Naisten Pukutehda: Cost Benefit Analysis and Management Systems

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Introduction

General Notions

Retail trade is a highly competitive business, especially when the area of woman’s clothing is in question (BIS, 2010; Trienekens et al., 2008, p. 1572). Every company in this area should develop and improve, and the RFID tag initiative by Naisten Pukutehdas, NP, is a step in this direction.

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Purpose and Scope

Although the necessity of modernization and development is vital, doubts still exist as to the cost-effectiveness of the proposed innovative activity in all NP stores. The current cost and benefit analysis are designed to reveal and analyze the financial pros and cons of introducing RFID tags for the company (Adler, 2001, p. 11).

System Overview

The proposed innovative system is the product of Senso Solutions, a worldwide company manufacturing multimedia and electronic products for business purposes (Senso, 2010; 2010a). The RFID tags produced by Senso Solutions will allow NP to achieve three crucial goals of today’s retailers, i. e. increase profit, strengthen security and improve customer service levels (Curtis, 2008, p. 182).

Management Summary

Assumptions and Constraints

Accordingly, the current cost and benefit analysis is an attempt to answer the question about the reasonability of RID tags implementation by NP. The main assumption underlying this analysis is that it could clear the situation up for NP (Boardman, 2001, p. 13). The main constraints are the fluctuating RFID solution prices and unpredictable woman’s clothing market nature (Mishan, 2007, p. 48).

Methodology

The current cost and benefit analysis resort to the use of assumptions and the quantitative research method to provide approximate figures for both potential expenses and potential profit of NP (Harberger, 2002, p. 18). In particular, the average costs of RFID modernization are used for comparison in this analysis.

Evaluation

The evaluation criteria used in this cost and benefit analysis consist of three major components (Brent, 2006, p. 63). First, the costs and benefits of the proposed solution are calculated. Second, the results are compared to the current operational costs and benefits of NP. Third, the results are contrasted with average RFID modernization prices.

Alternatives

Current System

The current system according to which all NP stores operate is seemingly outdated. A person goes through the rows of clothing, tries some of them, and eventually has to ask a shop assistant to advise on something or bring another necessary garment piece. This takes considerable time and effort, often causing inconveniences.

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Proposed System

The proposed system is the way towards the automation of the whole store operation process. The use of RFID tags produced by Senso Solutions will limit the inconveniences associated with staff shortage or other issues to the minimum. Having access to the on-wall displays, customers will be able to order the clothing pieces they need, and there will be guarantee that shop assistants will present high-quality services to every single customer (Senso, 2010; 2010a).

Costs

So, the approximate developmental and operation costs of the proposed RFID system can be formulated in the following table. The advantage of the proposed system is that it involves no recurring costs for NP, as RFID tags can be updated freely as many times as necessary, and this process involves no other related costs (Abramowicz, 2007, p. 156):

Figure 1. RFID tags costs

Activity Cost
Purchase of RFID tags $13,000
Purchase of LC touch displays for all stores $78,000
Purchase of Nokia N800 Internet tablets for store staff $8,000
Delivery of all above equipment pieces $3,000
Installation of the equipment $5,000
Training of staff regarding new equipment usage $20,000
Monitoring of the innovation efficiency $3,000
Making corrections to the system in case of necessity $5,000
Total $135,000

Benefits

Quantifiable Benefits

The quantifiable benefits of the proposed RFID tags implementation can be characterized in terms of cost reduction and value enhancement. These benefits include:

Figure 2. RFID tags benefits

Activity Cost
The solution to staff shortage problem $50,000
Reduction of losses associated with store theft (recurring benefit) $90,000
Increase of sales rates (recurring benefit) $80,000
Benefits associated with the potential for a price increase based on stores’ image improvement (recurring benefit) $150,000
Total $370,000

Non-Quantifiable Benefits

As well, the RFID tags implementation and the associated improvements will incur non-quantifiable benefit for NP (Rainer, 2008, p. 19; Stahl, 2004, p. 82). This will be expressed in the form of improved customer services, greater customer satisfaction, positive image of NP stores in the community, and potential for further modernization (Wigand, 2003, pp. 112 – 113; Stahl, 2004, p. 82; Abramowicz, 2007, p. 157).

Comparative Summary

So, the idea to implement RFID tags produced by Senso Solutions in all NP stores has its pros and cons, and the current cost and benefit analysis reveals both (Bocij, 2006, p. 357). Total costs of $135,000 are associated also with considerable time and effort needed for their implementation. At the same time, the benefit of $370,000 outweighs the costs, especially if attention is paid to the recurring character of the majority of the expected benefits (Laudon, 2007, p. 104).

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Conclusions and Recommendations

So, it is recommended that NP should take up the implementation of RFID tags in all its domestic and foreign stores. Although the initiative involves considerable costs, the benefits of the successful project implementation are rather promising.

References

Abramowicz, W. (2007) Technologies for business information systems. Springer.

Adler, M. (2001) Cost-benefit analysis: legal, economic, and philosophical perspectives. University of Chicago Press.

BIS. (2010) Business information systems. Government Software. Web.

Boardman, A. (2001) Cost-benefit analysis: concepts and practice. Prentice Hall.

Bocij, P. (2006) Business information systems: technology, development and management for the e-business. Pearson Education.

Brent, R. (2006) Applied cost-benefit analysis. Edward Elgar Publishing.

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Curtis, G. (2008) Business Information Systems: Analysis, Design and Practice. Pearson Education.

Harberger, A. (2002) Cost-benefit analysis. Edward Elgar Publishing.

Laudon, K. (2007) Management information systems: Managing the Digital Firm. International Journal of Computers, Communications & Control, 2(1), 103-105.

Mishan, E. (2007) Cost-benefit analysis. Routledge.

Rainer, R. (2008) Introduction to Information Systems: Supporting and Transforming Business. John Wiley and Sons.

Senso. (2010) Senso Overview. Senso Solutions. Web.

Senso. (2010a) Senso Retail Environment. Senso Solutions. Web.

Stahl, B. (2004) Responsible management of information systems. Idea Group Inc (IGI).

Trienekens, J. et al. (2008) Architectural Frameworks for Business Information System Analysis and Design. Lean Business Systems and Beyond, 257, 1571-5736.

Wigand, R. (2003) Introduction to business information systems. Springer.

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