Real-World ROI for RFID

May 1, 2006
Today's applications of RFID technology build the business case first.

Adopters of RFID technology are no longer standing around like deer frozen in the headlights, blinded by the brilliance of the technology. Nor are they baffled by the bedevilment of mandates.

"Cool only sells for a short period of time," says Nancy Breiman, client director for IBM in Phoenix. She's responsible for the overall relationship between IBM and logistics provider DHL (Tempe, Ariz.) "If [RFID] doesn't drive business value to your customer, there's no real reason to do it."

Comments like Breiman's are becoming more commonplace in discussions of RFID, where the focus is on RFID projects that deliver faster return on investment. What kinds of projects? Here are a couple of examples.

Breiman and her team are currently working with Bob Berg, RFID projects manager for DHL, on a pilot project for one of DHL's customer's re-pair facilities. Because of non-disclosure agreements, we can't mention the originating company or its product. The process, and RFID application, however, could work for any manufacturer with a return and repair policy.

"DHL is handling the transportation piece," says Berg, "and IBM is functioning as the system integrator and business consultant." Using RFID as the principal ingredient they are creating a process for the return and repair of electronic devices that will enable the manufacturer to turn around repairs within 24 hours.

When an electronic device needs re-pair, the end user calls the manufacturer, which sends a message to DHL's warehouse at its logistics hub in Wilmington, Ohio. A special carton, with proper return packaging material, is prepared and labeled with an "EZ Return" label.

"Actually it's two labels, one on top of the other" Berg explains. "The RFID tag is in the bottom label and the destination [shipping label] for the empty carton is on top." There is currently a bit of redundancy between bar coding and RFID tagging in this process that will eventually go away as the program progresses.

When the empty carton leaves the DHL facility the RFID tag is scanned to notify the end user that the carton is on the way. The empty carton is scanned through all the normal delivery channels until it arrives at the customer's facility.

"If the device needing repair is ready to go," says Berg, "it's dropped into the box and sealed. The courier peals off the top label revealing the return label (with the RFID chip embedded) preprinted to direct the carton to the manufacturer's repair facility in Memphis."

All the cartons pass through DHL's hub in Wilmington where they are unitized. Since the manufacturer receives about 800 of these devices for repair each day, special air cargo containers were designed to ship them on pallets for delivery to the repair center. Cartons are arranged on the pallet with the labels facing out to assist the RFID tag readers. The entire pallet of cartons is read as it enters the repair facility, saving manual scanning of each bar code label, says Berg.

When the repair is complete, another RFID label is generated to direct the product back through the transportation system to its owner.

"When we [IBM and DHL] started this program," adds Breiman, "we were firm in the knowledge that we shouldn't invest our time and money if there wasn't a business benefit to be derived."

That business benefit will be a process that is flexible and scalable, and that DHL can take to other return and repair customers. It is hoped that the pilot project will evolve to provide complete lifecycle tracking of a product, using the same tag by different entities, each for its specific piece of the logistics supply chain.

Breiman says the real value from this, or any RFID program, comes from understanding when cycle times can be reduced and where revenue can be increased through better visibility. "You also want to be able to put some operational efficiencies into the process as well," she says.

Lift trucks and RFID
Justin Hotard, director, project management, RFID division, Symbol Technologies (Holtsville, N.Y.), agrees that there is a general industry focus now on projects with a real ROI, particularly material handling projects.

"A year ago," says Hotard, "people were trying out the technology, emulating what others were doing or thinking of it in terms of other guy's ROI. Now, people are asking how they can use the technology to get real value, based on their own business processes and their customers' needs."

One of the sharpest areas of focus, he says, has been the marriage of lift trucks and RFID readers. The lift truck is being recognized as a core part of the DC business process. "Adopting RFID readers to lift trucks are being viewed as an easier way to invest in the technology and get immediate visibility."

He says capturing product information at each point of movement requires a lower overall investment than trying to establish portals at each point the goods will pass through. The challenge, says Hotard, is the wide variety of lift trucks and the configurations within each manufacturer's product line.

"Each project is more like customization," says Hotard. "The challenge for RFID equipment manufacturers, is to design a product or system that is flexible and scalable and can be deployed into a wide array of trucks."

In the real world of the factory floor or distribution center, survivability of the readers and the tags is a challenge. "We've done enough pilots to realize that if the operator doesn't know, or care, about the reading device, it will suffer damage," says Hotard. So manufacturers are making the tag readers more rugged.

