- 1. RFID :Business Issues Operations & Decision Technologies
Department Kelley School of BusinessIndiana 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)
- 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
5. An Antenna Tunnel Verificationtunnel reads Antennas 6. 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)
- 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.)
8. 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
9. 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
10. Key Drivers
- Mandates by Various Organizations
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- U.S. Department of Defense
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- FDA Counterfeit Drug Task Force
-
- Healthcare Distribution Management Association
11. Impact on Business
- Distribution and Logistics Track items throughout the supply
chain
- Demand Planning The adaptive approach
- Manufacturing Leaner production and better inventory
management
- Security Product authentication and anti-theft
12. 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
13. 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
14. 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
15. 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
16. 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.
17. 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
18. 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 will the implementation model be?
- How will processes be managed for mandating customers versus
others?
19. 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?
20. 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
21. Key Business Concerns: Across all Businesses
- 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?
22. 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?
23. 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 toinvest from $1
million to $3 million
24. Identifying the Hurdles
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- 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
25. Identifying the Benefits
-
- More accurate shipments to customers?
-
- Streamline Receiving/Shipping/Invoicing?
-
- Streamline labor utilization?
-
- Increased demand planning accuracy?
-
- Better upstream data from customers/partners?
-
- Reduced safety stocks and shorter lead times?
26. Strategic Implementation Roadmap
- Phase I: The Wait and See Phase
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- No use of RFID technologies
- Phase II: The Compliance Phase
-
- Compliance required by customer
- Phase III: The Ramp-Up Phase
-
- Limited applications internally
-
- Mainly containers and pallets tagging
27. Strategic Implementation Roadmap
- Phase IV: The Supply Chain Visibility Phase
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- SKU tracking through out the distribution channels
- Phase V: The Advantage Creation Phase
-
- Active tags with Read/Write capabilities
28. Key Business Issues
- RFID technologies and systems
29. RFID Costs
-
- Tags ($0.25 to $0.80 per tag)
-
- Readers ($150 to $10,000+ per reader)
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- Antennas ($25 to $500+ per antenna)
-
- Controller PC ($1000 to $4000+)
-
- Cabling (Approximately $10/foot)
30. RFID Costs
- Hardware installation costs: Significant
- Fine-tuning costs: Medium
- Software costs: Significant
- Integration costs: Very High
31. Todays Supply Chain Manufacturing Packaging Manufacturers
Warehouse Customer Distribution Center Store Backroom Store Shelf
Transportation 32. Todays Supply Chain $ Billions in losses
Manufacturing Packaging Manufacturers Warehouse Customer
Distribution Center Store Backroom Store Shelf Transportation 33.
Designing the Supply Chain of the Future Manufacturing Packaging
Manufacturers Warehouse Transportation Customer Distribution Center
Store Backroom Store Shelf 34. The EPC Network
- A clear view into the supply chain
- Show where all the products are
- And when/where it goes missing.
Manufacturing Packaging Manufacturers Warehouse Transportation
Customer Distribution Center Store Backroom Store Shelf 35.
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)?
36. 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?