Monday, April 25, 2005

Value II -- Use less RFID tags!

OK - so you've "checked" your customers compliance box but you think you can't expand because tags are so expensive - now what?

First realize that you've gained some knowledge (regarding RFID) and now have another tool to address your standard supply chain issues. Combining your new expertise with mathematical techniques like statistical sampling will allow you to quickly identify key problem areas in your supply chain.

For example - is your CFO wondering why there is so much working capital invested in inventory in your business? If you can quantify your desired (or required) customer service level and then using RFID start to measure where your products go and how long they stay there, you can start to identify areas for improvement.

For example - one customer of mine discovered that while the "touch" time to create and ship a pallet was a mere four hours; the average time was ten days and the longest time was over sixty days! We collected thousands of data points and plotted a histogram with the x axis being "days" and the y-axis being number of cases. (For those of you familiar with a bell curve - imagine a bell curve with a large lump far to the right). Given that a pallet of goods represented a large amount of money, having an extra 30 or 40 pallets hanging around and NOT knowing it is not a good thing. In this instance the customer was tagging every case and every pallet to meet a mandate. HOWEVER, the same thing could be learned for non mandate SKUS for much less investment.

By tagging a fraction of the cases/pallets , the company could have characterized that same "bell curve with a lump". Instead of tagging thousands of cases, they could have tagged hundreds with only 1/10th the cost. By identifying (and removing) that "lump" the company can now save a few hundred thousand dollars in working capital AND had more room in the warehouse . In addition - now the company can monitor the SKU in real-time and drive that average time frame closer to the "4 hour touch time" from the 10 day average time, saving many more dollars of working capital in the process. Your CFO may even buy you lunch.

I've obviously skipped over the details - but by combining some relatively simple things

1. RFID tags, readers + middleware
2. statistical sampling
3. A bit of process work

you can build yourselve a continuous improvement engine that will more than pay for your RFID tags and might even get you a bonus.

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