Profiting from Process
Like bar code shipment labeling and electronic data interchange (EDI) communications before it, compliance electronic product code/radio frequency identification (EPC/RFID) tagging initiatives will bring lasting changes to business. Opportunity and risk accompany any change, and each must be considered when planning a successful implementation strategy. The goals and processes your company creates for managing EPC/RFID adoption will determine if you drive change or are driven by it.
The opportunities EPC/RFID adoption creates are to reduce storage, handling and distribution expenses, increase sales through reduced stockouts and reduced shrink, and to improve cash flow through increased inventory turns and improved asset utilization. Unfortunately, too many companies focus on the cost of adoption without giving enough consideration to its value. Manufacturers who create processes to take advantage of EPC/RFID tagging programs to satisfy customer requests can cut working capital requirements between 2 and 8 percent, according to a study of EPC technology by Accenture, which found the savings are produced because inventories of raw material, work in process, and finished goods can all be reduced.1
Early Adopters Take the Lead
An AMR Research study found early EPC/RFID adopters in the retail and consumer packaged goods industries have lowered their supply chain costs between 3 and 5 percent.2 These and other findings clearly show that by narrowly focusing on the capital outlay required for compliance, companies risk missing opportunities to leverage the investment to improve their own profitability. Instead of asking, What is it going to cost us to comply? consider asking and investigating Can we afford not to fully exploit this technology?
Companies profiting from EPC/RFID are doing so because they created new processes that take advantage of RFIDs special capabilities. The best applications complement, enhance, and leverage legacy systems. Whatever the eventual price points, RFID tags and equipment will cost roughly the same for all companies. The processes used for evaluating, implementing, and exploiting RFID will separate the companies that profit from their investment from those who merely comply.
Lessons From History
Consider an example. Ford Motor Company was one of 88 automobile manufacturers in the U.S. when Henry Ford began building cars 100 years ago. His focus on creating new production processes and capitalizing on them drove Ford to dominate the industry. The dominance waned as competitors began to imitate his processes, but not before the company had profited greatly and established itself as an enduring leader. Today, new EPC-driven business processes present very similar opportunities for companies to innovate through process, lower cost structure, and gain sustainable competitive advantage.
The proven techniques, guidelines, and experience we will discuss show how to plan a tightly focused EPC pilot and implementation without incurring unnecessary costs or disruption to your business. Experience matters in EPC/RFID implementations, and a step by step strategy will drive change and add value to your business.
Project Definition
The first step is to conduct a needs analysis that plainly specifies what the organization needs from its RFID system. If you are implementing EPC tagging in response to requirements from Wal-Mart, the Department of Defense (DOD), or other customers, the program guidelines you receive from your customers will form the minimum requirements of the project definition. The program guidelines will specify what items need to be tagged, acceptable EPC/RFID technologies, and required performance functionality.
Leading With EPC
Wal-Mart is currently allowing suppliers to conduct pilot projects with RFID technology that complies with any of the electronic product code specifications maintained by EPCglobal. There are several classes of technology defined in the EPC system. Companies can conduct pilot projects using EPC Class 0 and Class 1 tags, but Wal- Mart is expected to require Class 1 Version 2 (C1V2, also called Class 1 Generation 2) tags when systems go live on Jan. 1, 2005. When this white paper was drafted in February 2004 the C1V2 standards had not been ratified, but the EPCglobal software action group and hardware action group had been formed to iron out the details. The DOD is requiring the use of EPC technology, but currently allows for some flexibility.
The compliance specification you receive from your customer should make requirements clear. Unfortunately, it will not make planning the tagging process simple. It is a good idea to engage a firm with EPC and tagging expertise to help assess how compliance requirements will impact your company and help prepare you for compliance. A solutions provider with specific prior experience with tagging, product identification, and EPC issues can help you develop and guide a plan that will enable your company to efficiently meet requirements and identify areas where EPC/RFID can have the biggest impact on internal operations to produce the strongest return on investment.
The Profit Payoff
The case for EPC is compelling because manufacturers can leverage investments in compliance tagging to simultaneously reduce operating costs and improve revenue.3 Wal- Marts primary goal for its EPC/RFID initiative is to improve sales by improving stock availability. Wal-Mart has concluded that by gaining better inventory visibility through EPC/RFID it will reduce stockouts and sell more products. Of course, manufacturers also benefit when more product is sold. Studies have attempted to measure this impact and have estimated that manufacturers can expect a sales gain of 0.07 percent based on improved product availability attributed to EPC/RFID. A similar study by Accenture predicted sales gains between 1 and 2 percent.4 These incremental sales are much more profitable than revenues gained from efforts to improve sales through new promotions, channels, or product introductions. The higher the incidence of stockouts, the more value EPC/RFID tagging can provide.
