RFID: Business Issues

1
RFID Business Issues

• Operations Decision Technologies
• Department
• Kelley School of Business
• Indiana University

2
What is RFID?

• RFID stands for Radio Frequency Identification
• It is a technology that permits contact-free
  transfer of data using a radio frequency
  transmission
• The heart of RFID technology is a transponder,
  which is a silicon chip attached to an antenna.
  It is called a tag. The tag can be attached to
  items that are to be tracked
• A numeric code is stored on the chip. This code
  is called the electronic product code (EPC)
• The code is read when communication takes place
  between a reader (interrogator) and the tag

3
RFID Technology is Not New!!

• Tracking livestock (Approximately 15 years)
• Contactless payments (Approximately 5 years)
• ExxonMobil Speedpass
• Tollbooth lanes
• Event access (Ticketing)
• Building access control
• Has been used in manufacturing to track large
  components such as engines and chassis
• Has been used for the international postal system
  for monitoring the quality of service

4
Some Existing RFID Applications

• Toyota and Lexus Keyless cars
• Marks and Spencer Fresh Food Tracking Reduce
  costs of tracking some 4 million trays of chilled
  foods
• Metro Group Rolling out RFID at 250 stores and
  10 warehouses with 100 suppliers
• pH Europe Tracks its fleet of rental containers
  and pallets using active tags

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An Antenna Tunnel
Antennas
Verification tunnel reads
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Some Existing RFID Applications

• Parcelforce Worldwide Use RFID to position
  trucks at loading bays. Cut time from gate to
  loading bay at depot by 14 minutes (15 minutes to
  1 minute)
• Goldwin Sportswear Skiwear tracking in
  manufacturing and distribution
• Xerox Uses an RFID system to ship approximately
  250,000 copiers in Europe
• Timekeeping at European motor rallies

7
Why RFID Now?

• The creation of the Electronic Product Code (EPC)
• Technology changes
• The price of the tags has been coming down.
  However, price is still an issue
• Mandates by various organizations (European
  Parliament, DOD, Wal-Mart, Target, etc.)

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The Wal-Mart Mandate

• Wal-Mart required its top 100 suppliers to be
  RFID-enabled at the case and pallet level by
  January 2005
• The rest of its suppliers were expected to
  compliant by December 2006
• Wal-Mart did not endorse specific RFID hardware
  or software
• Expected suppliers to perform their own tests of
  RFID technologies
• Will impact 10,000 Suppliers

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The DOD Mandate

• Department of Defense required its top 100
  suppliers to be RFID-compliant by January 2005
  for cases, pallets and packaging of items
• Its top 500 suppliers had to be RFID-compliant by
  July 2005 for cases, pallets and packaging of
  items
• The remaining suppliers had to be RFID-compliant
  by January 2006 for cases, pallets and packaging
  of items
• Tags should be EPC compliant
• Will impact approximately 43,000 suppliers

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Key Drivers

• Mandates by Various Organizations
• Wal-Mart
• Target
• U.S. Department of Defense
• FDA Counterfeit Drug Task Force
• Healthcare Distribution Management Association
• Cost of the tags

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Impact on Business

• Distribution and Logistics Track items
  throughout the supply chain
• Demand Planning The adaptive approach
• Manufacturing Leaner production and better
  inventory management
• Packaging/Labeling
• Security Product authentication and anti-theft

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Likely Impact on Retail

• Better and more efficient tracking of items
  through the store
• Lower warehouse management costs
• Improved inventory systems. Better shelf
  inventory visibility Smart shelves and systems
  will give advanced notification as soon as stocks
  run low
• Fewer out-of-stock situations - Higher
  availability of goods
• Systems will automatically register best-before
  date near expiry
• Tracking of high-priced items such as batteries,
  razors, CDs, and computer games

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Likely Impact on Retail

• Location of the product Promotional display or
  shelf
• More point-of-sale data than currently available
  through bar codes
• Market to the individual consumer
• Smart Carts that will enable marketing based on
  early purchases
• More product information available to the
  retailer and the customer

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Some Cost Saving Projections

• 10-20 improvement in demand planning forecast
  accuracy
• 2-10 increase in sales from fewer out-of-stock
  items
• 10-30 decrease in inventory due to reduced
  safety stocks
• 10-30 reduction in labor costs at distribution
  centers or warehouses

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Likely Benefits for Retail Partners

• RFID will enable all partners in the supply chain
  to keep track of the entire supply chain
• Partners will be able to handle incoming and
  outgoing goods faster and easily
• Partners are always up to date on inventories and
  the location of merchandise
• Inventory can be replenished in time and
  merchandise can be reordered more accurately
• Fewer merchandise will be written off
• RFID serves to protect merchandise against theft
• Time-consuming inventory counts can be eliminated
• Better efficiency of merchandise distribution
  within the store

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Metros RFID Motivation

• Reducing Shrinkage in the Supply Chain. The
  retail industry estimates that supply chain
  shrinkage runs at about 2 of sales worldwide.
  In the US it runs around 1.3 or 26 Billion a
  year. Analysis shows this can be reduced by 25
  if tags used at the case level and 40 if tags
  used at the item level
• Improving On-Shelf Availability and Reducing
  Out-of-Stocks. Out-of-Stocks run at between 6
  and 10 in grocery retailing and higher in
  fashion retailing. GMA estimates that
  approximately 25 of stock-outs are because of
  misplaced items.
• Productivity and Labor Efficiencies. It takes
  approximately 6 seconds to do a barcode reading.
  Surveys show that RFID can improve on that.

