RFID: Payback for Manufacturers

Enterprise Resource Planning / Financial
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The RFID mandates issued by Wal-Mart, the DoD, and others place a significant burden on suppliers, but of course this kind of thing has happened before. EDI, for instance, required major expenditures on software, systems development, and ongoing VAN fees. RFID deployment has its own systems costs--for integration to the ERP; for an ongoing supply of tags; for the network infrastructure, portals, and readers; and for "savant" software that can sort and select specific data from the myriad signals emanating simultaneously from thousands (or tens of thousands) of tags. And for many manufacturers (particularly makers of "low-impact" products like groceries and household commodities), tag cost alone is a significant barrier to RFID mandate compliance.

Industry observers and analysts were quick to note that, in order to justify the cost of RFID compliance, manufacturers would need to find other ways to make RFID technology pay off for them. Thus, an unplanned benefit of the movement toward RFID is that manufacturers have renewed their focus on business process improvements in the factory. Smart manufacturers are already thinking well beyond RFID "slap and ship."

Companies that are considering RFID will have to choose one of two paths. On the first path, there is no clear return on investment (ROI) other than the follow-on benefits of being in compliance with customer mandates. The second path leads to where the real benefits can be found: RFID can be used to make business processes more efficient.

Not all companies can benefit equally from internal use of RFID technology, but many (or even most) can benefit from process improvements that are driven by data capture. This is especially true if the flow of real-time data is fully integrated to the ERP such that ERP processes become automated. The amount of benefit you can get from RFID is relative to the performance level of the company. In looking for potential RFID benefits, find the processes in which barcodes are currently being used.

Companies that take the second path will find opportunities to eliminate tasks, save time, and add a new dimension of value through strategic application of more accurate and timely transaction data. Although this approach is likely to require a bigger initial investment, operating cost reductions can easily justify it. In "closed-loop" applications in the factory, even the gap between RFID tags and barcode labels begins to narrow. Each time the tag is read or written to, the cost of the tag will continue to go down. In contrast, label cost accumulates over time.

The world of data capture has become more complex in recent years. Gone are the days when one technology or symbology was all that a manufacturer needed to meet its data capture needs. RFID creates compelling opportunities to change how the data is captured and used, but you can be sure that barcodes and RFID will co-exist for a long time. These are the key questions to ask: Where is the barcode method failing, and what can RFID do that barcodes cannot do?

Here's one example of the answer to those questions: RFID can report finished production and reconcile the product quantities with the finished goods warehouse. Picture the end of a production line, where product is being put onto pallets. The pallet contains a barcode that is associated with the items put on the pallet. Such a barcode is referred to as a "license plate." Full pallets are picked up by a forklift operator. Each time a pallet is picked up, the forklift operator is supposed to scan the pallet barcode to record the production yield and back-flush the components used. The same transaction also automatically receives the finished product into a generic holding area in the finished goods warehouse. We'd like to think that this happens correctly every time a pallet is moved, but it doesn't. The forklift operator's concern is to move the material quickly, so the barcode scan is not always done. And even if it is done, the barcode label may be missed so the read may not be completed.

Then, a material handler from the warehouse moves the finished product away from the generic holding area. He scans the barcode and moves the material to a finished goods location and completes his transaction. Now the warehouse has finished product on the records, but because the first scan never happened, the production was never reported as being completed. Every day, the finished goods warehouse reports how much finished product is put away and the report is compared with what was produced, at which time errors are found. It is commonplace in many factories for skilled personnel to spend significant time hunting down just where the transaction error occurred so that the error can be reconciled.

Fixing the Problem with RFID

The problem could be fixed if the pallets had RFID smart tags. A smart tag has both a bar code and an RFID chip. An RFID portal could be put in place at the passage point between the production area and the finished goods warehouse. As finished goods fill the pallet, the production number is encoded into the smart tag. This way, when the forklift operator takes the finished goods from the production lines to the generic holding location in the warehouse, passing through the portal, the transaction is completed every time, without doing a barcode scan. (Read-rate accuracy on slow-moving tags is not a problem.)

Similarly, RFID could be deployed anywhere in the factory that a reusable tote or container is utilized as product travels from one work center to another. Portals can be positioned in the automatic conveyer lines to automatically record the production transaction.

Take the Right Path

Many companies seem to view RFID utilization as one big, expensive deployment of challenging new technology. This leads them to try to identify everything that can be (or needs to be) done, which has the effect of stalling the whole effort. The best way to start is to focus on the small benefits that will add up to a big benefit. This can be called your "benefits stack."

In factory applications, RFID utilization can be far less difficult than RFID deployment in high-volume distribution. So rethink the top-down approach to the business case for RFID. Consider a bottom-up approach in which you start by fixing one problem at a time. It is surely more efficient to start with small, inexpensive tactical deployments, and the first solution doubles as your proof of concept. Then, following your "benefits stack" priorities, the small solutions combine to solve the bigger systemic business problem.

Part 2 of this article will look at more ways that RFID can be used to create value in the manufacturing process and more ways that potential benefits can be gained.

Anthony Etzel is VP of Data Capture Solutions at RTTX: RealTime Technologies, Inc. He has been designing and deploying automatic data capture solutions in manufacturing for over 20 years.