential to make these savings and improve cash flow but RFID is about process improvement and system changes. Implement RFID whilst watching out for these other facts and you are starting to take in the whole picture.

The best that is available at the moment is probably CMMI (capability maturity model integration). This is all about proper control of your process improvement and when coupled with ITIL (IT Infrastructure Library) which covers variety of disciplines including Capacity Management, and IT Financial Management. CMMI and ITIL offer a good controlled route that can save the enterprise a lot of money in the long run. They are not the panacea to all ills; but they do help. When a company reaches CMMI Level 3 (out of 5 levels) it can gain a competitive edge over the competition and give itself one enormous commercial advantage. When ITIL is implemented it provides a tool of best practice.

These areas will be addressed later on in this issue but the implementation of an RFID project is more complex that at first it would seem. It will need to be driven by the overall business controls and not just by the desire to see the RFID system work. Perhaps the project manager should have a wide range of knowledge and be able to understand all of the business drivers whilst being able to guide the RFID and computer software along the right path.

The man or woman should be a key member of a Compliance Committee (more on this later too) and be the “architect of the solution”.
Let’s not be negative as there is potentially a lot of money in RFID but it is important to make sure that when the money goes around that a little of it settles where you want it.