Beyond Compliance

Nov. 1, 2008
RFID is getting another look.

Most professionals involved in material handling realize the do-or-die perception of RFID has changed in recent years. They may not know, however, how drastically the difficult economy has altered that view.

In 2003, when Wal-Mart famously announced it would require all of its suppliers to place RFID tags on pallets and cases, the “slap and ship” mentality set in. Suppliers simply added RFID tags to shipments without altering their operations or gaining any meaningful benefit. “Slap and ship” was the fastest route to compliance. Wal-Mart enjoyed supply-chain savings, while its suppliers got to keep Wal-Mart’s business.

The directive also helped popularize open-loop data systems, in which data capture, storage and communication are determined by established standards, according to Warrendale, Pa.-based AIM Global, the association for automatic identification and mobility. These standards allow different organizations to exchange information and operate without reference to a central control facility.

Few organizations gave much thought to the potential value of closed-loop systems, in which data collection and analysis, and all the associated benefits, are under the exclusive control of the organization that owns the system.

Now, five years after the Wal-Mart mandate, many companies have moved beyond “slap and ship.” As automatic identification providers address RFID’s technical hurdles, pilot programs are demonstrating tangible, bottom-line results. And, while RFID has traditionally been used to track inventory throughout the extended supply chain, operations managers today are seeing new value in the use of RFID within their four walls.

Dan Mullen, president of AIM Global, offers insight on the causes of this shift. “In closed-loop systems, you understand the processes, decide the investment and can directly calculate ROI,” says Mullen. “The payoff is much simpler than it is in supply-chain applications with multiple trading partners.”

Although some expect technology investments to decline in today’s difficult environment, New York-based ABI Research recently forecasted that the RFID market would grow 15% annually from 2008 to 2013. Leading that growth, according to the research firm, are closed-loop applications. As examples, ABI Research pointed to the increasing use of RFID to track reusable/returnable containers, spare parts, tools and manufacturing work in process (WIP).

Process Flow
Industrial manufacturing is a hot market for Waltham, Mass.-based OATSystems Inc., a provider of RFID software and middleware. “Manufacturers have a host of issues related to tracking everything from raw materials coming in the door to work in process and finished-goods inventory,” says Alan Sherman, director of marketing at OATSystems.

Specifically, RFID is being used to gain visibility into production-line processes. “RFID-enabled WIP integrates component, process and testing data to create a detailed, auditable history of manufacturing activity and provides an accurate and complete record of components and assemblies as they come together in a finished product,” according to an OATSystems white paper. By keeping tabs on items as they are produced, manufacturers can reduce errors, asset shrinkage and labor costs.

Because WIP stays within the facility, RFID can be implemented quickly and with modest investment. “In WIP applications, companies can reuse tags over and over,” says Mike Nichols, global RFID systems director at Everett, Wash.-based Intermec Inc., a provider of automatic identification and mobile computing systems. “The cost of the RFID tag is much less of an issue in closed-loop systems than it is in open-loop systems,” he says. “In open-loop systems, you need a fresh tag each time. Closed-loop applications allow companies to focus on performance of the tags rather than cost.”

“Managers want to know the exact status of pieces and where they are in the line to reduce errors and manual labor,” Mullen says. Instead of employees manually entering process data, RFID readers stationed at different points on the line automatically collect the information.

Since 2006, Hewlett-Packard Brazil has placed an RFID tag in the chassis of every ink-jet printer it manufacturers, according to Sherman. “That chassis is tracked from the moment it hits the assembly line, through critical transition points, to its eventual outbound shipment,” he says.

As a result, HP was able to determine how long each printer spent at each production station and how long it sat in finishedgoods inventory. Analyzing that data allowed HP to adjust processes that were causing bottlenecks. Over time, the printer manufacturer discovered it was producing too much product and reduced its inventory by 17%. In addition, by collecting test results, install-by dates and product destination on every tag, HP could identify and track printers returned for repairs under warranty. This allowed the company to pinpoint defects, improve product quality and streamline the returns process.