EPC/RFID systems can reduce costs by reducing labor, data latency, and errors associated with product handling. Accenture investigated the impact EPC/RFID tagging could have on manufacturers operations and concluded that improved visibility could enable safety stock inventory to be reduced 10 to 30 percent throughout the supply chain.5 As a result, manufacturers could enjoy a 1 to 5 percent reduction in fixed assets through better utilization of space and equipment, and reduce working capital needs by 2 to 8 percent.
EPC/RFID systems deliver these benefits by reducing labor for receiving, put away, warehousing and distribution operations; providing accurate, real-time inventory data; facilitating improved management of pallets and other returnable shipping containers; preventing shrink and diversion; supporting improved product traceability and authentication; and many other ways that are unique to each business. These are the reasons it is important to work with a solutions provider who is aware of all that EPC/RFID technology can do, and can put that knowledge to work to design a program that goes beyond slapping tags on boxes to meet minimum compliance requirements. After working through the needs analysis and identifying improvement opportunities, the solutions provider should deliver a comprehensive pilot project proposal to guide further efforts.
Pilot Planning and Implementation
The pilot allows for finding the optimal way to meet requirements for applying and reading EPC/RFID tags. Manufacturers who participate in customer-requested EPC/RFID programs will often find that program specifications are clear, but do not go far enough to cover all the variables. Companies are left to their own devices to determine the best tag type, size, and placement location for their products, and may even have to choose among several EPC/RFID technical specifications. Solution providers with compliance testing facilities are invaluable resources for this process.
The pilot will begin to provide proof of concept for the internal applications and benefits that are envisioned, and will provide insight as to how information will need to be integrated with legacy systems and the infrastructure needed to support it. The following sections provide a suggested process for designing and managing a pilot project to yield this insight and guidance.
Planning, Design, and Simulation
Many of the important functions and performance levels the EPC/RFID system needs to provide can be planned and validated before the pilot project is implemented. At this stage, the most important variables to measure and plan for are interference and impact on legacy systems. These conditions can be replicated, measured, and tested in a lab environment, saving users the time and trouble of a lengthy trial and error process after the pilot equipment has been installed.
As a radio technology, EPC/RFID is susceptible to much interference. Variables that affect interference include the antenna size, power output from the reader, frequency utilized, composition of the tagged object, and other sources of RF emissions. Each frequency range is sensitive to different types of interference. For example, 13.56 MHz technology has much less read range than UHF options (858 to 959 MHz), but is less prone to interference from liquids. In general, the thinner the liquid, the greater potential it has to cause interference, so tagging cases of motor oil may require a different technique than tagging cases of windshield wiper fluid. The upper range of the UHF band is also susceptible to interference from older-generation wireless local area networks. Note that 802.11-standard wireless networks and Bluetooth technology each use the 2.45 GHz band and are less likely to pose interference threats to UHF or 13.56 MHz EPC/RFID technologies.
Interference can be mitigated by adjusting the position and angle of the RFID antennas, changing the location of the tag on the item, using a buffer between the tag and the object, and even by configuring the facility to position reading locations away from major interference sources.
The type of read/write device used to encode and access EPC/RFID tag information is another major variable in system performance. The range at which data can be written to and read from tags is actually a function of the entire system, not the individual tag and reader components. Range is dependent on how well the components work with each other, the physical environment, and the skill of the integrator designing and installing the system.
Readers may be stationary, hand-held, or integrated into mobile computers, forklifts or other devices. The reader (also called an interrogator) typically consists of an antenna to send and receive the RFID signals, a processor to decode them, and input and output ports to communicate the data to the host system. A common configuration is to use a pair of fixed-position antennas to form a gate to cover dock doors or other entry/exit points.
Testing for Success
Sophisticated, purpose-built EPC/RFID test facilities can closely imitate your actual environment, using a variety of techniques to emulate the many potential sources of electrostatic discharge and interference, including metal racks, shelves, equipment, conveyors and industrial control systems, plus actual packaging materials and shipping containers. Isolating and measuring these variables enables EPC/RFID systems to be optimized in the lab much more quickly than they could be in the field.
Testing and lab work can save a tremendous amount of time and effort required to find the best combination of reading devices and tag designs for your products and usage environment. The test center should also verify that the tag encoding and application methods that are selected would maintain data integrity and meet necessary throughput requirements. Conducting these types of tests, using the results to make adjustments, and repeating as necessary will significantly reduce the time and expense of implementing an on-site EPC/RFID system.