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Supermarket of the Future

• The word sold out will be a thing of the past.
  Smart shelves will automatically register
  whenever stocks of a product are near depletion
• Special terminals will provide product
  information and source of products. For example,
  you will be able to find out exactly the route
  taken by the steak you are contemplating buying
  from the farm to the counter
• Intelligent home appliances like refrigerators
  will communicate directly with the supermarket to
  determine what the consumer needs to purchase

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Key RFID Issues Business Implications

• What is the business case for the implementation?
• What is the ROI for an RFID implementation?
• What are the business drivers for RFID?
• Which customers are going to mandate RFID usage?
• What is being mandated?
• What will the implementation model be?
• How will processes be managed for mandating
  customers versus others?

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Key RFID Issues Technology

• Global Standards Role of EPCGlobal
• Availability of RFID equipment
• IT Infrastructure to handle the large amounts of
  data
• Interoperability of RFID equipment throughout the
  supply chain
• Interaction with Enterprise Systems
• Is RFID technology here to stay? What is the
  life time of the current systems? How will
  changing technologies impact new customers?

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Key RFID Issues Costs

• Current costs of tags and RFID systems
• The item level problem high costs versus
  potentially high benefits
• Who bears the cost, particularly in the supply
  chain?
• How will costs be spread across customers
  mandating technology or across all customers?
• Fixed versus variable costs for new customers

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Key Business Concerns Across all Businesses

• Standards and technology
• Changing technology
• Limited full scale reference deployments
• The item level problem high costs versus
  potentially high benefits
• Availability of RFID systems
• Current costs of tags and systems
• IT Infrastructure to handle the large amounts of
  data
• Interoperability throughout the supply chain
• Who bears the cost, particularly in the supply
  chain?

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Key Business Concerns For Individual Businesses

• Which customers are going to mandate RFID usage?
  What is being mandated?
• How will the costs be spread across customers
  mandating technology or across all customers?
• What will the implementation model be?
• How will processes be managed for mandating
  customers versus others?
• Fixed versus variable costs for new customers
• Is this technology here to stay? What is the
  life time of the current systems? How will this
  impact new customers?

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Identifying the Hurdles

• The Business Case The key hurdle for most RFID
  deployments will be coming up with a business
  case to support the required investment
• For a large consumer products manufacturer, AMR
  Research estimates that a fully integrated RFID
  deployment could cost between 13 million and 24
  million.
• Companies complying with a mandate can expect to
  invest from 1 million to 3 million

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Identifying the Hurdles

• Technical Hurdles
• RFID tag readability not 100
• Technology infrastructure will be too cumbersome
• Enterprise systems not designed for high data
  volumes likely to be generated by RFID systems
• RFID system speed does not match either warehouse
  speed or production speed

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Identifying the Benefits

• Inventory Management
• More accurate shipments to customers?
• Streamline Receiving/Shipping/Invoicing?
• Streamline labor utilization?
• Better record keeping?
• Order Management
• Higher order fill rates?
• Easier returns/recalls?
• Collaborative Planning
• Increased demand planning accuracy?
• Better upstream data from customers/partners?
• Reduced safety stocks and shorter lead times?

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Strategic Implementation Roadmap

• Phase I The Wait and See Phase
• No use of RFID technologies
• Wait and see approach
• Phase II The Compliance Phase
• Compliance required by customer
• No internal use of RFID
• Phase III The Ramp-Up Phase
• Limited applications internally
• Mainly containers and pallets tagging
• Passive tags

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Strategic Implementation Roadmap

• Phase IV The Supply Chain Visibility Phase
• SKU tracking through out the distribution
  channels
• Case and pallet tagging
• Passive tags
• Phase V The Advantage Creation Phase
• Customized applications
• Active tags with Read/Write capabilities
• Item level tagging

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Key Business Issues

• Business case development
• RFID technologies and systems
• IT infrastructure issues
• Enterprise system issues
• Data warehousing
• Leveraging the data

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RFID Costs

• Hardware Costs
• Tags (0.25 to 0.80 per tag)
• Readers (150 to 10,000 per reader)
• Antennas (25 to 500 per antenna)
• Controller PC (1000 to 4000)
• Cabling (Approximately 10/foot)

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RFID Costs

• Hardware installation costs Significant
• Fine-tuning costs Medium
• Software costs Significant
• Process changes Medium
• Integration costs Very High
• Maintenance Medium

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Todays Supply Chain
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Todays Supply Chain
Billions in losses
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Designing the Supply Chain of the Future
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The EPC Network

• A clear view into the supply chain
• Show where all the products are
• How much a company has
• Where it is
• Where it needs to be
• And when/where it goes missing.

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Questions to ask a Business

• Does your business have an RFID strategy?
• Are you considering RFID as a enabler in your
  business?
• Have you identified an approach for getting
  started with RFID?
• What are the business drivers for considering an
  RFID implementation at your company?
• Are the RFID business drivers from an internal
  project or one of a partner (vendor or customer)?

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Questions to ask a Business

• What processes have you considered enabling with
  RFID technology?
• Will you use RFID to track product or fixed
  assets?
• How do you perceive your current product
  identification processes will be affected?
• How do you think the data collection environment
  will change at your company?
• What customers (internal and external) will this
  technology serve?
• Are you looking for opportunities to demand RFID
  compliance from your suppliers?