1 RFID’s Reality – Finding The Payoff In Technology A S S O C I A T E S Value Based Benchm arking sm 2005 Supply C hain Best Practices Executive Seminar A S S O C I A T E S Value Based Benchm arking sm 2005 Supply C hain Best Practices Executive Seminar Industry Week Webcast December 13, 2006
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RFID’s Reality – Finding The Payoff In Technology
A S S O C I A T E S
Value Based Benchmarkingsm
2005 Supply Chain Best Practices Executive Seminar
A S S O C I A T E S
Value Based Benchmarkingsm
2005 Supply Chain Best Practices Executive Seminar
2005 Supply Chain Best Practices Executive Seminar
A S S O C I A T E S
Value-Based Benchmarkingsm
2005 Supply Chain Best Practices Executive Seminar
““RFID technology allows people to design business RFID technology allows people to design business processes that make the best use of processes that make the best use of timelytimely and and actionableactionable data.”data.”
Retail: What do I have in stock and how quickly do I need to re-order?
Supply-Chain: Where are my orders and when will they arrive?
2005 Supply Chain Best Practices Executive Seminar
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2005 Supply Chain Best Practices Executive Seminar
Radio Frequency Identification (RFID)
An automatic identification technology that relies on radio waves to encode and decode information on a microchip or other storage device. RFID allows computer systems to capture data stored on a special tag without direct contact or line of sight acquisition
2005 Supply Chain Best Practices Executive Seminar
A S S O C I A T E S
Value-Based Benchmarkingsm
2005 Supply Chain Best Practices Executive Seminar
Established technology used for access/security control, toll collection, asset tracking, and manufacturing control
Has been niche play in supply chain world due to costs, performance and lack of standards
Auto-ID center founded in 1999 to develop standards and promote technology development. Partnership of academia, retailers, consumer product firms, and hardware/software vendors. Efforts transitioned to EPCglobal in 2003
Supply chain interest explodes with launch of Wal-Mart, DoD, and others compliance initiatives
The key to low-cost tags is to limit the amount of data on the tag, thus pushing the processing burden onto back-end IT systems
2005 Supply Chain Best Practices Executive Seminar
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2005 Supply Chain Best Practices Executive Seminar
Retail
The big push for RFID is lead by Wal-Mart. Wal-Mart’s objective is to reduce out-of-stocks (and thus reduce lost sales) by better control of back-room and point-of-sale inventory.
“The last information-mile of the supply chain.” Companies have excellent control of inventory in their warehouses, and most have excellent control of major-route shipping / transit information. Information visibility and accuracy degrades sharply at the local store and local delivery level. RFID technology is meant to improve this visibility and control.
Current standard is EPC Global Gen 2 Class 1 for UHF tags
2005 Supply Chain Best Practices Executive Seminar
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2005 Supply Chain Best Practices Executive Seminar
DOD
DoD’s objectives are similar to Wal-Mart’s. They want positive control of inventory and shipments to both the depot and the theater.
Supply-Chain
Companies already use barcodes and ASNs to pass information up and down the supply chain.
RFID offers much greater data density and product granularity (down to the serial number if necessary) to help tie together manufacturers, distributors, and retailers.
Immediacy of point-of-sale data can be tied to demand planning to allow better adjustment of supply and demand
2005 Supply Chain Best Practices Executive Seminar
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2005 Supply Chain Best Practices Executive Seminar
Pharmaceutical
E-pedigree (secure chain-of-custody information for drugs) established by FDA Prescription Drug Marketing Act (PDMA) of 1987 and explained / expanded in February, 2004 FDA publication
Initiatives to date have tried to build on retail RFID efforts, particularly EPC standards.
Technology issues are still not settled. EPC Gen 2 Class 1 UHF tags have performed poorly with some pharmaceutical pilot programs, opening the door to new pilot programs using proprietary HF tags.
The pharmaceutical companies are not even at the “VHS versus Betamax” stage yet
2005 Supply Chain Best Practices Executive Seminar
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Value-Based Benchmarkingsm
2005 Supply Chain Best Practices Executive Seminar
OperationsMeeting compliance mandates at a best cost basisAchieving internal benefits from mandated requirementsImproving internal DC operationsImproving store / point-of-use operationsSupporting reusable container tracking
Supply Chain Visibility and CollaborationIncreasing inventory visibility and reducing stockoutsEnabling suppliers to meet compliance mandatesAuthenticate product movement - anti-counterfeiting, diversion prevention…Supporting warranty and service informationSecuring transport and shipment integrity
Technology & IntegrationDeveloping strategy and approachSelecting hardware and middleware providersTesting - pilot and projectsIntegrating material handling equipmentImplementing network infrastructure
2005 Supply Chain Best Practices Executive Seminar
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2005 Supply Chain Best Practices Executive Seminar
Retail: End-users such as Wal-Mart are projecting a 10% - 30% reduction in out-of-stocks due to implementing RFID technology. Positive ROI!
Supply Chain: EPC Global Gen 2 tags cost 11 – 27 cents each depending upon volume. This cost, plus the considerable cost of information systems and hardware, is not passed to Wal-Mart or others --- it is a pure compliance cost of a mandate. ROI is typically not possible. Exception: for a company with poor existing supply-chain control, the requirement to implement RFID may create positive ROI by implementing improvements that the company should have already performed using barcodes.
2005 Supply Chain Best Practices Executive Seminar
A S S O C I A T E S
Value-Based Benchmarkingsm
2005 Supply Chain Best Practices Executive Seminar
DoD: Most RFID applications use active tags attached to shipping containers. The DoD calculates success in terms of mission readiness, not ROI. The DoD’s use of RFID for container tracking is so successful that they recently issued a $75M contract to Savi for active tags, prompting Lockheed Martin to purchase Savi in July 2006.
Pharmaceutical: RFID costs track similarly to Supply-Chain costs. ROI is currently negative; however, the possibility of reducing eliminating pirated / counterfeit product promises significant ROI in the near future.
2005 Supply Chain Best Practices Executive Seminar
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2005 Supply Chain Best Practices Executive Seminar
Supply Chain RFID Technology – Findings
• Adoption of RFID technology is still driven primarily by compliance mandates.
• ROI is elusive. Where positive ROI is found, the root cause of the positive ROI is an improved business process. RFID was the motivation behind the project, but not the key enabling technology – the improved process would have shown as much or more ROI if barcodes had been used.
• Integration is often an issue -- between applications and between supply chain segments (e.g. international supply chain and distribution centers to stores). Adoption of RFID-enabled WMS is still slow.
• RFID “feels” like the right thing to do, but most implementations are still in the future. Bar coding is the entrenched solution.
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Questions?
A S S O C I A T E S
Value Based Benchmarkingsm
2005 Supply Chain Best Practices Executive Seminar
A S S O C I A T E S
Value Based Benchmarkingsm
2005 Supply Chain Best Practices Executive Seminar