Cost-Benefit Model for Smart Items in the Supply Chain

This work presents a decision metric for the use of different kinds of Smart Items within the supply chain.
The analysis is done from the viewpoints of the supplier, the shipper, and the customer.
The spreadsheet computes the metric. For details please refer to the Paper:
Cost-Benefit Model for Smart Items in the Supply Chain
Christian Decker (TecO, University of Karlsruhe, DE); Martin Berchtold (University of
Karlsruhe, DE); Michael Beigl (TU Braunschweig, DE); Leonardo Weiss F. Chaves (SAP
Research, DE); Daniel Roehr (TU Braunschweig, DE); Till Riedel (TecO, University of
Karlsruhe, DE); Monty Beuster (TU Braunschweig, DE); Daniel Herzig (University of
Karlsruhe, DE); Thomas Herzog (University of Karlsruhe, DE)

presented on IOT 2008, March 2008, Zurich, CH

published by Springer LNCS 4952
Usage:
Define the general parameter of logistics process within this sheet.
Example is depicted right.
Define costs for simple Smart Items, e.g. barcode or RFID
Define costs for advanced Smart Items, e.g. sensor networks.
Check the Cost-Benefit Analysis sheet for the result.

Example logistics process

General Parameters, Setup costs

Price charged for good
Variable costs of production per good
Amount of sold/distributed goods
Cost of manual processing of returned goods (defective or perished)
Fixed costs
Penalty depending on cost of goods (shipper -> supplier)
Price of shipping per good (to be paid by the customer)
Variable transportation costs per good (for shipper)
Costs of capacity loss for reshipping
Fleet size of shipper
The authors like to thank Emilian Peev for the conversion in excel.

17.14
5.27
400
2
20
4
2

Example logistics process

Simple Smart Items: Barcode and RFID

Additional fixed costs using Smart Items (infrastructure)
Variable operational costs per Smart Item and shipment (e.g. recharge
battery, programming)
Acquisition costs of Smart Item
Additional shipping charge for usage of Smart Item per good
Costs of message sent over GSM to ERP-System
Factor of density, ratio of Smart Item quantity to quantity of goods
Factor of maintenance: 0 all Smart Items get shipped back (reusable);
1 no Smart Item is returned
Ratio of defective goods delivered to customer
Ratio of triggered Smart Items, 0 1
Ratio of searched (potentially lost) goods during shipping
Ratio of recovered goods (previously lost)
Non quantifiable advantage through usage of Smart Items (consumer
satisfaction, etc.)

0.5
50

0.25

0.2

Profit function for Supplier

Supplier
Profit

3216.8

Profit function for Shipper

Shipper
Profit

800

Advanced Smart Items: Sensor Networks

Additional fixed costs using Smart Items (infrastructure)
Variable operational costs per Smart Item and shipment (e.g. recharge
battery, programming)
Acquisition costs of Smart Item
Additional shipping charge for usage of Smart Item per good
Costs of message sent over GSM to ERP-System
Factor of density, ratio of Smart Item quantity to quantity of goods
Factor of maintenance: 0 all Smart Items get shipped back (reusable);
1 no Smart Item is returned
Ratio of defective goods delivered to customer
Ratio of triggered Smart Items
Ratio of searched (potentially lost) goods during shipping
Ratio of recovered goods (previously lost)
Non quantifiable advantage through usage of Smart Items (consumer
satisfaction, etc.)

Profit function f
0.5
50
0.5
0.25

0.1
0.01
0.01

Supplier

Profit

Profit function f

Shipper
Profit

Profit function for Supplier

4020.4

Profit function for Shipper

902

Customer
Additional shipping charge for usage of Smart Item per good
Slope of the value of the additional effort
Amount of sold/distributed goods
Simple Smart Items: Barcode and RFID
Ratio of searched (potentially lost) goods during shipping
Ratio of defective goods delivered to customer
Advanced Smart Items: Sensor Networks
Ratio of searched (potentially lost) goods during shipping
Ratio of defective goods delivered to customer

0.5 from AdvSI sheet

0.0009 k for cust. utility
400 from Par sheet
0 from SimpleSI sheet
0.2 from SimpleSI sheet
0 from AdvSI sheet
0.1 from AdvSI sheet

Utility Function
(Cobb-Douglas Function)

Customer Utility Function

Customer utility
0.16472979

Decision Metric

Customer utility
0.1647297886
Result
Probably Beneficial

Utility gain according to Cobb Douglas

0.17