"THINK POSITIVE" IS GOOD ADVICE when implementing radio frequency identification (RFID) technology to enable product tracking throughout the supply chain. Because customer mandates to apply RFID tags to products are becoming more common, a positive attitude toward the technology will determine whether RFID simply costs money or reaps a return on investment (ROI).
Finding ROI often has more to do with how you prepare for RFID. In fact, the proper analysis, planning and selection of vendors and partners ultimately determines how your company runs the RFID race -- either in a frenzied sprint to "slap-and-ship" that provides little added benefit, or on a steady, consistent pace that shows improvement over the long haul and provides incremental business value.
In many cases, the first leg of the race is simply the acceptance of RFID. "The quicker the corporate culture can change from 'this is a pain' to 'how can we use this new tool,' the quicker the benefit," says Rich Bruce, RFID business development, The Danby Group (Norcross, Ga.).
"The trick is to think about a business problem and how data generated by RFID might solve it," advises Romona Jackson, marketing and commercial manager, Smart Packaging, International Paper (IP, Memphis, Tenn.), a user and supplier of RFID technology.
IP established its Smart Packaging business in 1999 to leverage its experience in equipping its own warehouse with RFID. IP Smart Packaging designs, develops and implements integrated RFID packaging and supply chain applications, and offers a full suite of RFID/EPC-enabled supply chain solutions from warehousing and transportation tracking to the retail shelf.
Keep in mind, however, that RFID isn't for everyone. "In some cases, bar codes will work better," says John Clark, marketing manager at Provia Software (Grand Rapids, Mich.), a supply chain solutions provider. "Some companies will never need RFID."
Before leaping headfirst into the RFID race, careful examination is recommended. "Proper analysis takes time and objectivity," said Sarah Schabacker, business development manager, Datamax Corp. (Orlando, Fla.) during a presentation at ProMat 2005, the material handling show held in February in Chicago. "Target high-cost activities and processes with RFID projects," she advised. "Benefits are driven more by business process change than technology. If you don't plan for that in phase one, you'll end up spending a lot of money."
It's also essential to do your homework. Learn as much as possible about the technology and use pilot projects to gain knowledge. Another important early step is setting up a cross-functional team with representatives from supply chain partners and technology vendors, as well as internal employees.
RFID tags can generate volumes of granular, real-time information. In many cases, RFID enables collection of data that has never been available before. Determining who needs that data and how often it is disseminated is key. Who benefits the most from this new technology? "RFID offers receiving, shipping and warehousing costs/benefits," Schabacker said.
When implementing RFID systems, closed-loop operations such as returnable container systems are one of the first places to look for benefits. Other functions that gain improvements from RFID include work in process, build to order, product tracking within the warehouse, shipping automation and reverse logistics.
Receiving also reaps the benefits of RFID. If suppliers apply tags, receiving incoming goods can be automated. By sending tags to its supplier in China and asking it to tag boxes prior to shipment, for instance, an embroidered hat supplier now receives, picks and ships hats in one conveyor pass. Previously, the company needed a full day on the dock to sort incoming shipments.
Beaver Street Fisheries (Jacksonville, Fla.), a smaller Wal-Mart supplier that opted to follow the retailer's implementation schedule for its top 100 vendors, is shipping compliant product to Wal-Mart and moving forward with its RFID implementation. A print-and-apply system, consisting of an RFID printer/encoder from Zebra Technologies Corp. (Vernon Hills, Ill.) integrated with a pressure-sensitive label applicator from Quadrel Labeling Systems Inc. (Mentor, Ohio), will automate smart label application. Beaver Street also wants to automate receiving and is undertaking a pilot project to tag its shipments of fish from Nassau, Bahamas.
To succeed in the RFID race, many companies implement the technology in three phases: pilot, slap-and-ship and internal integration. Others rise through three levels of deployment: compliance, automation and business process redefinition.
With either strategy, pilot tests are necessary to determine the optimum tag, hardware and software combinations for the products being shipped, as well as positioning of tags and readers.
A slap-and-ship operation is basically a compliance function. Often performed manually in the warehouse or outsourced to a third-party logistics provider (3PL), slap-and-ship generally involves limited data integration. Some operations, however, do rely on portals or readers mounted above stretch wrappers to capture shipment data.
FINDING ROI
Buying the most cost-effective slap-and-ship solution is key because compliance generates little if any ROI, advises John Sidell, principal and co-founder of ESYNC (Toledo, Ohio), a systems integrator and developer of RFID assessment software.
Several RFID vendors, including Danby and Radio Beacon Inc. (Toronto), offer low-cost systems to enable quick startup of a slap-and-ship function. Costs range from about $10,000 to $30,000, with the higher-priced systems including a portal that automates scanning and generates labor savings.
