A scenario analysis for evaluating RFID investments in pallet management

Pallet management, which involves direct and reverse logistic models, may represent a critical activity for logistics provider firms. Pallets are needed in order to ship products from the producers/distributors to the retailers. Recently, pilot projects have demonstrated that performances of pallet management system could be improved by an advance tracking system based on Radio Frequency IDentification (RFID). RFID systems can increase effectiveness in acquiring data about properties of any entity – such as pallet – that can be physically identified and traced. In this paper, an effective model, based on the well known Activity Based Costing (ABC) technique, is proposed to evaluate economic feasibility of different design decisions regarding the whole pallet management system of a logistics provider. The model has been applied to different operational scenarios in a real case study: The scenario analysis aims to compare different configurations of pallet management systems based on RFID applications. Results obtained highlight how an RFID application is economically sustainable to reduce the overall cost of pallet management activities in different operational conditions. Finally, based on cost structure previously evaluated by the ABC model, an investment evaluation based on traditional indexes (e.g. ROI, Net Present Value, etc.) has been carried out. Therefore, the integration of the ABC model with traditional investment analysis has improved the effectiveness and the reliability of the feasibility study for evaluating RFID investments in pallet management.