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.

Sunday, April 24, 2005

How to get value from RFID

Your company may have already complied with the Walmart, Target and other mandates. Now the question is - how does YOUR company get an ROI from RFID?

There is obviously value in doing business with those retailers and in being a "good" partner. However, you still have to make your boss, your CFO and shareholders a return on investment, you can not add costs to the business.

First, consider that like other technology RFID is just a tool. Tools are neither good nor bad by themselves (or expensive or cheap), they only get that way based on how they are used.

For example, many companies are just doing "slap and ship" to comply with a mandate or two. No data collection, no analysis, no thought process on how to improve just PURE COST. In this case RFID would be very expensive, particularly for low margin items.

However, for a company that is committed to delivering continuous improvement quarter after quarter there are ways to get value from RFID. Ignore the hype and start by thinking creatively about YOUR business. Look for areas where you are having trouble (late deliveries, missed shipments, poor supply, too much inventory, etc.) I'm sure there are "unresolved opportunities" in your supply chain --- especially around the boundaries between organizations.
If you can't find any -- ask your boss. She will be glad to tell you exactly where to look.

Boundaries are the best place to look since handoffs occur between two parties, either you and your customer or internal to your organization. Once a handoff occurs and if your cases/pallets are "fungible" (no unique id's) then it is very difficult to determine the source of the problems.

For example, one company had experienced significant growth in the past year and had trouble delivering the "perfect order" to their customer (A large demanding UK retailer). The necessary infrastructure growth (an additional plant), supply chain changes (new 3PLs) and unique challenges (meet a ferry) made it difficult to determine the root cause of the problem. Worse yet, because each plant was fairly well run as was the 3PL, the source of the problem would vary between various constraints; plant 1; plant 2; logistics provider; ferry etc.

By using RFID to track the orders (pallet and truck level) to that one retailer -- they are able to
1. Determine the root cause of the issue for latter improvement
2. Resolve the issue BEFORE the customer ever gets the order.

This client does not have a mandate yet, but they will probably be notified regarding a mandate soon so they get the additional benefit of being one of the leading suppliers for their customer. If a low margin food company can be successful using RFID - what problems can you solve?