"A shipping portal provides an automatic record of shipments," explains The Danby Group's Bruce. It also allows the manufacturer to confirm that what is on the pallet is indeed what belongs there.
Because costs tend to correlate with tag functionality, manufacturers with challenging products may pay slightly more per tag, explains Greg Gilbert, director of RFID solutions and strategy at Manhattan Associates (Atlanta), a supply chain solutions provider. The choice of hardware also depends on the product being tagged. "Evaluate the lowest-cost hardware first. If it doesn't perform as well as it needs to, then move up," he advises.
RFID system costs range from about $10,000 to multiple millions and include capital investments in hardware and software, integration expenses and labor charges related to the tagging operation, as well as the ongoing cost of the tags themselves.
Not to be overlooked in the cost equation are membership fees in EPCglobal Inc. (Lawrenceville, N.J.), the organization charged with creating standards for the Electronic Product Code. Membership is often a significant, but necessary, expense because it provides access to the EPCglobal logo, which confirms an approved RFID process and is required by some retailers including Wal-Mart.
Membership fees are based on revenue and can reach six figures. This can be problematic for subsidiaries of multi-billion-dollar companies because fees are computed on parent company revenue. So if the subsidiary ships only a few thousand boxes to Wal-Mart, the fee can be a profit-draining obstacle. As a result, some manufacturers opt to outsource compliance tagging. Outsourcing handling of tagged inventory also eliminates the need to maintain inventories of tagged and untagged goods in-house.
To predict ROI, one assessment tool from ESYNC considers numerous factors including volume, package type, sourcing points, projections, use of outsourcing and cost of EPCglobal membership.
"Volume is the critical condition," says Sidell. If 5,000 cases must be tagged for customer compliance, it might make sense to outsource that function or do it manually in-house. If hundreds of thousands of cases are being shipped from one facility, automated tagging on the packaging line becomes more practical. At even higher volumes, such as two million cases, asking suppliers to provide corrugated cases with tags in place -- a concept called source tagging -- might be feasible.
It's also essential to consider how tagged volumes will grow. If they won't, the pilot test may turn out to be the wrong long-term solution, explains Sidell.
ROI also can be influenced by the number of cases per pallet. "If each pallet holds 100 cases, ROI is further out than if there are only a handful of cases on the pallet," says Sidell. For manufacturers of low-cost products, where the cost of case-level RFID smart labels exceeds the profit on the shipment, finding ROI may not be possible. In this situation, it may be necessary to negotiate for an exemption to case-level tagging or drop the customer.
POSITIVE OUTLOOK FOR SMALL SUPPLIERS
Nevertheless, the outlook for smaller suppliers subject to upcoming tagging deadlines is positive. Due to the potential for automating manual systems, manufacturers moving from paper-based systems to RFID have a better chance of generating ROI than their already automated brethren.
"The less mature your business process, the greater the potential for RFID payback," says Bruce. As a result, suppliers below Wal-Mart's top 100, for example, will see more payback in the short term than the top 100.
RFID implementations can take as little as two weeks when installing a preconfigured slap-and-ship package. Implementation is more likely to take several months, however, by the time pilot testing is completed and systems are fully operational. In reality, installing RFID is an ongoing project for manufacturers, as they reorganize business processes to take advantage of the data the technology delivers.
Schedule delays occur if tags and hardware aren't ordered in a timely manner. In addition, accounting controls put into place to meet Sarbanes-Oxley requirements tend to add checks and balances to the procurement process. Purchasing cycles may be extended by a few weeks, for instance, due to the time it takes to collect the additional approvals now needed before issuing a purchase order.
"As mandates become far-reaching, tagging will move back to manufacturing," predicts Chris Heim, president and general manager of HighJump Software, a 3M Co. (Eden Prairie, Minn.). The tipping point for the shift from slap-and-ship to applying tags on the packaging line will occur when the percentage of cases requiring tags reaches the 50% to 60% range, estimates Heim.
Source tagging will also come into play, initially on high-volume products. Item-level tagging -- already seen on some high-value products such as laser printers and pharmaceuticals -- will grow as well.
RFID is also opening the door to sensor-based services that give manufacturers and supply chain partners a picture of what's happening in the physical world. Oracle, for example, can correlate environmental monitoring of temperature, motion and vibration with RFID. Chem-Secure, a pilot program with the NASA Dryden Flight Research Center (Edwards, Calif.), relies on RFID tags and Oracle sensor-based services to capture, manage, analyze and respond to any movement or other change in the status of hazardous materials.
Much of RFID's potential value is still being identified. What is certain is RFID will be part of the future for most manufacturing supply chains. The race has only just begun.