Asset Tracking

RFID helps keep track of the expensive, reusable jigs Airbus uses to transport aircraft parts.

Companies are also cutting costs by using RFID to track valuable assets, such as tools, equipment, reusable containers and totes and even employees.

“The manufacturing community is finding that RFID can maximize the use of personnel and expensive assets,” says Mullen. “Asset tracking can be an easy case in the short term,” says Mullen. “The typical solution can be paid for in six months.

“Tools can be expensive,” Mullen adds. “Technology can be used to create a check-in, check-out process.” In addition, RFID can help facility managers keep track of maintenance records and gain insight into the lifespan of various assets, he says.

In a report released in the fourth quarter of 2007, ABI Research predicted a large increase in the use of tags on returnable transport items (RTIs) that “could result in many millions of RTIs being RFID tagged in 2008.” The report also noted that “shrinkage alone is a major driver of RFID RTI tagging, and asset management will be the foundation application for RTI tagging over the next few years.”

As an example, Sherman points to Airbus’ use of RFID throughout the process of manufacturing its A380 aircraft. Airbus places RFID tags on roll cages and the expensive, reusable jigs it uses to transport aircraft parts. The jigs are comparable to reusable containers or totes that other manufacturers use to keep costs down. Sherman says the ongoing project, enabled by software from IBM and OATSystems, is the world’s largest RFID-enabled manufacturing initiative.

RFID allows the aircraft manufacturer to keep tabs on the reusable jigs that carry the parts, and that helps protect its investment. “Tracking is critical to the way Airbus does business,” says Sherman. “It tracks the reusable jigs, not just to know where the parts are, but to know where the jigs are.”

Manufacturers are also tagging assets that are critical to keeping operations running. Peter Collins, founder and president of Portsmouth, R.I.-based A2B Tracking Solutions Inc., a provider of automatic identification-based tracking technologies, says one of his customers, a chemical producer, uses RFID to track maintenance procedures and predict failure of critical components. This visibility allows the company to repair mission-critical components before failure and the potential loss of millions of dollars.

Combining Technologies
No one knows more about mission-critical assets than the U.S. Department of Defense (DoD). In 2003, the DoD set landmark policy mandating all assets and personal property owned by the DoD, including assets in the possession of contractors, to be marked with unique, serialized identification numbers, called UIDs (unique identifications).

UIDs are created by combining twodimensional (2D) barcodes, which store more data than one-dimensional barcodes, with passive RFID tags, according to Collins. The combination provides an extra level of assurance. If one technology fails, the other serves as backup.

Although the DoD mandate calls for an open-loop system, military suppliers are seeing internal benefits, says Collins. “Manufacturers are gaining visibility as components are assembled and travel down the line to final assembly,” he says. This allows them to identify and correct bottlenecks in production lines.

Commercial organizations are also combining RFID and 2D barcodes, not only for an extra level of data security, but also for quick ROI, according to Nichols. “Factories that are already using 2D barcodes can automate their processes by adding RFID,” he says. “RFID will deliver additional benefit, especially when it’s difficult for a scanner to view the barcode.” The use of RFID and 2D barcodes reduces cost of implementation, as well, because there’s no need to recreate infrastructure, Nichols adds. “The more you can control your investment and still get benefit, the better off you will be,” he says.

Mullen from AIM Global observes similar trends. “We predicted that barcodes— particularly 2D barcodes—and RFID would work side by side,” he says. “The combination gives users the ability to collect and store large amounts of data, and if a tag is disabled, or an item moves into an environment where there is no RFID reader, the 2D barcode can continue to support the business process.”

“As companies squeeze every dollar and look for every advantage that allows them to manage their businesses smarter, with less inventory and less labor, they are recognizing the value of investing in RFID to do that,” says Sherman. “They are asking themselves, ‘How do I drive more to the bottom line? Am I making too much inventory? Did I waste labor and time by sending someone to look for an asset in the facility?’”

“In good times, you can afford to be wasteful,” says Collins, “but you certainly cannot be wasteful in these economic times.”

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