Gaining the Information Advantage
Tag and reader testing ensures you will be able to provide and access the data necessary for your specific business applications. Data integration planning is done to make sure data can be converted into useful information by interfacing with information systems. Work in the test center can also simulate the flow of data through your information system so you and your solutions provider can design the appropriate system architecture.
Data from the EPC/RFID system may be used to update material status records in an ERP system, report item locations to a warehouse management system, trigger automatic generation of a shipping manifest, or hundreds of other tasks. Most applications and new business processes require EPC/RFID data to integrate with enterprise information systems. To ensure accurate, real-time data is available wherever and whenever it is needed, integration planning is required to map the flow of information. Legacy applications, data collection systems, wireless networks, and other infrastructure components all play a role, as do EPC/RFID readers, networks, and middleware.
EPC/RFID can be used to collect data in environments where there previously was no visibility, and can produce unprecedented volumes of real-time data. Most current software applications were not designed to take advantage of these capabilities. Merely using EPC/RFID as a straight replacement for bar code or another form of data collection will provide limited value, because EPC/RFID will not be powering any efficient process changes. Middleware can leverage and enhance legacy applications by making it convenient to integrate EPC/RFID data and to develop new functionality. The quality of the middleware, the communications capabilities of the EPC/RFID readers, ease of networking, and ability to interface with control systems and software applications are extremely important considerations for system success and return on investment.
The planning, design, and simulation phase will help determine how much your current data collection, networking, and software applications can be used to facilitate new EPC/RFID applications and will reveal needs for middleware, integration, and system architecture.
Conducting the Pilot
The next step is to test these principles in a pilot project. Item tagging tests should be conducted separately from pilot tests, which encompass more aspects of the system. Tag tests determine the best way to get tags to work; pilot tests provide insight as to how all the system components work together. Initial pilot tests should be small, perhaps limited to a single facility, and expanded in phases as you gain experience and confidence in the system. Limited pilots make it easier to isolate the source of problems and to develop appropriate remedies.
As weve seen, many aspects of a system can be tested and refined in a test center prior to the actual pilot launch. The more work that is done in pretesting, the smoother and more productive the pilot will be and the less impact there will be on production.
In a site survey, engineers from the solution providers services organization assess the environment, and plan the placement of EPC/RFID reading and encoding equipment. Once the engineering plans and business goals have been defined, the pilot plan is finalized and soon after, equipment will be installed and the pilot project will be up and running.
The second important role of the pilot is to prepare workers to use the system. Dont make the pilot the exclusive domain of business planners and the solutions provider; encourage personnel to work with the system and begin operator training. A very practical tactic is to observe how workers use the system, especially their interaction with equipment and software screens. Concurrently, review the impact the pilot is having on information technology systems and office personnel who work with the data. These observations provide valuable guidance for making adjustments to procedures, equipment placement, and user interfaces. New applications or variables should be carefully introduced in phases so the pilot stays manageable and yields useful information.
Once the pilot has run successfully under a variety of conditions it will be time to transition from pilot phase to full implementation. The project will need to be scaled to support enterprise operations and additional sites may need to be prepared for implementation. Phased implementations are highly recommended to ensure you can commit all the attention and resources necessary to support each rollout. Implementation should be coordinated with the solution provider to ensure support is available, especially as the implementation is expanded to new facilities or applications. When the implementation begins, the solution provider should continue to provide testing and may back its work by issuing a certificate of compliance to acknowledge that you have successfully met the requirements set forth in the customers EPC/RFID tagging program. As in the planning phase, the skill and experience of your solutions provider will be a major factor in the time required and effectiveness of the rollout.
Conclusion
EPC/RFID technology provides many opportunities to improve supply chain relationships and operations, increase sales, and cut costs. Companies can maximize these benefits by taking advantage of proven processes and partners to help identify and prioritize opportunities, plan applications, and manage the project. Skillfully applied EPC/RFID technology can create tremendous value for business.
Endnotes
1 Accenture, Auto-ID Center Auto-ID on the Line, 2003.
2 AMR Research, EPC/RFID and Its Imminent Effect on the Supply Chain, 2002.
3 A. T. Kearney, Meeting the Retail RFID Mandate, 2003.
4 Accenture, Auto-ID on Demand: The Value of Auto-ID Technology in Consumer Packaged Goods Demand Planning, 2003.
5 ibid.