He adds that one way to increase RFID tag survivability is to specify the correct tag for the application. "A tag for a case of paper towels will be different from a tag on a piece of electronics gear," says Hotard.

Another real-world example of using the lift truck to enable RFID, says Hotard, is the application of an RFID tag at shelf or rack locations. "When you put a tag at the location," he says, "you automate the put and take process. The tag has to be rugged because it will be exposed to abuse from the fork tines, possibly, as well as temperature fluctuations in the warehouse."

Hotard says a key to getting ROI from an RFID program is understanding the application to be automated. "Item visibility might not be necessary at every read point," he says. "If you have visibility of the pallet and visibility of 70% of the items on the pallet, you can use logic in the software to validate all of the goods on the pallet."

Spending money on item-level tagging makes sense on expensive and controlled goods, such as drugs. It does not make financial sense for low-cost goods. "Companies that are successful [with RFID programs] are those that gather information they can act upon," says Hotard, "not just gather information for the sake of having more information."

RFID meets the Internet
"A major contributor to the evolution of RFID," says Sujeet Chand, senior vice president, advanced technology and chief technical officer, Rockwell Automation (Milwaukee), "has been its marriage with Internet technology."

Chand says the breakthrough has been the ability to catalog information and link it to a Web site or database, then being able to hit that Web site index through an identification number or with some identifier, that being the RFID tag.

In the next five years there will be major improvements in interoperability, predicts Chand, who leads the U.S. delegation to Intelligent Manufacturing Systems, a worldwide consortium on manufacturing technology. "We've made strides with the Gen2 standards on the radio inter-face between tag and reader," he says. "The next step will be with software interfaces."

Another area in which Chand anticipates improvements is the business case for RFID. Many manufacturers are still trying to figure out how to justify the cost of RFID, he says. "Now, they're beginning to look at making process changes to support the RFID they've installed. It is those changes in process that will help them get the ROI."

The power of RFID's data collection enables retailers, for example, to pass on critical matrix information. Chand says when retailers push information back to suppliers, such as on-time delivery performance or real-time sales data, that information can then be tied back to production processes. "When that happens," he says, "manufacturers will be able to realize the demand-based production that they envision."

Chand refers to RFID as the common index or common pointer that can bring together all the disparate data collected within a company. "We collect data when raw material enters the factory, when the product is built and when it is shipped," he says. "Except that all this data resides in different locations. Now, RFID provides the link to bring it all together."

The metaphor Chand uses is that the RFID tag is like a train going down the track. Each time the train stops, another car (more information) is added until it gets to its destination. He contrasts this to a bar code, which he describes as a marble rolling across the floor. It, too, gets to its destination, however nothing new is added in the process.

Chand sees new applications for RFID as the technology evolves. "We currently talk a lot about track and trace applications," he says. "However, I think we'll see emerging applications for security and access control."

He also foresees bar coding and RFID co-existing for years to come. "Companies have made an investment in the infrastructure [for data collection systems] and are not willing to just turn one system on and another off over night to try something new."

Time is money
"A big part of the business case," says Martin Brewer, director of technical strategy, Wavelink (Kirkland, Wash.), "is saving time. Time is money for distributors."

As a provider of mobile software, Brewer works on the leading edge of the challenges involved in deploying, managing and controlling data collection systems.

"We've been doing a lot of work to integrate data collection and bar coding applications with new RFID equipment," says Brewer. "Doing slap-and-ship to comply with mandates only gets a company so far. People are looking for ways to achieve ROI by saving time."

"If you have a smart truck [tag readers on lift trucks], for example, it not only saves time in gathering the data," he says, "it also prevents shipping a load to an incorrect destination. A load going to the wrong location costs time and money in getting back. Plus there's compensation for the intended receiving party and the real possibility of the goods being damaged in the process."

To achieve the ROI an investment in RFID entails, Brewer says managers must determine if the improvements gained from tagging will exceed the overall cost of tagging itself.

"The business case has to be kept realistic. Managers need to first analyze where the time and money are currently being spent in movement of products in manufacturing and distribution," he explains,

He adds that because RFID is a mobile technology, it must be determined what usable data can be gathered while the product is moving that cannot be gathered via bar code scanning. "The RFID system has to gather what is exclusive to RFID; that which bar coding cannot provide."

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